Chancellor Rachel Reeves has headroom to bring in taxes on less healthy food in the budget as part of a rebalancing of the Treasury’s revenues, according to a leading UK accountancy firm.
UHY Hacker Young has reported that No 11’s takings from so-called “sin taxes” has fallen dramatically by 35% over the past decade to £24.2bn, representing just 2.8% of its total revenues in 2024/25, versus 4.3% in 2015/16.
It said the decline in receipts from such taxes reflected a long-term shift away from spending on tobacco and alcohol, partly in response to repeated tax increases and rising prices. It argued the fall could prompt the government to increase existing rates or introduce new levies, as it sought to close its budget gap.
The move comes with the government already expected to expand the Soft Drinks Industry Levy (SDIL) to include hundreds of more products, with a decrease in the threshold from 5g to 4g per 100ml due to come into force in April 2027.
However, James Simmonds, tax partner at UHY Hacker Young, said further taxes on food and drinks could be called upon by Reeves in the budget in a month’s time, as the government looks to raise an extra £3bn to fund the NHS.
“The government may seek to include new taxes on products it deems ‘unhealthy’ or ‘polluting’,“ said Simmonds.
“Traditional sin taxes now collect a small and shrinking slice of the pie for government coffers, a gap that Rachel Reeves may look to fill with further rises.”
“It could also raise existing taxes on sugary drinks and plastic packaging. Given how little revenue they bring in, the government may feel there’s still room to push them up.”
Earlier this month, the Food Foundation called for Labour’s new food strategy to introduce a levy on HFSS food categories beyond soft drinks, suggesting the money raised could be reinvested to subsidise initiatives to support affordable, healthy diets for the poorest families.
It came after a report found one in seven households with children are struggling to afford food, and millions of households are cutting down on fruit & veg consumption to save money.
However, calls for an expansion of HFSS taxes to categories behind soft drinks, such as confectionery, despite being a key recommendation in Henry Dimbleby’s 2019 food strategy, have so far been resisted by successive governments because of the possible impact on inflation.
However, with the latest ONS figures showing the cost of food and non-alcoholic drinks edged down slightly in September, the first fall since May 2024, ministers are under pressure from the industry to resist calls for tax increases.
An FDF spokeswoman said: “We believe that ensuring a stable regulatory environment is the best way to support continued investment from businesses.
“Food and drink prices are already rising at a rate which is significantly above the UK’s long-term average and many comparable EU countries. There’s also a lack of evidence that food taxes have a long-term effect on consumer purchasing.
“With these two things in mind, rather than additional taxes we want to work with government to help businesses further invest in developing healthier options, whilst avoiding measures that would increase food prices.”
Meanwhile, soft drinks bosses said they were continuing to call on ministers to rethink the SDIL threshold reduction, arguing that it will penalise manufacturers who have removed millions of calories from soft drinks, while other food categories have escaped taxation.
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