Obesity is on the rise, especially in children. With all the attendant health problems, concern is growing and various policies have been proposed to try to tackle the problem. One such policy is a sugar tax. This could be either a universal tax on sugar in food products or a tax just on soft drinks, many of which are very high in sugar – typically about seven teaspoons in a can or individual bottle.
Currently the issue is being considered by the UK’s Parliamentary Health Select Committee. Jamie Oliver, the TV chef and restaurateur, argued strongly before the committee in favour of a sugar tax on fizzy drinks. He has already imposed a levy on soft drinks with added sugar in his restaurants. He maintained that it was not just the higher price from a sugar tax that would deter consumption of such drinks, but it would send out an important message that too much sugar is bad for you.
Two days later, Dr Alison Tedstone appeared before the committee. She is chief nutritionist at Public Health England. PHE has been carrying out research into obesity and ways of tackling it. It has reviewed two types of evidence: experimental data on the effects of imposing higher prices on products with added sugar; and the effects of policies pursued in other countries. She stated to the committee that ‘universally all the evidence shows that the tax does decrease consumption’ and that ‘the higher the tax increase, the greater the effect’.
The government was not planning to publish the report at this stage, but under considerable pressure agreed to its publication.
The articles look at the prospects for a sugar tax, its likely effects if one were introduced and at the politics of the situation, which are likely to result in such a tax being rejected.
Videos and audio podcasts
Can you be trusted to eat less sugar? BBC News, Hugh Pym (22/10/15)
‘Introduce sugar tax’, health officials tell government Channel 4 News, Victoria Macdonald (22/10/15)
Jamie Oliver: ‘Bold’ sugar tax to beat childhood obesity BBC News, Hugh Pym (19/10/15)
Be bold on sugar tax, Jamie Oliver says BBC News, Nick Triggle (19/10/15)
Health scientists’ links with sugar industry queried BBC News, Dominic Hughes (12/2/15)
Mexico’s soda tax is starting to change some habits, say health advocates PRI’s The World on YouTube, Jill Replogle (2/12/14)
Articles
Jeremy Hunt told sugar tax would cut childhood obesity as review Government tried to suppress is published Independent, Charlie Cooper (20/10/15)
Sugar tax could help solve Britain’s obesity crisis, expert tells MPs The Guardian, Ben Quinn (21/10/15)
Jamie Oliver ‘expects kicking’ over sugar tax The Guardian, Jessica Elgot (22/10/15)
Sugar tax, fat fines and gold coins: new ways cities are tackling obesity The Guardian, Sarah Johnson (22/10/15)
Sugar tax and offers ban ‘would work’ BBC News (22/10/15)
Public Health England tells UK government: Sugar taxes do work FoodNavigator.com, Niamh Michail (21/10/15)
Childhood Obesity Partially Down To The Coco Pops Monkey, Sugar Tax Report Claims Huffington Post, Sarah Ann Harris (21/10/15)
Health officials back a sugar tax – and want the Coco Pops monkey banned The Telegraph, Laura Donnelly (20/10/15)
Jeremy Hunt embroiled in row over sugar tax report The Telegraph, Laura Donnelly (11/10/15)
Revealed: ‘Sugar tax report’ which was suppressed by Government The Telegraph, Laura Donnelly (22/10/15)
Public Health England obesity report: the key points The Guardian, James Meikle (22/10/15)
Cameron says no to sugar tax Mail Online, Jason Groves and Daniel Martin (21/10/15)
Sugar tax: Former health minister backs levy to prevent NHS ‘obesity crisis’ Independent, Charlie Cooper (21/10/15)
Journal articles and reports
Sugar Reduction: The evidence for action Public Health England, Dr Alison Tedstone, Victoria Targett, Dr Rachel Allen and staff at PHE (22/10/15)
Effects of a fizzy drink tax on obesity rates estimated NHS CHoices (1/11/13)
Overall and income specific effect on prevalence of overweight and obesity of 20% sugar sweetened drink tax in UK: econometric and comparative risk assessment modelling study British Medical Journal, Adam D M Briggs, Oliver T Mytton, Ariane Kehlbacher, Richard Tiffin, Mike Rayner and Peter Scarborough (2013;347:f6189)
Perspectives: Time for a sugary drinks tax in the UK? Journal of Public Health, Oliver Mytton (29/5/14)
Sugar reduction: Responding to the challenge Public Health England, Dr Alison Tedstone, Ms Sally Anderson and Dr Rachel Allen and staff at PHE (June 2014)
Questions
- What factors are driving the current high consumption of sugar?
