Budget 2016: New 'sugar tax' on soft drinks but beer and spirits duty frozen

A new 'sugar tax' on soft drinks – one of the more eye-catching proposals in Chancellor George Osborne's speech – will be implemented from April 2018, with soft drinks companies to pay a levy on drinks with added sugar.

Official estimates suggest the tax could add between 18p and 24p to the price of a litre of fizzy drink if the full cost is passed on to the consumer, though the Treasury says it hopes costs aren't passed on and companies make the drinks less sugary instead.

Other changes announced include:

• Tax on cigarettes will rise by 2% at 6pm this evening (Wednesday 16 March). The charity Action on Smoking and Health (ASH), which "warmly welcomed" the move, says it would add 21p to a pack of 20 cigarettes.

• Tax on hand-rolled tobacco will rise by 3%, again at 6pm this evening. ASH says that'll add 44p to a 30g pack.

• Duty on wine is to rise by 0.3% on Monday (21 March).

• Duty on cider, beer, whisky and other spirits has been frozen.

How will the new sugar tax work?

The new levy will apply to drinks with total sugar content above 5 grams per 100 millilitres, with a higher rate for more than 8 grams per 100 millilitres.

The Treasury says examples of drinks that would currently fall under the higher rate of the charge include full-strength Coca-Cola and Pepsi, Old Jamaica Ginger Beer, Capri-Sun Blackcurrant, Red Bull, Strawberry Ribena, Lucozade Energy and Irn-Bru.

The lower rate would catch drinks such as Dr Pepper, Fanta, Sprite, Schweppes Indian Tonic Water and alcohol-free shandies, it says, while drinks such as Volvic Touch of Fruit, Vimto, Powerade and Tropicana Smooth Orange would escape the tax altogether.

The new levy will not be paid on milk-based drinks and fruit juices.

Will the tax changes hit prices in shops?

Tax hikes usually have at least some impact on pricing – in fact, part of the point of levies on things such as cigarettes and alcohol is to encourage people to smoke and drink less.

It's less clear what the impact of the sugary drinks tax will be on prices though. In his Budget statement, Osborne said: "Some may choose to pass the price onto consumers and that will be their decision, and this would have an impact on consumption too."

In its first year the new tax looks set to raise £520 million, which will be reinvested into providing schools with the opportunities to invest in more sporting activities and longer school days.

However, given the tax does not come into play until 2018, the Treasury says it hopes sugary drinks producers will have time to come up with alternative products with less sugar as well.

Additional reporting by the Press Association.