Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss new clause 9—Statements on soft drinks industry levy—

“(1) The Chancellor of the Exchequer must, within six months of this Act being passed, make a statement to Parliament about the increase to the soft drinks industry levy introduced in section 78 of this Act.

(2) The statement under subsection (1) must include details of the impact on—

(a) encouraging reformulation of packaged soft drinks, and

(b) the UK soft drinks industry.”

This new clause requires the Chancellor to make a statement about the impact of increasing the soft drinks industry levy.

Clause 78 legislates for the new rates of the soft drinks industry levy, to apply from 1 April 2025. The levy came into effect in April 2018—it was introduced by the previous Government, with cross-party support—and is considered a successful mechanism for changing behaviour and encouraging reformulation of packaged soft drinks, resulting in reduced sugar content. That is seen through the levy’s significant success in reducing the sugar content in UK soft drinks by 46%.

The levy applies to packaged soft drinks containing added sugar. It has a lower rate, which applies to drinks with a total sugar content of 5 grams to 7.9 grams per 100 ml, and a higher rate for drinks with 8 grams or more per 100 ml. Producers, manufacturers and importers of liable soft drinks must register, report, and pay the levy on the volume of liable soft drinks packaged in and imported into the UK.

The levy rates have not been increased since their introduction many years ago, in 2018, and so have gradually reduced in value against inflation. In 2018, SDIL made up approximately 11% of the price of a 330 ml can of full-sugar Coca-Cola; in January 2025, it makes up only 6%. Uprating the levy in line with inflation will ensure that it remains effective and continues to encourage reformulation, by protecting its value in real terms.

Clause 78 amends section 36(1) of the Finance Act 2017 to reflect the new rates of the levy to apply from 1 April 2025. Those are £1.94 and £2.59, per 10 litres of prepared drink, for the lower and higher bands respectively. The new rates reflect forecasted changes in the consumer prices index in the year to 1 April 2025, as well as an additional increment to help to catch up for previous inflation. The catch-up reflects the 27% CPI change between 2018 and 2024 and will be spread evenly over the five rate increases from 2025 to 2029. That is to support soft drink manufacturers to adjust to the higher rates. The rates have also been adjusted to apply per 10 litres rather than per litre, so that rate changes can be made in smaller increments to reflect changes in CPI inflation more precisely. To illustrate using the current lower rate, 18p per litre becomes £1.80 per 10 litres—I think people could have probably worked that one out.

We do not accept new clause 9, which would require the Chancellor to make an additional statement about the impacts of the measure. The Government do not consider that necessary, as a tax information and impact note detailing the anticipated effects of the measure was published at autumn Budget. I would also highlight that the Government are taking a gradual approach to restoring the original real-terms value of the soft drinks industry levy. From 1 April, the levy will still be worth significantly less, compared with general prices, than it was in 2018.

Clause 78 will protect the real-terms value of the levy and build on its significant success, by increasing both the lower and higher rates in line with inflation.

As we heard from the Minister, clause 78 amends the Finance Act 2017 to uprate the soft drinks industry levy, to reflect the change in the CPI from April 2018 to April 2024. The uprating represents an increase of 27%. We support the soft drinks industry levy, but we have strong concerns about the backdating of the tax rate.

As we all know, the consumption of too many high-sugar drinks can lead to weight gain and the risk of medical conditions. It also leads to tooth decay, which is a particular concern for younger people. As the Minister pointed out, this levy was introduced by a Conservative Government with cross-party support to tackle those issues, and it has been a successful, highly effective policy, delivering against the stated objective of encouraging reformulation. The British Soft Drinks Association has said that the levy

“has achieved its intended goal of promoting significant sugar reduction and 89% of soft drinks are now non-SDIL liable. Reformulation has clearly not lost pace with the volume of soft drinks with less than 5g sugar per 100ml increasing by 17.5%> between April 2023 and March 2024.”

Our main concern is about the unprecedented backdating of this tax increase. New clause 9 would require a review of its impact. The decision to backdate inflation over an extended period, creating a 27% retrospective increase, appears to have no parallel in recent tax policy. The backdating is a fundamental departure from the predictability that should be at the heart of tax policy.

Given that the levy has been so effective, why do the Government see a need for such a large increase? As the British Soft Drinks Association points out, it appears that their rationale is primarily focused on revenue raising, rather than public health outcomes. The introduction of such retrospective elements requires close examination of both precedent and consequences, as demonstrated by examples of duty freezes and restarts in recent years.

