Analysis of UK Sugar Tax: Impact on Businesses and Consumers

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Business Economic
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Contents
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Conclusion:.................................................................................................................................................8
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Assignment 2
1.
Market failure is the situation or circumstances which are defined by the insufficient distribution
of the goods and services to the consumers in the society. Market failure occurs when the price
method fails to relation for all the cost and profit necessary to provide and consume a goods and
services. The reason of failing of market is when the amount of goods and services are not
optimally supplied socially in accordance with the need and demand of the society. In today’s
worlds there are little chance of perfect market, and this is due to negativity, externality,
insufficient procedures, lack of public goods, and environmental issues. Externality affects the
third party which is caused by the production and consumption of product and services. While
imperfect market is the market where the prices of the goods and services are influence by the
individual buyers and sellers. Hence this is the opposite or contrary to the perfect market.
Generally there are four types of the market imperfection such as: flawed market mechanism,
inefficient firms, externalities, and information asymmetries. Therefore both of the above
mentioned elements like market failure and market imperfection can affect the entrepreneurial
activities along with the labour and financial products. In respect of the UK sugar tax case study
market failure and market imperfection affects the entrepreneurial activities along with the
labour and financial product because market failure occurs when the price method become
useless or fails for being responsible for all the cost, therefore in the context of the UK sugar
case study the consumption of the sugary drinks causes the market failure as they are over
consumed from the societal point of view due to the reason of positive and negative externalities
and imperfect market condition. Market imperfection adversely affects the entrepreneurial
activities in the UK because the soft drinks like coca-cola contains high amount of the sugar
content that will contributes to obesity among the people and the society, thus obesity affects the
labour that further affects the production capacity of the business in turn results the low
production. The extract is taken out of the study and survey that according to study or survey
sugar intake results in a loss of £ 1.3 trillion and £47 billion in the U.K every year (Buckton,
2018). And this can be said as the huge loss of the entrepreneurs and their activities in the
country. Social loss due the over consumption also leads to the loss of social welfare and health
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as well. The obesity also leads the health care issue among the society and children that is not the
good sign for the society as well as to economy. Overconsumption of the soft drinks that
contains the high sugar content can affect the life expectancy of the people and also causes the
heart related diseases among the people of the society. Negative information and externalities
produces adverse effect over the entrepreneurial activities that lead in declining the economy of
the country. As per the sugar case study consumption of the soft drink can cause the sickness
among the people because it contains high sugar. Lesser production or belated manufacture leads
to slower growth of the firm. Therefore entrepreneur cannot grow up due the adverse effect over
activities. This hampers the production process in various industries.
Imperfect market information also produces negative impact over the health of the consumer in
huge manner. Imperfect information means the deficiency of the information to the consumer
regarding the bad effects of over consumption of the soft drinks that contains high sugar. If the
labor continues to consume sugar and soft drinks for a long time in the future then it reduces the
working capacity of the labor to a large extent. Also, it leads to obesity which is known to reduce
the working capacity of the labor. Overconsumption of the high sugar contain drinks causes the
obesity among the youth and children that further adversely affects the production capacity and
earning capacity of the labaor and also reduces the efficiency and life expectancy. Hence it can
be said that overall impact of overconsumption of the sugar is related with the production of the
firm. That’s why government increases the tax on the consumption of the soft drinks because
generation of the tax can ne utilise for the sport activities among the children and youth. If there
will be no manufacturing, there will be no sales or slighter sales. And then it would result in the
low revenue generation and less income sources for the labor. This contributes to a menace to
entrepreneurship as no entrepreneur would like to have lesser revenues and lesser income
sourcesd. Similarly, for the labor class, a threat to entrepreneur revenue leads to lesser wages. So
it can be said that over and more consumption of the sugar contained soft drink can cause or
likely to cause adverse impact over the entrepreneurs as well as to labor also. It is also seen that
procurement of the sugar drinks become the cause of the market failure because the people of
society are not much conscious about the negative impact of these sugary contained drinks over
their health, therefore they ends up consuming these drinks but contrary to these some people are
concerned about the negative impact of these drink but still they consume the drinks because
they normally focuses on the short term benefits instead of focusing long term adverse impact of
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these drinks that may cause damage to the health of the individual. The health care sector also
deals with the increasing situation of the obesity among the today’s youth and among the
children, there are many cases related to the diabetes and obesity which are dealt by the health
care society in the UK. Increasing obesity because of the consumption of the sugar contained soft
drinks are highly responsible for declining the production capacity within the industry which
further reduces the overall earning capacity of the labor in respect of their incomes and wages.
So from the above discussion it can be said that overconsumption of the sugar contained drinks
can many issues and problem among the society and people and this also decreases the efficiency
of the workers and labours in regard of their wages and income. In this way market failure and
market imperfection affect the entrepreneurial activities, financial products, and labor.
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2.
Tax is very crucial and highly important factor or aspect of the country’s economy, as it can
affect the business decision and its policy. Tax decision can provide huge impact over the
economy of the country. Therefore in the context of the sugar case study the manufacturer of the
sugar contained soft drinks are affected by the imposition of the high tax rate. Because the
government of the UK imposed high tax rate over the production of the sugar contained soft
drinks. If these types of drinks are manufactured or imported in UK then high rate tax will be
applicable to these manufactures of the drinks. However, the tax had two slab rates. The lower
slab rate is a tax rate that is levied on soft drinks with sugar content in excess of 5ml in a can of
330 ml, such as Dew and Coca-cola. This would add 6p to the price of 330 ml Can of soft drink.
