Cigarette consumption remains the main cause of disease and premature death in the UK. According to the Department of Health in UK (2009), in England, over 80,000 deaths per year are due to smoking and about 8.5 million people still smoke in England today. That is why the Government White Paper Choosing Health: Making healthier choices easier, (building on the 1998 White Paper Smoking Kills), promised new action to tackle tobacco (Department of Health, 2009).
1.2 Definition and Theory
Cigarette (tobacco) consumption is currently seen as an externality in economics. According to Auburn (2005), a situation in which the private costs or benefits to the producers or purchasers of good or service differs from the total social costs or benefits entailed in its production and consumption. On the other hand, an externality exists whenever one individual's actions affect the well-being of another individual, whether for the better or for the worse, in ways that need not be paid for according to the existing definition of property rights in the society (Auburn, 2009).
On the contrary, there is a wide variety of moves and policies that government could use to bring about an efficient allocation of resources where externalities exist, to stop or prevent market failure. Governments intervene in the operation of a market based economy for a variety of different reasons.
1.3 Aims
The aims and expectations of this report is to establish broad knowledge in economics such as theory and concept and at the same time, present and explain the arguments and analysis with high standard of English in this Economics and EAP crossover assignment.
Findings
Consumption of cigarettes creates serious health consequences for individuals and overwhelming financial burdens for government around the world especially in UK.
Figure 1
UK cigarette Consumption 1990-2007
UKDP
NUKDP
TOTAL
% NUKDP
billion cigarettes
1990
99.0
3.5
102.5
3%
1991
94.4
3.5
97.9
4%
1992
89.3
3.5
92.8
4%
1993
85.4
3.5
88.9
4%
1994
84.3
4.0
88.3
5%
1995
83.0
5.0
88.0
6%
1996
81.2
6.0
87.2
7%
1997
77.4
6.6
84.0
8%
1998
70.5
13.5
84.0
16%
1999
63.0
21.0
84.0
25%
2000
56.3
25.2
81.5
31%
2001
55.5
23.5
79.0
30%
2002
56.0
20.0
76.0
26%
2003
53.5
20.5
74.0
28%
2004
52.0
20.0
72.0
28%
2005
50.5
19.5
70.0
28%
2006
49.0
18.5
67.5
27%
2007
47.0
17.5
64.5
27%
Source: (TMA, 2008)
This table shows the trends in the UK cigarette market and the split between UK duty paid (UKDP) and non-UK duty paid (NUKDP) consumption (TMA, 2008). The estimate of NUKDP consumption includes cigarettes which are smuggled, counterfeit, cross border shopped and duty-free (TMA, 2008).
2.1 Taxation
On the other hand, the use of taxes is a solution which is much favored by the UK government so as to control the consumption. In taxation, the government will assess the cost to society of a particular negative externality. It then sets tax rates on those externalities such as tobacco consumption equal to the value of the externality.
Figure2 UK Hand rolling Tobacco Consumption
UKDP
NUKDP
TOTAL
% NUKDP
tones
1990
4,170
4,170
0%
1991
4,100
50
4,150
1%
1992
3,790
255
4,045
6%
1993
3,520
680
4,200
16%
1994
3,050
1,350
4,400
31%
1995
2,600
2,500
5,100
49%
1996
2,215
3,885
6,100
64%
1997
1,875
4,925
6,800
72%
1998
1,800
5,600
7,400
76%
1999
2,000
6,500
8,500
76%
2000
2,100
7,325
9,425
78%
2001
2,700
6,800
9,500
72%
2002
2,800
7,500
10,300
73%
2003
2,830
7,870
10,700
74%
2004
2,950
7,950
10,900
73%
2005
3,100
7,800
10,900
72%
2006
3,400
7,500
10,900
69%
2007
3,550
7,450
11,000
68%
Source: (TMA, 2008)
2.2 Health Bill
Moreover, UK government has established Health Bill so as to control the tobacco products’ consumption. The Health Bill 2009 was introduced to Parliament on 15 January. It includes proposals to remove tobacco displays in shops and to restrict the sale of cigarettes from vending machines, which were discussed in the consultation on the future of tobacco control (Department of Health, 2009).
