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(Source: HMRC)
Smoking rates have been declining for decades, young people are drinking less than previous generations and, although gambling addiction has been in the spotlight in recent years, the government has introduced tough new laws on mobile phone terminals. fixed / odd rate bets to try to limit the problem.
Some argue that the introduction of the sugar tax was a means of raising incomes at a time when other taxes on sin are slowly increasing. However, the sugar tax raised £ 240 million in the first year, half of the £ 530 million originally planned.
Beverage manufacturers reformulate to avoid the sugar tax
But if the tax on sugar generates less income than expected, it is because the manufacturers have gone to a lot of trouble to reformulate their drinks to avoid this tax. Businesses had about two years to prepare, and at the time of its creation, the number of beverages subject to tax was about half that expected. They have either reduced the sugar content of existing beverages, introduced low or no sugar alternatives, or tinkered with the size of their cans or bottles.
This has seen some companies completely avoid added sugar. AG Barr, known for its production of IRN-BRU, says that 99% of its drinks are exempt from the tax on sugar. Others, like Coca-Cola, subscribed to their revenues and pbaded on the costs to consumers, while introducing sugar-free alternatives to satisfy everyone. According to Beverage Daily, sales of Coke Zero in the UK have increased 50% over the past year, while Pepsi Max sales have increased by 17%, while sales of their traditional sugar-containing beverages have all increased two decreased. Britvic, which owns the Pepsi sales rights in Britain, said in its recent half-yearly results (until 14 April) that Pepsi Max "generates more retail value added than any other variant of cola".
Many people are not rightly convinced that the sugar tax has a real beneficial effect on the size of the country, but there is no doubt that it has encouraged companies to reformulate their drinks and that as a result, consumers consume less sugar.
Reformulating recipes and tinkering with new packaging is not cheap. In 2018, AG Barr spent about £ 1.4 million to change its revenues. Fevertree Drinks, the champion of making alcohol mixes, said it had pulled 4.4 million pounds of sugar tax last year. both unaffected.
What could a review of the sugar tax mean for stocks of food and drink?
Although Johnson has hinted that a review could result in a reversal of the sugar tax, the current Health Secretary, Matt Hanbad, is going in the opposite direction. Hanbad asked that the tax be extended to include sweetened milkshakes if the industry refused to voluntarily reduce the sugar contained in its drinks. He also highlighted several other initiatives that could be adopted, including:
- Prohibit the sale of energy drinks to people under 16
- Prohibition of advertising for junk food before the 21h watershed
- Remove junk food from large shelves, such as at the end of supermarket aisles.
- Stricter rules for promoting junk food, such as banning "buy one, get one for free" (BOGOF) offers.
- Introduce marketing restrictions for junk food to prevent the use of cartoon characters.
- Increase in VAT on foods rich in fat, salt or sugar.
- New rules to encourage smaller portions of junk food.
Beverage manufacturers in the UK and around the world see taxation as a major threat to their business. Coca-Cola is among those who cite the extra taxation of sweetened beverages as the main risk, and rightly so: if the sugar tax is applied to drinks or milk-based juices, other brands of its portfolio, such as Innocent, could be affected.
The implications of a potential exam by Johnson are different. If he is elected and that a review reveals that the sugar tax is not effective and therefore canceled, it is highly unlikely that those who spent millions of dollars to reformulate their drinks decide to start pumping them full of sugar. Drinks have already been reformulated and consumers are already opting for substitutes with low sugar or no added sugar. Some might argue that a reversal of the tax would mean that the amounts invested to reformulate were wasted. However, with the global trend toward sugar taxation evident, manufacturers were already on the right track. On the contrary, a tax on sugar encourages companies to invest and reformulate their activities more quickly. Those who have been satisfied with their high-sugar recipes, like Coca-Cola, would benefit if the tax were reversed.
The political situation is one that is painted with uncertainty for the industry. Johnson must win the leadership race for the Conservative party and will have a much bigger fish than the sugar tax when he takes office, with Brexit having to dominate the agenda until the end of the day. end of the month of October at least. He should also get the support of Parliament if he wants to change the tax on sugar. Although Hanbad's review has been planned for some time and supported by the current Conservative government, he could be removed if Johnson took over as prime minister and the review was likely to be canceled. Time can be confusing for the industry, but manufacturers are likely to continue to follow the broader consensus that products must become healthier.
Britain leaves with or without agreement October 31, says Boris Johnson
Will similar taxes be applied to unhealthy foods?
Hanbad made it clear that more regulations and taxes should be imposed on a wider range of food and drink products so that the UK can truly tackle the obesity crisis. If all the potential proposals of the health secretary were adopted, the food industry might be hit by a wave of new rules: their marketing operations could be limited, Tony the tiger and Coco the monkey could disappear smaller cereal boxes and smaller portions while becoming more expensive because of a higher tax.
It is important to understand that most food and beverage manufacturers already reduce the amount of sugar in their products in accordance with government guidelines prior to the introduction of the soft drink tax. The majority of food producers listed in London abide by Public Health England's (PHE's) sugar reduction targets, including Greggs, who said its sugar products would contain 20% less sugar by the end of 2020 compared to 2015. Others were trying to stay away from the government's guidelines, like Hotel Chocolat, which has been focusing on sugar cocoa in its products for over 15 years. Premier Foods, the firm behind Mr. Kipling and Cadbury Desserts, has focused on reducing about 30% of the amount of sugar, salt, fat or calories in its products.
