Rachel Reeves ‘is set to announce a milkshake tax’ as millions of workers, savers and pensioners face brutal assault in Budget with Chancellor poised for ‘stealth’ raids

Rachel Reeves is reportedly set to announce a ‘milkshake tax’ in her upcoming budget as part of Labour’s plans to crackdown on unhealthy foods. 

The Chancellor is believed to be gearing up to make sweeping changes to the Soft Drinks Industry Levy. 

It is thought that Reeves will axe the exemption that currently stops milk-based and milk-substitute drinks from being eligible for the tax. 

The MP for Leeds West and Pudsey is also set to lower the sugar level at which the tax applies. 

In its existing form, soft drink companies pay a minimum of 18p per litre on soft drinks which contain 5g or more of sugar per 100ml.

However, the Chancellor has set her sights on slashing that to 4g per 100ml – a change that would come into effect in April 2027. 

Introduced in April 2018, the Soft Drinks Industry Levy is a UK tax on added sugar soft drinks. 

The aim of the legislation was to put pressure on producers to reformulate their products to reduce the sugar content – or reduce portion sizes. 

The so-called ‘milkshake tax’ would axe the exemption that currently stops milk-based drinks from being eligible for the levy 

The idea was that the levy would also encourage importers to import reformulated drinks with low added sugar to encourage consumers of soft drinks to move to healthier choices.

The Treasury hopes to raise between £50-100million on the back of the changes to the levy, The Telegraph reported.

However the changes will almost certainly receive significant pushback from the big players in the soft drinks industry. 

In response to calls for a consultation about the proposals back in April 2025, a spokesperson for the British Soft Drinks Association told Just-drinks.com: ‘This decision is a muddled and damaging shifting of the goalposts which risks undermining years of reformulation investment with questionable positive health outcomes. 

‘More than seven out of every ten soft drinks sold in the UK are low or no sugar and the total sugar removed from soft drinks between 2015 and 2024 is just under three quarters of a billion kilograms.’ 

Sir Mel Stride, the shadow chancellor, said: ‘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.’

And soft drink companies appear to not be the only group in the Chancellor’s sights after she u-turned on plans to hike income tax. 

Millions of workers, savers and pensioners face a brutal assault with Reeves poised to extend hated ‘stealth raids’ in the Budget.

The Chancellor looks set to keep the long-running freeze on thresholds in place for another two years.

The IFS estimated that extending the freeze on tax thresholds would net the Treasury more than £8billion a year – but leave nearly one in five workers paying the higher rate

The policy would net the Treasury more than £8billion a year towards filling a gap in the finances believed to be between £30billion and £40billion.

But the boost to the government’s coffers would come at a huge cost for Britons, with more than 10 million people facing paying the top rate of tax by the end of the decade.

The worse-off will also be hammered, with a full-time worker earning the minimum wage seeing their annual tax bill rise £137 relative to the current policy of increasing thresholds in line with inflation.

For the first time, all pensioners will be hit with tax on the full state pension in 2027-28 – so the state is effectively giving with one hand and taking with the other.

Government sources insisted the extraordinary backtrack on the income tax increase last week was because forecasts from the OBR watchdog were slightly less bleak than anticipated.

However, Ms Reeves still seemingly needs to close a fiscal gap of up to £40billion on November 26, as she has committed to rebuilding ‘headroom’ that has been wiped out by jettisoning policies such as benefits cuts.

Economists have voiced alarm that she will now look at a ‘Smorgasbord’ of smaller tax increases to try to bail herself out of trouble. They will almost certainly include a new gambling levy and higher taxes on expensive properties, as well as per mile charges for EVs.

Treasury sources have played down the prospect of an outright cut in thresholds, but have admitted she still needs to use ‘big levers’ to raise money. Final decisions are being taken over the coming days.

Meanwhile, keeping the savings allowance on hold could raise billions of pounds more for Ms Reeves.

The allowance has been frozen since it was introduced by then-chancellor George Osborne in 2016. Basic rate taxpayers can rack up £1,000 in savings interest tax-free, which falls to £500 for those on the higher rate.

Top rate taxpayers get no allowance at all.