The Sugar Levy means an extra £1 billion in
government debt interest payments

I’ll admit it. I am a sceptic. I thought that George Osborne had two key reasons for introducing a Sugar Levy in last week’s budget:

  1. As a nice little revenue raiser
  2. As a handy distraction from missed deficit reduction targets and pie-in-the-sky deficit forecasts.

But I am willing to hold up my hands and admit I was wrong.

We know a Sugar Levy will do nothing to reduce consumption of sugar. In summary, people like sugary drinks and will continue buying them, companies like selling people what they want and so will continue making them – alongside myriad low and no sugar options – and all the evidence from other countries with this kind of tax has found it doesn’t work to reduce consumption.

But the OBR has explained in its Economic and Fiscal Outlook that the Sugar Levy won’t be a nice revenue raiser for the government – because it has its own costs attached, too. Under the OBR’s forecast for borrowing and the indirect effect of policy changes, it says this:

“In 2018-19, the effect on RPI inflation of introducing the new soft drinks industry levy has added around £1 billion to accrued interest payments on index-linked gilts.”

This was further clarified by the OBR in an email to People Against Sugar Tax, explaining that:

“the soft drinks industry levy feeds through to a price increase in 2018-19 in our forecast. This in turn increases the growth rate of the retail prices index (RPI) and this in turn is used as the measure by which index linked government debt. So the increase in the RPI adds to the cost of debt interest.”

Isn’t that a masterstroke: a policy which not only doesn’t work against its stated aims, but costs a fortune in debt interest.

The Levy is forecast to raise £520m. The cost to government through higher debt interest payments is forecast to be £1bn. But as we all know it’s not government money – it’s our money. This Levy means that the taxpayer will be on the hook for an extra £1.5bn in the first year. And taxpayers with RPI linked debt will presumably also suffer – Student Loan anyone?

If we agree that primary schools could do with having some more investment in sports, then I reckon there are loads of better ways to achieve that than this ridiculous nanny statist, regressive, economically illiterate tax.

Time to drop it, George.

Emily is the Chairman of Conservatives for Liberty. Follow her on Twitter: @ThinkEmily