Sugar tax could lead to more Government borrowing or higher taxes on families

December 05, 2016 6:00 AM

  • New research shows that George Osborne's sugar tax not certain to raise the money for sport that has been claimed
  • Gap in revenue will result in additional borrowing or higher taxes on hard-pressed families
  • 20 percent revenue shortfall is equivalent to 1% increase in inheritance tax
  • Sugar tax also likely to raise inflation, leading to increased Government borrowing costs

Click here to see full research

With the Government set today to publish its draft legislation on the sugar tax, the TaxPayers' Alliance (TPA) are again calling on the government to scrap it instead. When introducing the sugar tax at the Spring Budget, former Chancellor George Osborne claimed that the tax would be "tied directly" to funding sport and other activities in schools. The sugar tax and the public finances sets out why this is likely not to be the case and why the tax could see short falls in predicted revenues.

The paper shows that:

  • The sugar tax will not be tied directly to funding sport.
    Revenues from the tax will go into the government's bank account at the Bank of England and politicians can then spend the revenue however they like.
  • Earmarked taxes are undesirable as they lead to inefficient allocation of resources.
    The government is yet to set out what happens if the tax raises too much or too little money
  • It is not certain that the sugar tax will raise the money that has been stated.
    The Office for Budget Responsibility have assigned a "medium-high" level of uncertainty on revenue forecasts.
  • If there is a revenue shortfall, taxpayers will end up paying.
    If revenues are lower than forecast, additional borrowing or higher taxes will be required to fund the pledged spending.
  • OBR predicted that the sugar tax will raise CPI inflation by a quarter of a percentage point, which will increase the cost of interest payments on government borrowing.

Click here to see full research

Responding to the research, John O'Connell, Chief Executive of the TaxPayers' Alliance says:

"This new research just adds to the weight of evidence that shows the sugar tax is an ill-thought-out reaction to pressure from the those in the public health lobby. Lasting change will happen via a long-term cultural shift, not by burdening the poorest families with a higher cost of living. The government should instead be looking at ways of encouraging personal responsibility and scrap the sugar tax altogether."

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