UK Soft Drinks Industry Levy threshold will fall to 4.5g of added sugar per 100ml
HMRC confirmed that from 1 January 2028 the Soft Drinks Industry Levy threshold will fall from 5g to 4.5g of added sugar per 100ml, while exemptions for milk-based and milk-substitute drinks will be removed. It is a strong market-failure case because the government expects firms to respond by reformulating products, so the intervention changes incentives before many consumers ever pay a higher price.
Chain
Sugar-related health costs and imperfect consumer decisions → levy makes high-sugar formulations more costly → firms reformulate and/or pass on some tax → sugar content or consumption may fall → external costs and welfare loss may fall
Evaluation
The policy may work mainly by changing producer behaviour rather than by raising retail prices: HMRC expects only an additional 4% of soft-drink sales to pay the levy after expected reformulation. The final welfare effect depends on reformulation, demand elasticity, substitution, tax incidence and how accurately the levy reflects the social cost.
Diagram
Demerit-good / negative consumption externality diagram showing MPB above MSB, with the levy used to reduce overconsumption