UK Introduces 'Milkshake Tax' to Raise Revenue from Dairy Beverages

The UK is set to eliminate longstanding dairy exemptions from the Soft Drinks Industry Levy by April 2027, commonly referred to as the 'milkshake tax.' This initiative, led by Chancellor Rachel Reeves, seeks to bolster government revenue by an estimated £100 million annually as part of a strategy to tackle a £20 billion budget deficit.

Currently, milk-based beverages enjoy exemptions from the Soft Drinks Industry Levy, which charges producers 18 pence per liter for drinks containing five grams of sugar or more per 100 milliliters. The proposed policy change will place these dairy products under the same regulatory framework as carbonated drinks such as Coca-Cola and Pepsi.

The decision to impose this levy follows the Chancellor's reversal on proposed income tax increases, opting instead for targeted sector-specific measures. This policy is intended as a more focused approach compared to broad-based tax hikes, addressing budgetary shortfalls with a 'smorgasbord' of revenue-generating measures.

Critics, including Conservative Shadow Chancellor Mel Stride, argue that the levy unfairly penalizes businesses that have already invested in reducing sugar content voluntarily. He expressed concerns that the sudden policy shift undermines industry efforts to comply with existing nutritional guidelines without regulatory pressure.

This move marks a significant shift in the UK's beverage policy, which had historically protected dairy products from sugar-related levies due to their nutritional value. The change is seen as necessary for fiscal stability, given revised estimates from the Office for Budget Responsibility that reduced projected budget gaps.