Keeping this in mind, some might argue that a new tax on unhealthy foods would be severe. Hanbad said the sugar tax should be expanded if it is clear that the industry is not doing enough, but this is clearly not the case, as most companies seem to meet or exceed voluntary goals set by PHE.
It is clear that Johnson is skeptical about the taxation of unhealthy foods and that any review would at least slow down the introduction of new taxes and rules for the sector. It is unclear if this would lead to a longer period of freedom.
Sugar sweeteners
The sugar falls into disuse. Many food and beverage producers have publicly supported attempts to reduce sugar content and adopt a healthier lifestyle, but not all. Associated British Foods, the UK's biggest sugar supplier and owner of Primark, said in 2016 that efforts were being made to "demonize sugar" and said a broader approach needed to be adopted, involving exercise and diets in general – not just sugar.
But what is a loss for one company is a gain for another. Several companies producing sweeteners have adopted a process to reduce the sugar level, which proves to be a real stimulant for their activities. Tate & Lyle, which adopted sweeteners after selling its sugar business in 2010, saw continued growth in sales of its sugar replacement formula for beverages, confectionery and bakery products. PureCircle has transformed its business by focusing on "new generation stevia sweeteners" which, in his opinion, will result in higher margins.
Similarly, Treatt, a global supplier of ingredients for flavors and fragrances, aims to help food and beverage producers to reduce sugar content. Sales have improved because of the general trend towards lower caloric drinks, but this is especially true in countries like the United Kingdom, where a sugar tax has been put in place. In addition to tea, Treatt deploys most of the future investment in its sugar reduction business.
Concentrate on healthier products regardless of taxation
Although the UK authorities are divided on the direction the UK should take in the taxation of health detrimental items, both parties agree that the current system is not working. One party argues that it is regressive and ineffective, while the other believes that it needs to be expanded if it really wants to change things.
The debate now turns on whether the United Kingdom broadens this idea of taxation or cancels its decision and considers other measures. There is a debate about the effectiveness of the sugar tax, particularly because people see it from a different angle. Does it aim to reduce the consumption of sugar from non-alcoholic beverages or as a whole? Does it mean reformulating companies? Is the goal to generate revenue for the government to contribute to the funding of the fight against obesity or other health policies? Or a combination of the three?
There are arguments for and against the sugar tax. In the UK, each age group consumes at least double the amount of sugar that it should consume, and children consume almost triple it. Soft drinks are the largest source of sugar in our diet and obesity-related health problems, such as diabetes, have almost doubled since the 1990s. They are thought to consume a considerable amount from the NHS budget (up to 10% in Scotland). ). The tax reduced the amount of sugar consumed in beverages and encouraged manufacturers to reformulate them for the better, at a much faster pace. However, many people claim that people consume the same amount of sugar because they only eat other unhealthy products and that the tax on soft drinks does nothing to fight alone against # 39; obesity. Others, including Johnson, believe that it is a regressive regime that unfairly targets the poorest households, punishing people who have injured themselves greatly. Some consider it's one step closer to a nanny state that is trying to control how people live their lives.
How could this have an impact on food and beverage manufacturers?
Although the sugar tax has been divisive, soft drink companies will likely continue to reduce the amount of sugar in their products and develop healthier options anyway. They have already invested significant amounts to reformulate their drinks and adopt a global vision. If it was suspended or canceled, it could then slow the pace of investment and allow greater profitability in the meantime.
Food producers are the most uncertain. The UK's current policy seems to set stronger advertising rules and new / higher taxes on their products, which, depending on how they are introduced, could lead to significant disruptions. If Johnson becomes Prime Minister, they are likely to have a break, but, like beverage manufacturers, they will likely continue to develop healthier products even if the government does not encourage them. It will depend on how quickly the government wants this change to happen.
How could this have an impact on the stocks of alcohol and tobacco?
It is unlikely that the alcohol and tobacco industries will see their heavy taxes reversed, although fees may vary depending on the next Chancellor if Johnson becomes Prime Minister.
Cigarette manufacturers will also have to be wary of how governments will address the issue of vaping, which has been critical to boosting the growth of the tobacco industry. British American Tobacco (BAT), for example, said that revenues from its vapors, heated tobacco and fuel products would increase by 40% over the entire year (far more than its growth target at long term, an overall turnover of only 3%). -5%. Imperial Brands said revenues from its next-generation products, which include vape brands such as blu, had jumped 245 percent in the first half of the year, against overall growth of only 2.5 percent.
At least 20 countries have banned vapers, while others have restricted their use or sale. San Francisco recently became the first major American city to ban the sale of vows. However, a tax on vapers in the UK could be more difficult than in other countries because of the way they are clbadified. Although vaping products are marketed freely as cigarettes were decades ago in countries such as the United States, they are more widely considered a tool for smoking cessation in the UK. It will be difficult to promote vaping as a healthier alternative to tobacco and to tax the sin tax at the same time.
How could this have an impact on bookmakers and game values?
The gambling industry has been hard hit by the introduction of stricter limits for FOBTs, bringing the maximum bet from £ 100 to £ 2. These FOBTs – gaming machines found in all bookmakers – had become the industry's main revenue driver, but were accused of fueling an increase in gambling addiction, including among children. Hanbad has previously described machines as "social scourge".
This dealt a severe blow to the industry. Not only is it facing the same problems as the rest of the high street, such as higher costs and more online competition, but its most lucrative business has been virtually halted. William Hill has already announced its closure of 700 stores, putting at risk 4,500 jobs, while GVC, owner of Ladbrokes Coral, could close up to 1,000 stores. It is unlikely that bad luck will change in the near future.
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