- How is the concept of price elasticity of demand relevant to the effectiveness of imposing a sugar tax?
- What would determine the incidence of such a tax between food and drink manufacturers and consumers?
- Would such a tax be progressive, regressive or neutral? Explain.
- What other policies could be pursued to discourage the consumption of sugar? Discuss their likely effectiveness and compare them with a sugar tax.
- What externalities are involved in sugar consumption? How would you set about measuring them? Should a sugar tax be set at a rate that internalises the estimated externalities?
- Examine the objections to imposing a sugar tax.
The housing market can be divided into two areas: owner-occupied and rental. Many news articles have focused on the problems in owner-occupation with house prices preventing first-time buyers from getting on the property ladder and forcing young people to move out of areas where they grew up. Second homes, foreign investors and a shortage of affordable housing have all added to the problems in this part of the housing market. But what about the rental market?
Many people have been forced to consider rental accommodation due to the affordability issues with owner-occupation. But, with more and more people demanding rental properties, affordability in this sector is also becoming a problem. Latest figures from Your Move and Reeds Rains suggest that rents have increased 
by around 6.3% over the past year to an average of £816 per month. This has occurred, despite inflation being at very low levels.
The average increase in rents has varied across the UK, as is the case with average increases in house prices, but looking at the UK-wide data in both cases, house price growth appears to have been out-stripped by rental price growth. This spells trouble for the government which is already under pressure to address the housing shortage. Adrian Gill, Director of the two firms has said:
“Rents have been growing faster than ever – particularly in real terms, given inflation has essentially been zero since February. Across the country, towns and cities are seeing demand from local tenants outstrip the supply of properties to let, with inevitable effects on rents. There is little sign yet of this cooling substantially as the autumn progresses.”
So definitely bad news for those in rented accommodation, especially in places like London, where average rents are up 11.6%, and the East of England, where they have increased by 8.8%. However, this report will make for happier reading for landlords, who will not only see an increase in their rental income, but will also recognise that the value of the house itself has increased.
The following articles consider the housing market and in particular, the latest data on rental prices.
Average monthly rent hits record high of £816, highlighting housing shortage The Guardian, Rupert Jones (16/10/15)
Tenants ‘face 6.3% annual rent rise’ BBC News, Kevin Peachey (16/10/15)
London Skyscraper rents rise 11%, Hong Jong remains priciest Bloomberg, Neil Callanan (14/10/15)
Buy-to-let investors earn near 10% a year Introducer Today, Harvey Jones (16/10/15)
Rent rises slower in Scotland Herald Scotland, Jody Harrison (21/10/15)
Record rents as property shortage deepens Sky News (16/10/15)
Generation rent: the reluctant rise of the older tenant The Telegraph, Hannah Betts (3/10/15)
Questions
- Use a demand and supply diagram to explain the housing problem.
- If the main cause of the housing issue is house price rises, why has this affected the rental market so badly?
- What are the solutions to the housing problem? In each case, explain whether it is a demand- or supply-side solution.
- Why is the rate of consumer price inflation important when thinking about house price or rental price increases?
- Given the regional differences in house prices, does the government have a role to intervene here? How could governments affect regional variations in house prices?
Most of us will have milk in our fridges – it’s a basic product consumed by the majority of people on a daily basis and hence a common feature of most shopping trolleys. As we saw in the post Got milk?, the low price of milk has been causing problems for farmers. This has caused one Morrisons store to take a different approach.
In the increasingly globalised world, British dairy farmers are no longer competing against each other. The global market place means that they are now facing growing competition from abroad and in this global world, supply exceeds demand. Even in the EU, the member states in 2015 are exceeding the milk production levels from 2014. In many markets, we wouldn’t be so concerned about production (or supply) rising, as demand can keep pace. However, in the market for milk, it’s not a product that you consume (that much) more of as your income rises. So, as the world gets richer, demand for milk is not increasing at the same pace as supply – demand in China has collapsed. This means that prices are being forced down. Adding to this global market place, we saw the European Union remove its quotas on milk production, thus boosting supply and Russian bans on imports.