According to the Department of Health (2009), “It is intended that regulations would come into force for larger businesses in 2011 and into force for small shops in 2013”
2.3 Advertising Control
Lastly, the Tobacco Advertising and Promotion Act received Royal Assent on 7 November 2002 and came into force on 14 February 2003. The Tobacco Advertising and Promotion Act 2002 comprehensively bans the advertising and promotion of tobacco products including the use of brand-sharing and sponsorship of cultural and sport events (Old Ash, 2008).
Thee ban was implemented in stages as follows:
14 February 2003 – From that date it became illegal to advertise tobacco products on billboards, in newspapers and magazines. Direct mail was banned in May 2003 (Old Ash, 2008).
21 December 2004 - Regulations governing advertising at the point of sale came into effect. These limit advertising to one A5 sized ad per outlet (Old Ash, 2008).
31 July 2003 – Tobacco sponsorship of domestic sporting events was banned (Old Ash, 2008).
31 July 2005 – The ban on tobacco sponsorship of international events such as Formula One motor racing entered into force. In addition, regulations on brand-sharing came into effect. (Old Ash, 2008)
Discussion
3.1 Taxation
British government has increased tax on tobacco import and retail outlets rapidly by raising the price and reducing the cigarettes consumption. There is a close connection between the total tax revenue and the total cigarette consumption in the UK. Increasing taxes on tobacco encourages people to give up smoking or dissuades them to start in the first place and raises revenue for the Treasury thus reducing the need for taxes on jobs and investment. High tobacco tax, which is recommended by the World Bank (TMA, 2008), is recognized as a good health and economic policy.
3.2 Health Bill
By “restricting the sale of cigarettes from vending machines will prevent easy access to cigarettes by people underage” (Department of Health, 2009). According to the Department of Health (2009), vending machines present an easy opportunity for young people to buy cigarettes. The British Heart Foundation estimates that nearly 46,000 young people purchased cigarettes from vending machines in 2006 (Department of Health, 2009). Age-restricting vending machines will also help businesses to avoid selling tobacco to people underage for which they could face tough penalties (Department of Health, 2009).
3.3 Advertising Control
Virtually all tobacco advertising is now illegal in the UK and many other countries. In many cases this follows successful public health campaigns to persuade governments of the need for legislation to end the promotion of one of the deadliest consumer products (Old Ash, 2008). However, in many poor countries, tobacco companies continue to market their products using the tactics that have been outlawed in much of the industrialized world.
Conclusion
To sum up, there are three major ways to reduce cigarette consumption and was adopted by UK government. Firstly, by taxing the importer or retail outlets stores in a higher tax rate, supply of cigarettes tend to be decrease in theory, therefore the price rises up as the cost increases. When consumers are facing price fluctuation, they will be less willing to purchase. Secondly, Health Bills, the Bill prohibits the display of tobacco products at the point of sale and creates powers to control the sale of tobacco from vending machines. Lastly, advertising, despite efforts by governments to restrict or ban tobacco advertising, the tobacco industry continues to spend billions of pounds worldwide promoting its hazardous products. However, with less and less help of advertising and promotion, the effectiveness of promotion will decline.
Recommendation
Tobacco products cause addiction and tons of harmful effects towards smokers which are the consumers. Taxation, health bill and advertising control are three main methods to control the consumption of cigarette. However, it is apparently not effective though. Since cigarette is a special demerit good. It creates negative externalities which lead to a reduction in social economic welfare. The UK government may decide to intervene in the market of tobacco and impose taxes on producers and / or consumers. Higher taxes cause prices to rise but did not lead to a fall in demand. Therefore, regulation and legislation will be the most useful ways.
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