Sugar Tax Shake-Up: UK Plans to Target Milkshakes and Dairy Drinks

The UK government has launched a consultation to extend the soft drinks industry levy (SDIL)—commonly known as the sugar tax—to milkshakes, milk-based drinks, and their plant-based substitutes like oat and rice milk.

The move follows Chancellor Rachel Reeves’ announcement in last year’s autumn budget. Now, under the new plans, drinks containing more than 4g of sugar per 100ml could face a levy, down from the current 5g threshold.

The aim? To tackle the negative externalities linked to excessive sugar consumption, such as obesity and related health care costs. By raising prices through taxation, the government hopes to internalise these external costs and encourage manufacturers to reformulate their products—an example of government intervention to correct market failure.

Since its introduction in 2018, the SDIL has raised £1.9 billion and pushed many companies to cut sugar levels. An estimated 89% of soft drinks now fall below the current taxable threshold. The government argues that extending the levy to milk-based drinks could prompt similar reformulation, especially as only 3.5% of children’s calcium intake comes from these sugary beverages.

However, critics—including the Food and Drink Federation—warn that the tax could disproportionately hit lower-income families and add pressure on an already strained food industry. Others, like Shadow Chancellor Mel Stride, called the move a “sucker punch” to consumers battling a high cost of living.

This policy highlights a key debate in economics: while indirect taxes can correct market failure by reducing harmful consumption, they can also be regressive, affecting poorer households more. Balancing public health outcomes against economic fairness remains a major challenge for policymakers.

The public consultation is open until 21 July, and the final decision will be watched closely by businesses, economists, and households alike.