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In the 2025 Autumn Budget, the UK Government confirmed a significant expansion of the Soft Drinks Industry Levy (SDIL), or “sugar tax”. From 1 January 2028, the levy will be extended to cover a broader range of high-sugar beverages, including pre-packaged milk-based and milk-alternative drinks with added sugar. At the same time, the threshold for when a drink becomes liable is being lowered: from 5g per 100ml to 4.5g per 100ml (although this was originally due to be lowered to 4g per 100ml but was increased to 4.5g after consultation with industry). Importantly, certain beverages still remain exempt. Plain (unsweetened) cow’s or plant-based milks will still be excluded.
How might this affect drinks producers?
Manufacturers whose products were previously at risk but now fall below the new 4.5g threshold will naturally welcome the reduced levy-free zone. It protects them from a potential tax hit and removes pressure to reformulate. However, with a wider portfolio now liable, many producers that previously avoided the levy by focusing on milk-based drinks or dairy-alternative beverages will now face a tax on these products. There will be a pressure to reformulate recipes to avoid the levy. Products which currently sit close to the limit will keep gradually reformulating to meet the target (this could affect Lucozade, Schweppes, Fanta amongst others).
This requires further investment in product development and ingredient sourcing; although reformulation gets more difficult as sugar is reduced. However, some producers will simply say ‘this is our product’ and stick with their original recipe, much as Coca-Cola did when the levy first came in. They will either absorb the tax or pass the cost on to consumers, rather than risk compromising taste or brand identity. This is a risk previously illustrated by Lucozade Energy Orange, which saw sales fall by more than £25m after reformulating from 13g to 4.5g of sugar per 100ml ahead of the initial levy.
What are the potential implications of this change?
As some sugary drinks become more expensive or less sweet, consumers may shift toward unsweetened or lower-sugar alternatives. Over time, this could change dietary patterns and demand across the drinks market, a huge potential benefit to the UK’s health.
Drinks producers and retailers may change portfolios toward healthier options or reformulated products. Some smaller producers may struggle with the increased cost or complexity of reformulation, potentially leading to consolidation or exit from certain ranges. Brands that proactively reformulate or already offer low-sugar or unsweetened drinks may gain competitive advantage by positioning as healthier alternatives. Alternatively, legacy brands with high-sugar formulations may face reputational or sales challenges.
How can UK drinks manufacturers react?
Given these developments, drinks manufacturers should review product portfolio, upcoming launches, and consider reformulation to avoid future levy costs. Additionally, this regulatory shift offers opportunity: there is more opportunity for “better-for-you” drinks, communicating their health credentials as consumer awareness around sugar and health grows.
Any change is still one that needs to be navigated by the industry; although still appreciating that the government is trying to address obesity and the benefits that will bring. Ultimately, those who act decisively now will be best positioned to thrive.
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