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If you want an argument about the sugar tax, bring it on, Osborne tells firms

Chancellor George Osborne has promised to mount a "robust" defence against any attempt to overturn his new tax on sugary drinks in the courts, telling companies considering a legal challenge: "Bring it on."

His comments came as he gave evidence on last week's Budget to the House of Commons Treasury Committee, and admitted that any future changes to disability benefits will have to be managed "in a better way" than the proposed £4.4 billion reduction to personal independence payments (PIPs), which was scrapped after the dramatic resignation as work and pensions secretary of Iain Duncan Smith.

Soft drinks firms are reported to be considering an action in the European Court on grounds of anti-competitiveness over the Budget move to place a levy of 18p-24p a litre on high-sugar drinks.

But Mr Osborne said Government lawyers were convinced the new tax - due to come into force in 2018 - is legal, and urged companies not to "waste time and money" on a court challenge, but instead to use the time to reformulate products to make them better for consumers' health.

Speaking to the Treasury Committee, Mr Osborne said: "Many companies are doing the right thing and reducing the sugar content in their drinks and that is to be applauded.

"Other companies are saying either this sugar tax isn't going to happen or they are going to challenge it in the courts. I would say, if they want to have an argument about the sugar tax, bring it on.

"We are going to introduce a sugar tax. It's not a threat or a promise, it's the way it's going to be. And I think it is the right thing for this country. I think it will make a huge improvement to childhood health."

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Mr Osborne added: "We took legal advice before introducing it and we are very clear it is legal and we will of course robustly defend it if there was a legal challenge.

"But I would say to companies 'Don't waste time and money on a legal challenge. Use this period to look at your products and see if you can reformulate'."

Mr Osborne's comments came as independent think-tank the Institute for Fiscal Studies (IFS) found that the levy on soft drinks "looks to be reasonably well targeted" on public health grounds because children and people with high overall sugar intake tend to get "a relatively high share" of their sugar from drinks.

However, the IFS warned that the design of the levy, which will charge a lower rate for drinks with more than 5g of sugar per 100ml and a higher rate for those over 8g, creates "unnecessary anomalies", as the same tax will be charged on a litre bottle containing 150g of sugar as one containing 100g.

The think-tank warned that the effectiveness of the tax in reducing sugar intake will depend on whether consumers switch to non-taxed sugary products like milkshakes, chocolate and sweets.

And the exemption offered to smaller manufacturers could lead to a proliferation in companies setting up to produce high-sugar drinks which escape the tax.

The IFS pointed out that the zero-VAT rating of cakes and other sugary foods amounted to "an effective tax subsidy to their consumption". While a "broader-based tax on all sources" was likely to lead to larger reductions in dietary sugar, it would be difficult to implement and might hit foods containing important nutrients.

But it concluded: "None of this is to suggest that a tax on sugary drinks is necessarily a bad idea." Mr Osborne had "time to adjust the structure of the tax to make sure it better targets the sugar content of products", it said.

The IFS released new analysis showing that more than 90% of households consume more "added sugar" than recommended, and that soft drinks make up 17% of "added sugar" purchases.

Families with children consume around 50% more of their added sugar from soft drinks than childless households. And households which purchase the largest amount of sugar overall tend to get around twice as much of their sugar from soft drinks as those consuming the least sugar.

Defending his Budget after a week in which the response to the proposed PIP changes shook the Government, Mr Osborne told the Treasury Committee: "Clearly, if we are going to make reforms to disability benefits we have to go about it in a better way than we did."

Committee chairman Andrew Tyrie described the Budget - which set out £56 billion of additional borrowing requirements - as "rather curious", coming so soon after last November's Autumn Statement when the Chancellor spent an unexpected £27 billion windfall stemming from improved forecasts from the Office for Budget Responsibility (OBR).

With the OBR estimating that its predictions could vary by £50 billion from forecast to forecast, Mr Tyrie challenged the Chancellor over whether it would be more "prudent" for him to stick to longer-term targets, rather than dramatically altering his plans twice a year.

"You are locking yourself into quite arbitrary short-term changes," said Mr Tyrie, who told Mr Osborne that a "relatively minor" change to the twice-a-year cycle of budgets and autumn statements could "spare the Government a great deal of political grief" of the kind seen over the last week.

But Mr Osborne said he would have been "rightly criticised" if he had simply set aside the £27 billion windfall identified by the OBR to swell the surplus he is planning for 2019/20.

