A new plan to tax drinks is set to become the latest measure aimed at helping close the Chancellor’s multibillion-pound Budget gap.
Rachel Reeves is set to introduce a new ‘milkshake tax’ (Image: Getty)
Chancellor Rachel Reeves is set to unveil a controversial new “milkshake tax” intended to help plug a yawning budget shortfall estimated to be as high as £20 billion. The plan, revealed as part of a wider review of the Soft Drinks Industry Levy (SDIL), would strip the existing tax exemption on milk-based sugary drinks, such as milkshakes and flavoured lattes, and bring them into the tax net for the first time.
According to an HM Treasury consultation published in April 2025, the revised levy would lower the sugar threshold at which drinks are taxed from 5g to 4g per 100 ml. It would also introduce a “lactose allowance” to account for the naturally occurring sugars in milk, ensuring that only added sugar is taxed.
The SDIL previously exempted dairy-based drinks (Image: Getty)
The Government estimates that this extension of the SDIL could raise between £50 million and £100 million per year once fully in force, the Sun reports.
While this figure is modest compared to the total fiscal deficit, it provides a way to raise revenue without increasing income tax.
Reaction from industry and opposition has been immediate. Opponents argue that many dairy and plant-based drink producers have worked to reduce sugar over recent years, and that bringing these products into the levy would penalise companies that played by the rules.
From a public health perspective, the Treasury argues that the current dairy exemption is becoming increasingly difficult to justify.
According to Government analysis, young people obtain only 3.5% of their daily calcium intake from sweetened milk drinks, suggesting that the health benefits of exempting them may be overstated.
The hope is that the tax will provide an added incentive for manufacturers to reformulate and reduce added sugar.
The review of the SDIL, which also covers milk-substitute drinks such as oat or rice-based milkshakes, was launched jointly by HMRC and the Treasury, with the consultation running until July 2025.
The Government anticipates confirming its final policy in the Autumn Budget 2025, with the changes expected to take effect from April 1, 2027.
Critics warn that the “milkshake tax” could increase prices for consumers, squeeze manufacturers, and undermine trust in Labour’s fiscal promises.
