Tax & admin · 9 March 2017

Hammond’s sugar tax announcement adds to anxiety for food and drink manufacturers

Food and drink manufacturers
Food and drink manufacturers have made voluntary efforts to decrease sugar levels in drinks

Small business owners in the food and drink sector are braced for further costs, after chancellor Philip Hammond confirmed increases to the soft drinks levy in the Spring Budget.

The so-called “sugar tax” will see drinks with over five grams of sugar per 100ml taxed by 18p per litre, while drinks with over eight grams per 100ml will be taxed 24p in the litre.

Hammond stated that the potential £1bn raised by the levy would be handed to the Department for Education (DfE) to invest in sports initiatives in schools.

The sugar tax rise arrives at time of low confidence for UK food and drink manufacturers, as new research finds that fears over Brexit and rising costs are starting to hit the sector.

A survey by the Food and Drink Federation (FDF) – the industry’s largest members organisation – revealed that almost half of all members were less confident over business prospects than the last poll in October 2016.

Over nine in ten food and drink businesses experienced increases to ingredient prices in the last four months. Just 5.6 per cent saw reported margin growth, while over two thirds had witnessed a negative impact on their profitability in the same period.

Responding to the sugar tax hike, Wright claimed the FDF continued to oppose the levy “because there is no evidence that it will reduce obesity”, and recommended that the levy be postponed while food and drink manufacturers make “voluntary” efforts to reduce sugar levels.

However, there was positivity regarding sales opportunities outside of the EU. Not a single respondent expected the volume of exports outside of Europe to decrease in 2017.

Commenting on the outlook of food and drink manufacturers, FDF director general Ian Wright emphasised the impact of volatile pricing in the retail sector.

“Our members are less confident in the prospects for business than they were four months ago. That is driven by ingredient price rises and from already tight margins being squeezed still further as competition continues to rage between the supermarkets,” he said in a statement.

Wright acknowledged the “mixed picture” of current conditions, with two thirds of food and drink manufacturers expecting domestic sales to grow in the coming months.

“The same number see sales outside the EU growing too,” he added.

“We also know around half of our members expect sales within the EU to grow, so they’re optimistic about their future while worrying about the trading environment.”

In 2016, the FDF reported record export figures for the sector, passing £20bn for the first time. The organisation has called on the government to leverage this success and fund a food and drink export academy to address a lack of export training in the UK.

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.