The other slab rate is the one that is levied on sugar drinks which contained sugar of 8ml or more
than 8ml in a can of 330 ml, such as for drinks like Pepsi and Coca Cola (Britishsoftdrinks,
2016). So to avoid these high tax rate applicability the business strategies are developed by the
management of the manufacture company so that increased tax can be reduces or another way is
to reduce the production of such sugary contained drinks. To avoid the high tax rate in the
business the company reduce the sugar contain in their drinks therefore company decrease the
sugar content less than 5ml in the 330 ml can. Similarly, the manufacturers of Pepsi and Coca
Cola are likely to reduce the sugar content less than 8ml in a can of 330 ml. This is the
recommendation of the government to reduce the sugar content which is followed by the
management of the company by reducing sugar content from their soft drinks products.
Imposition of the high tax rate results in declining the production process of the product that
further reduces the earning capacity and profits of the business which would absolutely
discourage entrepreneurship activities. Management is having the other option by increasing the
prices of the sugary drinks so that they can earn same as they earning before (Arthur, 2018).
However, the manufacturers might not want to relocate the load of increased taxation on the final
consumers, so they might just merely decrease the sugar content in their soft sugar contained
drinks. Reducing sugar content in their drinks also has an inducement. This high incentive of the
companies in order to reduce the sugar contained can reduces the tax implications which are
huge benefits for any company or business. The reduced content would lead to decreased sugar
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consumption by the people. This would definitely have a positive effect on people’s health and
thus also diminishes the problem of obesity and diabetes among the youth and children.
As per the case study of sugar increasing the tax by the government also contributes in the
promoting the sports related activity among the children that brings the energy among the
children and helps in reducing the obesity. However, if the demand for soft drinks is inelastic,
then the consumers will not stop consuming soft drinks even at a higher price. There are the three
consequences of the sugar tax imposed by the U.K government that are: Rising prices of the soft
drinks, second is reduced sugar content and the third is decreased production of sugar /soft
drinks. However the government takes the initiative by transferring the tax burden ultimately to
the final consumers that will definitely helps in reducing the overconsumption of the sugar
contained soft drinks (Francis, 2016). The owner of J. D. Wetherspoons, a national pub chain,
believed that high tax rate might increase the costs of the pubs which are fighting for sustain or
survive The tax could in this way put jobs at risk. At the same time, there can be boost in other
markets or oversees shopping to keep away from paying the tax. This could mean a diminution
in tax revenue for the UK government. Therefore as per the sugar case study the applicability of
the sugar tax is very useful and successful policy that can helps in best way to reduces the
obesity among the children and people in the society and then there will be no need of other
alternatives to resolve the market failure and market imperfection. Hence sugar tax is the best
policy in order to reduces the health related issue and problems.
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Conclusion:
From the above report it is hereby concluded that how economic changes can affects the business
decisions, financial products, and labour, in this report it is also discussed that the market
conditions and changes can affects the firm structures and their strategic decision related with the
particular product and services. This report also focuses on the sugar tax imposition on the
manufacturers to as to avoid the over consumption of the sugar contained soft drinks. From the
above report how market changes can affects the business production process that further leads
to declining of labor wages and income also discussed in detail. The main focus of the above
report is to reduce the problem of the obesity among the children and people. Overall problem is
about obesity that is critical issue among the society that need to be reduces and that can only be
possible by the applicability of the sugar tax on the manufacturer or producers of the drinks.
Therefore the management of the said manufacturer companies need to incorporate the as per the
societal needs and requirements.
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References:-
 Arthur. R., 2018. UK sugar tax. [Online] Beveragedaily. Available at:
https://www.beveragedaily.com/Article/2018/07/17/UK-sugar-tax-326-businesses-hit-by-soft-
drinks-industry-levy?utm_source=copyright&utm_medium=OnSite&utm_campaign=copyright
[Accessed on 27th April 2019]
 Bbc. 2018. Sugar tax on soft drinks raises £154m. [Online] Bbc. Available at:
https://www.bbc.com/news/business-46279224 [Accessed on: 27th April 2019]
 British soft drinks. 2016. The ECONOMIC IMPACT OF THE SOFTDRINKS LEVY. [Online]
Britishsoftdrinks. Available at:
http://www.britishsoftdrinks.com/write/MediaUploads/Publications/The_Economic_Impact_of_t
he_Soft_Drinks_Levy.pdf [Accessed on: 27th April 2019]
 Buckton, C.H., Patterson, C., Hyseni, L., Katikireddi, S.V., Lloyd-Williams, F., Elliott-Green,
A., Capewell, S. and Hilton, S., 2018. The palatability of sugar-sweetened beverage taxation: A
content analysis of newspaper coverage of the UK sugar debate. PloS one, 13(12), p.e0207576.
 Cotton. B., 2018. HOW THE UK SUGAR TAX IS AFFECTING THE ECONOMY AND
BEVERAGE COMPANIES. [Online] businessleader. Available at:
https://www.businessleader.co.uk/how-the-uk-sugar-tax-is-affecting-the-economy-and-beverage-
companies/42937/ [Accessed on: 27th April 2019]
 Francis, N., Marron, D.B. and Rueben, K.S., 2016. The Pros and Cons of Taxing Sweetened
Beverages Based on Sugar Content.
 Pell, D., Penney, T., Hammond, D., Vanderlee, L., White, M. and Adams, J., 2019. Support for,
and perceived effectiveness of, the UK soft drinks industry levy among UK adults: a cross-
sectional analysis of the International Food Policy Study. BMJ Open, 9(3), p.e026698.
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