Reduction Of Cigarette Consumption By The Uk Government Economics Essay

Cigarette smoking causes numerous externalities, which the UK government and health campaigners are trying to solve. For example, smoking may increase the risks of heart disease, lung cancer and asthma, It lead to higher healthcare and environmental costs, fire damage and loss of productivity. All these above result in numerous social costs in the UK.

In order to tackle these problems, the UK policy makers have strictly legislated to reduce cigarettes consumption. For instance, raising taxation and advertising ban of tobacco. These laws are based on the statement of Townsend (1998), which describes as “who can buy cigarettes, where they can be consumed, how they can be advertised” and covering health warnings and putting high indirect taxes.

Not only the UK government, but also health campaigners give great contribution to reduce cigarette consumption. These campaigners are strongly against cigarette smoking. For example, Action on Smoking and Health (ASH), Smokefree and World Health Organisation (WHO) has been trying to persuade smokers to quit and call for greater action of the UK government.

1.2 Theory

In order to analyse the government’s efficiency, externality and elasticity as two economic theories are applied in this report. According to Anderton (2008), negative externality means that social costs are greater private costs. Tobacco is the clearest example products of creating negative externalities, which means that social costs are greater than private costs (Anderton, 2008). Then, elasticity is a measure to account the change in demand of one product influenced by a change in price or income. Furthermore, inelastic describes alter in demand is less than change in price, which reflect in the value of elasticity is less than one. For example, The Scottish Government (2006) demonstrated that “a 10% increase in the price of cigarettes on average reduces demand by 4% in high-income countries such as the UK”. It can be accounted that the elasticity of cigarettes is -0.4, which means it is inelastic.

1.3 Aims

The first and most important purpose is to determine the UK governments’ effectiveness in reducing tobacco consumption. The next aim is to identify the negative externalities of cigarettes. Finally, recommendations to the UK government will be given.

2. Findings

2.1 Externalities

Smoking has a number of negative externalities and the most important one is the health. Patient UK (2010) indicates that the most significant reason of sickness and death in the UK is cigarette smoking. Around 30,000 British people die because of lung cancer and eight in ten of the death is directly related to smoking. (Patient UK, 2010). It may cause heart disease, circulation, asthma and sexual problems as well. There is no doubt that the health costs will relatively increase. “Treating smokers costs the National Health Service (NHS) in England, compared with”, A report from Ash claims that the NHS spent £2.7billion per year which increased by £1billion ten years ago. The table below displays other negative social costs of smoking.

Total Social Costs of Smoking

Source: Nash. R & Featherstone. H

Figure 1

2.2 Tax

The UK government emphasises the importance of taxation on tobacco products by raising taxes. The Scottish Government (2006) demonstrated that “a 10% increase in the price of cigarettes on average reduces demand by 4% in high-income countries such as the UK”. According to the Scottish Government (2006), “The effect of a 10% price increase on the 77 billion cigarettes sold in the UK would be to reduce consumption by about 3 billion cigarettes per year”.

This table demonstrates the tax revenue in tobacco from 2001 to 2010.

Tax revenue from tobacco

Excise

VAT

Total

£ billion

2001-02

7.8

1.8

9.6

2002-03

8.1

1.9

9.9

2003-04

8.1

1.8

9.9

2004-05

8.1

1.8

9.9

2005-06

8.0

1.9

9.8

2006-07

8.1

1.9

10.0

2007-08

8.1

1.9

10.0

2008-09

8.2

1.8

10.0

2009-10 (p)

8.8

1.7

10.5

Source: HM Revenue &Customs (HMRC) TMA

Figure 2

With the increasing taxation, tobacco products by smuggling are common and greatly consumed by the British, which have negative impact on the legal market.

