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Britain’s Soda Tax Backfires, Could Lose The Govt $1.4 Billion

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Guy Bentley Research Associate, Reason Foundation
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The United Kingdom’s surprise announcement of a sugar tax could end up costing the country $1.4 billion before a single cent has been raised.

UK Chancellor George Osborne announced the tax on sugary drinks in his budget March 16, sparking a furious debate on how much the government should interfere with people’s shopping habits.

The tax will be introduced in two years time and is expected to raise $747 million per year. The money raised will be spent on children’s sports in schools. But the small print in the Office for Budget Responsibility’s (OBR) report could blow a hole in the chancellor’s plans.

The OBR concludes the tax will push up inflation beyond the government’s target of two percent, which will raise the cost of government borrowing, leaving the country $1.4 billion in the red.

“The Guardian may be referring to the fact that the soft drinks industry levy feeds through to a price increase in 2018-19 in our forecast. This, in turn, increases the growth rate of the retail prices index (RPI) and this in turn is used as the measure by which index-linked government debt. So the increase in the RPI adds to the cost of debt interest. This is set out in para 1.34 bullet 5 in our Economic and fiscal outlook,” the OBR said in statement to the group People Against Sugar Tax.

“This is not the cost of implementation to firms and you are correct that this is solely the effect on the public finances.” The UK still has one of the largest deficits in the developed world at 5.7 percent of GDP, and the fresh black hole on the public finances is the last thing Osborne needed after missing his deficit target.

“This is a staggeringly huge cost. £1bn could pay for the salaries of 14,900 new nurses for the next three years. To waste this money on a sugar tax is an unacceptable waste of public money,” declared Brook Whelan, chief executive of People against Sugar Tax, Monday on the group’s website.

“The OBR today said that the sugar tax will increase the rate of the Retail Prices Index (RPI), which they say adds to the cost of national debt interest. George Osborne has still got time to do a U-turn on this ridiculous and expensive sugar tax, and we call on him to make that U-turn now to limit any more political damage to his credibility.”

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