The sugar tax could see pension liabilities soar, while the food and beverage sector could become the next tobacco of sin stocks, experts have warned.

Chancellor George Osborne yesterday announced the government will increase the price of drinks, which contain at least 5g of sugar per 100ml – such as Coca Cola, Red Bull and Capri Sun. Drinks with 8g of sugar per 100m could face a higher rate of tax.

But industry experts have warned the levy is likely to place a burden on pension funds as the sugar tax will increase inflation and put pressure on investors to pull out of investments in companies manufacturing products with high quantities of sugar.

According to JLT Employee Benefits chief actuary Phil Wadsworth, pension liabilities could jump by £3bn as a result of the tax, potentially even doubling if the improvement in life expectancy due to a reduction in obesity is factored in.

The calculations are based on total pension liabilities of circa £1.5trn and the assumption that approximately 75 per cent of liabilities are linked to inflation.

According to the OBR inflation is forecast to move above the Bank of England’s 2 per cent target in the second quarter of 2018, when the effect of the soft drinks industry levy announced in this Budget affects prices. [The OBR expects] it to add around a quarter of a percentage point to CPI growth in 2018-19.

Meanwhile, Schroders ESG analyst Elly Irving said implications on the food and beverage sector could see sugar making ‘Big Food’ the next ‘Big Tobacco’.

"Adapting to tax changes is likely to benefit those companies that have moved earlier to reformulate products and deliver healthier products, but it will put pressure on companies that have been slower to change.”

Irving said that although Big Tobacco in the 1950s to 1980s was able to self-regulate to a greater degree, the scale of the childhood obesity challenge has meant the government has been “forced to take action”.

“It has been extensively publicised that sugar consumption contributes to a wide range of health problems, such as diabetes, high blood pressure and obesity (which collectively are known as metabolic syndrome).

“If Big Food does become the next Big Tobacco it could potentially result in lower sales growth, higher costs and large scale litigation for food and beverage companies. We believe that investors need to better understand this headwind for Big Food and future growth rates for the sector should reflect these risks."

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