Mr Osborne said he was "sorry" that Mr Duncan Smith had quit but stressed the importance of controlling the welfare budget as he defended himself against his former Cabinet colleague's charge of imposing politically-motivated cuts.

He acknowledged that "clearly, if you are going to make reforms to disability benefits, we need to go about it in a better way than we did" because they were intended to make sure the rising disability budget was focused on those who need the money most.

"It did not command support, as was perfectly obvious, and that's where I think the lessons need to be learned," he said.

Labour committee member Wes Streeting challenged the Chancellor over Mr Duncan Smith's claim that his department was repeatedly asked to find savings in the run-up to Budgets and Autumn Statements and the former Cabinet minister's comments about the "self-imposed restraints" of Mr Osborne's targets.

Mr Osborne said: "The target objectives were set out in the Conservative manifesto and they are very clear, and obviously the whole Government and the Conservative Party signed up to them by standing on that manifesto."

The restraints were "essential to ensuring stability in the economy", he said.

"There is always going to be a robust process in the debate between the Treasury and big-spending ministries. There's nothing unusual in that, that has been going on for literally hundreds of years.

"But in the end you reach a collective agreement and in the end that is the basis on which the government acts or someone chooses to leave the government, they don't want to buy into that collective decision."

The Chancellor insisted he would not go into the "behind-the-scenes" conversations he had with Mr Duncan Smith.

Committee chairman Andrew Tyrie challenged Mr Osborne on Mr Duncan Smith's allegation that the Department for Work and Pensions had opposed putting the PIP cut into the Budget.

Pressed on whether the DWP had "always opposed" the cuts forming part of the Budget, Mr Osborne said: "It was a collective decision-making process, as evidenced by the fact that the announcement was made by DWP."

He added: "There was a collective discussion that led to the DWP announcement. I am sorry that Iain left the Government, I worked with him over six years. It was always going to be a difficult relationship between the Chancellor and the person in charge of the largest spending department. That is what the jobs require of us."

Mr Osborne continued: "At the heart of all of this is: do you want to be working as a Government to try and control welfare spending? My argument is yes - if you don't do that, you lose control of public finances, the people who suffer are the poorest and most vulnerable in the country and those are the people we are fighting for, they are the decent, hard-working people, people who have disabilities, people who we want to protect.

"If you lose control of public finances, lose control of welfare spending, if you trap people in cycles of dependency then that is the greatest social injustice of all.

"That was Iain's insight, that's what I worked with Iain on over the last six years and I'm very proud of what we have done together."

A keenly-awaited Treasury analysis of the costs and benefits of EU membership looks set to be published in the first half of April.

Mr Osborne gave an undertaking to the Treasury Committee that he would ensure it was available at least four days before his next appearance before them, to give them time to prepare their questions.

The Chancellor is scheduled to give evidence to the committee's inquiry into the EU on April 19. He suggested that this date could be put back if the Treasury analysis was not ready in time, but Mr Tyrie responded: "We would change that date with great reluctance."

The Chancellor refused to rule out making further cuts to welfare spending in the Autumn Statement.

Pressed repeatedly by former shadow work and pensions secretary Rachel Reeves over whether such a move was "possible", he said: "We have no plans for further cuts to welfare."

Ms Reeves said: "I think anybody listening to this will have to conclude that it is entirely possible that you will make further cuts to welfare in the Autumn Statement."

"That is not the conclusion I would draw from listening to me," the Chancellor replied.

Mr Tyrie said it had become a "standing joke that when any government department says they have no present plans to do something it must be about to do it".

Mr Osborne was accused of hoping he could fill his Budget blackhole by finding the cash "down the back of the sofa".

Labour's Helen Goodman said: "You don't know, you haven't decided, you're hoping either the forecast will, or shall we say you'll find it down the back of the sofa, or it'll be lost in the roundings. Is that the message I'm to take away from this?"

Mr Osborne said: "We will see what the world and what the domestic economy throws at us in the coming months and we will have an assessment at the next Autumn Statement."

Ms Goodman also claimed the Chancellor had failed to live up to his promises to fight for the poorest, insisting that some of the working families who were struggling most had taken a big financial hit under his tenure.

"Poverty is down," Mr Osborne insisted. "Inequality is now at a 25-year low."

Mr Tyrie said "part of the reason we are having this row" is because the Chancellor "moved the goalposts" in the way analysis is carried out.

"It's very difficult to follow what is really going on for the same groups over time on the same basis," he added.

But the reforms have brought in a "fairer approach", Mr Osborne insisted.