An analysis of the stock market reaction to the announcements of the UK Soft Drinks Industry Levy

Abstract

On 16th March 2016, the UK government announced the Soft Drinks Industry Levy (SDIL). Under the SDIL, soft drinks manufacturers were to be taxed according to the volume of products with added sugar they produced or imported, with proceeds used to increase funding for initiatives in schools and other activities to promote child health (House of Commons 2017). The SDIL explicitly aimed to bring about changes in the behaviour of soft drinks companies, specifically to reformulate their products to reduce sugar content as there were three bands – a zero rate for those with total sugar content lower than 5g per 100ml, one rate for those with 5-8g per 100ml and a higher rate for drinks with more than 8g per 100ml. Drinks classed as pure fruit juices, milk-based drinks, and those containing more than 0.5% alcohol by volume were exempt. Companies were given two years before the SDIL was enforced to achieve such changes. The draft of the SDIL legislation and consultation summary were released on 5th December 2016. The levy rates were confirmed on 8th March 2017.