Rachel Reeves eyes new ‘milkshake tax’ as Treasury hunts for £20bn

Rachel Reeves is set to announce a so-called “milkshake tax” in a bid to fill her £20 billion budget black hole.

After reversing her decision to raise income tax, the Chancellor is set to end the exemptions that milk-based beverages benefit from.

Currently, the Soft Drinks Industry Levy affects a range of sweet drinks, including Coke and Pepsi.

Producers pay 18p per liter on sweet drinks if they contain 5g of sugar or more per 100ml.

Chancellor Rachel Reeves arrives at Downing Street

Until now, dairy exemptions had applied to the levy - but they now face the axe as Ms. Reeves desperately attempts to fill the country’s economic black hole.

According to reports, the changes will take effect from April 2027 and could net the Treasury up to £100 million.

The Treasury is yet to comment on the reported tax hike.

Tory Shadow Chancellor Mel Stride hit out at the move, saying: “If these reports are true, Labour’s new milkshake tax moves the goalposts yet again for an industry that’s already cut sugar and made changes responsibly.

“It will see businesses that played by the rules punished, with products suddenly dragged into the tax net – all to save Rachel Reeves’s skin.”

It comes after Ms. Reeves U-turned on her plan to hike income tax in a bid to fill the budget black hole.

Reeves had appeared to all but confirm she would be raising income tax last week, breaking from her party’s 2024 election manifesto pledge.

The Chancellor had told the public in a Downing Street press conference last week that "everyone has to play their part" in fixing Britain’s broken finances.

The speech was widely interpreted as confirmation that the Treasury would raise the basic rate of income tax by 2 percent.

But last week, the OBR told the Chancellor the hole in the nation’s finances is closer to £20 billion, rather than the previously feared £30 billion.

This meant her income tax increase could be shelved and replaced with a so-called “smorgasbord” approach.