Sugar-filled soft drinks will see a tax hike in April 2018 in an attempt to combat rising levels of obesity.
Philip Hammond announced details of the new sugar tax in his budget statement, saying the money raised would go to the Department for Education (DfE) for school sports.
Tax on drinks with more than five grams of sugar per 100ml will be levied by 18p per litre, while those with eight grams or more of sugar per 100ml will have an extra tax of 24p per litre.
The DfE is expected to receive an extra £1bn from the sugar tax, said Mr Hammond.
However, he added that revenues could be lower than expected as companies reduce the amount of sugar in their products to avoid the tax.
This could bring significant health benefits, cutting rates of tooth decay, obesity and type 2 diabetes, although soft drinks manufacturers say there is no evidence this will be the case.
The controversial levy was first announced last March, when the Government announced it would target the producers and importers of soft drinks with added sugar.
Pure fruit juices will be exempt as they do not carry added sugar, while drinks with a high milk content will also be exempt because of their calcium content.
Alcoholic drinks with an alcohol by volume of up to 1.2 per cent are included in the levy although some of these drinks will be exempt.
Responding to the Budget announcement, British Soft Drinks Association director general Gavin Partington said: “Given current increases in the cost of goods, we're surprised the Treasury wishes to put more pressure on businesses and raise prices for hard-pressed consumers.
“It's also ironic that the tax hits the soft drinks category, which has led the way in helping consumers reduce sugar intake – down nearly 18 per cent since 2012. We are also the only sector with a calorie reduction target for 2020.
“We support the need to address the public health challenge the country faces, but it's worth bearing in mind that there is no evidence taxing a single product or ingredient has reduced levels of obesity anywhere in the world.”
However the Obesity Health Alliance described the levy as a “bold, positive and necessary move we believe will help reduce the amount of sugar our children consume”.
The Royal Society for Public Health (RSPH) chief executive, Shirley Cramer, said: “We are delighted that, as shown by the downgrading of the Treasury's revenue expectations, the sugar levy is already working to spur reformulation of sugary drinks by manufacturers.
“This is a crucial development for the health of our children, who receive the highest proportion of their added sugar intake from such drinks.
“We are doubly delighted that, despite the reduction of forecast revenue from the levy, the Government has maintained its commitment to the full funding already promised to schools for sports and healthy living programmes.
“Schools have an important role to play in giving all our children a healthy and active start in life, and it is encouraging to see the Government giving them this backing.”
Action on Sugar campaign manager Jenny Rosborough said: “We are fully supportive of the sugar tax levy and the commitments we've already seen from a growing number of drink manufacturers who've started to reduce sugar to less than 5% across popular brands.
“Sugar-sweetened drinks are the biggest contributor of sugar in the diets of children and teenagers and unless they are reduced these drinks will still contribute to the high levels of obesity, type 2 diabetes and tooth decay, all of which are preventable and cost the NHS billions of pounds each year.
“We now strongly urge all manufacturers to reformulate and avoid the levy.”
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