HM Customs & Excise (HMC&E) analyzed that 18% of cigarettes and 51% of hand rolling tobacco (HRT) consumed in the UK was smuggling in 2002-2003 (TMA, 2004). The outlawed point of sales made the “£2.50 for 20 cigarettes and £5 for 50g of HRT”, which compete with the legal retail market by savings of over £2.00 and £4.50 for each. (TMA, 2004)

2.4 Advertising

It has been a long process for officials to prohibit tobacco advertising. British agencies have prohibited tobacco advertising in 2002 (Clarkson, 2003). The UK government officially constrained the tobacco advertising in “billboards, magazines, newspapers, direct mail, internet advertising etc” in 2003, stated by Ash briefing (2006). After 2003, the UK officials put stricter ban on tobacco advertising. It also reported that the transitional regulations in 2003 and the UK government prohibited tobacco sponsorships in sports activities and imposed restrictions on advertising of tobacco packing in shops and vending machines in 2004. In addition, Ash briefing (2006) said that the legislation about brand sharing restricted “the promotion of a tobacco product by another product and vice versa” in 2005.

Even though there are still many ways to approach tobacco advertising. A large number of supermarkets, newsagents, petrol stations present tobacco advertising without permission and many smokers’ pictures are on show in films, TV and magazines (The Scottish Government, 2006). The Health Act 2009 plans to ban the presentation of tobacco products and constrain the format of tobacco advertising in large shops from 1 October 2013 (Department of Health, 2010). The exhibition of tobacco products and tobacco prices can solely limit in the tobacco shops instead of the public areas outside.

3. Discussion

3.1 Taxation

Increasing taxation of tobacco is a vital policy to reduce consumption of cigarettes and provide funds for the health organisation. The root cause is that affordability of smokers can be decreased in this way. According to the Scottish Government (2006), “The effect of a 10% price increase on the 77 billion cigarettes sold in the UK would be to reduce consumption by about 3 billion cigarettes per year”. It is a considerate number of drops in tobacco consumption. In addition, the amount of the money will partly distribute to the health organisation. This action can give financial assistance for the health development, which create positive externality among the society. The Scottish Government (2006) reported that £26 million of the tobacco taxation gave to the Scottish Executive for investing in “health improvement and public health programme.” It can create positive externality.

However, the UK government has not continued to raise taxes on tobacco, which affect the tobacco use. According to the figure 2, there was an upward trend from 2001 to 2003. In comparison, the tobacco excise remained steady at 8.1 instead of keeping increase. It means that people in the UK can afford tobacco products easier than before. Then, the UK officials recognised dramatically increased in tobacco demand as the serious consequence in2009. The tobacco taxation climbed from 8.2 to 8.8 in one year. This upward in tobacco taxation is remarkable and need to be maintained.

3.2 Advertising

It is necessary to prohibit tobacco advertising because of great influence on people. As Anderton (2008) said that advertising of one product could indirectly increase the desire of purchasing. Similarly, tobacco advertising strongly influences juveniles and other non-smokers. It is a measure to reduce negative information brought by tobacco advertising. Therefore, the prohibition of tobacco advertising has a great importance to reduce the consumption of cigarettes.

Whereas the entire ban of cigarettes advertising in 2002, there are still a number of tobacco advertising on public. There is a large amount of tobacco selling point, which displays the advertising behind the counter. It can be seen that the regulation of the UK legislators was not thorough and ought to be strengthened. Hence, a complete prohibition on all kinds of tobacco advertising is the goal of the UK government.

4. Conclusion

4.1Summary

From the above, it exist numerous negative externalities of cigarettes smoking, which the UK government are trying to resolve. Taxation and advertising are the priority of the UK government regulations. These actions have positive aspects, which reflect in reducing tobacco addiction, support of health improvement and limiting the negative information of tobacco advertising. However, since the regulations of the UK government are not strong enough the consequence of tobacco consumption is not satisfying.

4.2 Recommendations

It can be suggested that the UK officials should raise taxation and totally ban on tobacco advertising. Only by increasing taxation of tobacco can lessen the demand of cigarettes. Moreover, it is vital for the UK legislators to strengthen the policy and completely constrain tobacco advertising. On the other hand, tobacco companies should observe the tobacco policy. Being conscious of paying taxes and stop to advertise tobacco products are priorities of tobacco companies. Furthermore, the health agencies should publicize the harmfulness of cigarettes smoking to raise the awareness in the public.