Comparative excise goods such as alcohol, fuel and tobacco are reviewed annually. Where rates have been frozen across several years, they have not subsequently been subject to those missing years’ inflation rates being applied in this way. Figures from the House of Commons Library calculate what impact a similar backdated increase would have on fuel duty. Following the approach used for the soft drinks levy, if inflation since 2011 was added to fuel duty, using the RPI measure, the duty on a litre of petrol or diesel would increase from 57.95p per litre to 95.18p per litre—a rise of 64%. I am not sure about the Minister’s constituents, but I am pretty sure that mine would be very alarmed at the potential for such a backdated increase to be applied.

Are the Government establishing such backdated increases as a new norm within their tax policies? Companies making long-term investment choices need certainty—the Exchequer Secretary has used that word many times in Committee—to be able to plan and invest in the country. Can the Minister give us an assurance that the Government will not pull off similar tax raids in other sectors, particularly with regard to fuel duty?

We have also heard concerns about the impact assessment, which had limited engagement. The measure is expected to generate £95 million in revenue by 2029-30, yet the assessment does not model how established price elasticity in soft drinks will affect those projections. The assessment acknowledges that both reformulation and reduction in demand will occur, but provides no quantification of the effects. I would be interested to hear the Minister’s comments on that point.

The assessment also does not examine how changes to tax policy without consultation could affect future investment decisions, nor does it explore the market distortions of applying different principles to soft drinks as opposed to other categories of drinks. Will the Minister confirm that these issues have been considered? If they have not, will they be?

We tabled new clause 9 because, given the unprecedented nature of the backdated increase and the lack of engagement, the Chancellor should make a statement to Parliament within six months of the Act being passed about the levy increase and its impact, including on reformulation and the sector as a whole. As I said, overall the increase is 27%. We have strong concerns about backdating as a policy and therefore we welcome the Chancellor commissioning a review.

This increase comes at a time when the hospitality and drink sector is facing particular financial pressures, including new packaging regulations, the deposit return scheme and the infamous jobs tax. Does the Minister really think that applying such a large retrospective increase is the right thing to do at this time?

I thank the shadow Minister for reiterating that there was indeed cross-party support in 2018 when the previous Government introduced the soft drinks industry levy. I say gently to him that if the previous Government had kept the levy in line with CPI, we would not be in this situation.

The shadow Minister asked what considerations have been made about the impact of the measure. As I said in my opening speech about the clause, the catch-up reflects the 27% CPI change between 2018 and 2024. Because we have considered the impact on soft drinks manufacturers, it will be spread evenly over the five rate increases from 2025 to 2029. The shadow Minister should consider the fact that we are gradually spreading the increase.

It is worth considering the views of those who have supported the Government’s change. For example, Barbara Crowther, the children’s food campaign manager at Sustain, has said:

“It’s absolutely right that after six years, the government should now increase the penalties for all the companies who have not done enough to reduce the sugar levels in drinks, and we urge them to ensure all money raised by the levy is reinvested in children’s health.”

The levy has been globally recognised as a transformative health tax intervention. Modelling studies have associated it with up to 5,000 fewer cases of obesity in girls aged 10 to 11 and a 28.6% reduction in hospital admissions for tooth extractions for children under the age of five. Our Government take children’s health very seriously, particularly given the worrying levels of obesity in our society and the issues with children’s dental health. That is why we are bringing forward the change.

Will the Minister address directly the point about backdating and say whether it represents a change in approach to taxation policy by this Government? They have introduced a 27% increase from the date when the levy was frozen. As I said, if that approach had applied to fuel duty, it would result in a 64% increase. People will be concerned; will the Minister give reassurance about the Government’s approach to taxation?

It is a bit of an exaggeration to read into this change, which we have introduced because the previous Government failed to keep the levy in line with inflation, and somehow infer from that—

What about fuel duty?

I am coming to that. It is an exaggeration to infer from that that it becomes a new norm. It does not. I am certainly not going to write next year’s Budget or the year after’s Budget—that would be way above my pay grade in any case—but we are introducing this clause precisely because the former Government failed to keep the levy in line with inflation.

Question put and agreed to.

Clause 78 accordingly ordered to stand part of the Bill.