The yield from the tax on sugary soft drinks will be less than predicted because companies have already taken steps to cut the sugar content in their products.
The Treasury said it expects more than 40% of all drinks that would otherwise have been in-scope of the tax to have been reformulated by the time the levy is introduced meaning that revenues will be lower than forecast.
Brands such as Irn-Bru, Ribena and Lucozade have already made commitments to reduce the sugar content in their products in an effort to avoid paying the levy or to move products into a lower band.
The government, however, said it would continue to commit to fund schools with the £1bn it originally expected to raise from the levy, including money for school sports, breakfast clubs and a new Healthy Pupils Capital Fund.
Delivering his budget on Wednesday, Chancellor Philip Hammond confirmed that from April 2018, a tax of 18p per litre would be levied on drinks with over 5g of sugar per 100ml and 24p on those with over 8g of sugar per 100ml.
Campaigners welcomed the move as vindication of their efforts to counteract industry lobbying to water down the proposals: “It is now over to MPs to pass the legislation, and then manufacturers and retailers to continue to raise their sugar reduction game,” said Malcolm Clark, co-ordinator of the Children's Food Campaign.
Manufacturers, however, have vowed to continue their opposition to the tax, which some claim places an undue focus on sugar rather than calories as a whole. “While we’re pleased to see the Chancellor acknowledge the efforts made by soft drinks manufacturers to reduce sugar levels in their products, we continue to believe that implementation of the levy should be paused while such good progress is being made voluntarily,” said Ian Wright, director general of the Food and Drink Federation.
Elsewhere in the budget, Wright welcomed the Chancellor’s commitment to improve productivity, boost R&D and help bridge the skills gap, which he noted was a particularly pressing issue for food and drink manufacturing.
There was criticism from environmentalists, however, of the Chancellor’s failure to mention climate change or renewable energy during his speech.