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In the News

The sugar tax and minimum pricing for alcohol: how are businesses affected by government policy?

Penny Brooks

6th April 2018

This important aspect of External Influences comes into sharp focus this week, as the new Sugar Tax comes into force on April 6th, and Scotland introduces a minimum price for alcohol of 50p per unit on May 1st. A level students are amongst the key targets for these new government policies. This makes it a great subject to practice their skills of Analysis and Evaluation when learning about the impact of government policy on business strategy.

The UK Government's objective for the sugar tax is given on as:

  • A levy on soft drinks will contribute to the government’s plans to reduce childhood obesity by removing added sugar from soft drinks. The levy encourages producers of added sugar soft drinks to:
  • reformulate their products to reduce the sugar content reduce portion sizes for added sugar drinks and importers to import reformulated drinks with low added sugar to encourage consumers of soft drinks to move to healthier choices
  • If they do this, producers and importers of added sugar soft drinks can pay less or even escape the charge altogether.

The Scottish Government's website, writing about minimum pricing for alcohol, says that 

  • Given the link between consumption and harm and evidence that affordability is one of the drivers of increased consumption, addressing price is an important element of any long-term strategy.
  • Alcohol is now 60 per cent more affordable in the UK than it was in 1980. It is possible in Scotland today to exceed the new lower risk guidelines for alcohol (14 units per week) for less than £2.50. This is an unacceptable position and we have a responsibility to address this problem.
  • The most recent research by the University of Sheffield (April 2016) estimated that the proposed minimum price of 50p per unit would result in the following benefits:
    • Alcohol related deaths would fall by about 120 per year by year twenty of the policy (full effect)
    • A fall in hospital admission of 2,000 per year by year twenty of the policy (full effect)
  • The modelling shows that minimum unit pricing is targeted with the greatest benefit falling on harmful drinkers, and particularily those living in poverty.

 In a piece commissioned by the BBC, Kate Smith of the (independent) Institute of Fiscal Studies examines these new policies, the reasons for them and whether they will be effective in solving problems caused for individuals and for society. 

It contains data about the policies that are being introduced and some useful background data on sugar and alcohol consumption, and the changes that have already been introduced by some manufacturers in anticipation of the new sugar tax. This, together with the stated objectives given above, could serve as a good stimulus for discussion about which stakeholders are affected by the changes, and how they are likely to respond, and lead on to some good chain-of-analysis work on the likely impact on each stakeholder - making particular reference to both price and income elasticity of demand. The UK Government page linked above has some very helpful comment on likely revenue to be raised, the impact on individuals and households, and on businesses, and on the wider health issue. The Scottish Government give more detailed information for businesses about their responsibilities, and how to calculate the price they must charge, here: 

Some follow up evaluation of effectiveness, both of the tax and minimum price, and of other alternatives which could be used, will also be suggested by more detailed reading of the article, and could form the basis for students to make their own recommendations for the most effective policies to achieve the government's stated objectives.

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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