The farmers themselves are in a tricky situation. They are often the small players in the supply chain, with prices being forced down by customers, supermarkets and milk processors. AHDB Dairy, the trade body, says that the average price of milk has decreased to just 23.66p per litre. According to leading industry experts this is well below the costs of production, suggested to be closer to 30p per litre. If these figures are even close to being accurate, then clearly dairy farmers’ costs of production per litre are no longer covered by the price they receive. Every litre of milk produced represents a loss.
The price that supermarkets pay to farmers for milk does vary, with some such as Marks and Spencer and Tesco ensuring that they pay farmers a price above cost. However, Morrisons in Bradford has adopted a new strategy and brand. 
Their new milk brand ‘Morrisons Milk for Farmers’ has been launched at a 23p price rise for every four pint bottle. The catch: they will become the first UK retailer where the 23p price hike goes directly to farmers. This represents 10 pence per litre of milk going directly back to the farmers that produce it. This is a bold strategy, but data and surveys do suggest a willingness to pay more from customers, if it means that dairy farmers get a fairer deal. The protests we have seen across the country have certainly helped to generate interest and created awareness of the difficulties that many farmers are facing. Rob Harrison from the NFU said:
“We are pleased that Morrisons has acknowledged the desperate situation that many dairy farmers still find themselves in and recognise that retailers have a big role to play in, helping customers to support the UK dairy sector…
…Research from Mintel revealed over half of people who drink cows milk, would be prepared to pay more than £1 for a four-pint bottle of milk, as long as it is dairy farmers that benefit. This new initiative will enable them to do just that. The 10p a litre extra will go directly back into the dairy sector will make a difference on farm.”
The interesting thing will be to observe the impact on sales following this 23p price rise. We would normally expect customers to look for the cheaper substitutes, but evidence does suggest that British consumers are willing to pay the price premium if it means helping British farmers. A similar strategy adopted for British Cheddar Cheese proved fruitful and over the coming weeks, we will see if the average consumer is willing to pay directly the dairy farmers. The following articles consider this topic.
Morrisons milk for farmers brand goes nationwide at £1.12 for four pints The Grocer, Carina Perkins (12/10/15)
Morrisons to create new milk brand for farmers BBC News (11/10/15)
Milk price row: farming union leaders meet Morrisons bosses The Guardian, Graham Ruddick (11/10/15)
Morrisons to sell new ‘Milk for farmers’ brand to support British dairy producers Independent, Loulla-Mae Eleftheriou-Smith (11/8/15)
Government to give one-off milk payment for dairy farmers as Morrisons launches premium milk brand City A.M., Catherine Neilan (12/10/15)
New Morrisons milk brand pays farmers more The Yorkshire Post (12/10/15)
Questions
- Using demand and supply analysis, explain which factors have caused the price of milk to fall.
- When incomes rise, the demand for milk does not really change. What does this suggest about the income elasticity of demand for milk and the type of product that it is?
- If prices rise and sales also rise, does this suggest that British milk has an upward sloping demand curve?
- If we do see little effect on the demand for milk following Morrisons 23p price rise, what conclusion can we come to about the price elasticity of demand?
- Why do supermarkets and milk processors have the power to force down prices paid to dairy farmers?
- What type of market structure do you think dairy farmers compete in?
- If dairy farmers are unable to sell a litre of milk for a higher price than it costs to produce, is it a sensible strategy for them to remain in the market?
German Engineering has dominated for decades and is seen as the pinnacle of quality and the key to manufacturing long-lasting products. But are long-lasting products a good strategy for a company? If products break quickly, customers need to replace them and this encourages more spending. But does this encourage customers to switch to other suppliers? Instead, do high quality products that don’t require replacement but demand a higher price offset this lack of repeat custom?
Markus Miele is the Chief Executive of Miele, the German domestic appliance manufacturer and he takes a personal interest in his products and customers. Typical appliances from Miele can cost up to twice as much as similar appliances from other companies and yet this company is going from strength to strength. Rather than selling products that need frequent replacements, Miele is proud of its strategy to retain customers by selling products at a very high price, knowing that they will last for years. Customers appear equally willing to pay this high price for big consumer durables and their long-lasting nature is clearly encouraging its customers to buy other products too. This strategy has been so successful that other big companies are now targeting these customers. Anthony Williams, from GfK said:
“Evidence suggests manufacturers are putting in money to ensure good build quality…There are so many standards that now have to be adhered to, particularly for hi-tech products, by the nature of the product they have to make sure the [manufacturing] environment is very carefully monitored.”
The following article from BBC News considers the market for domestic appliances and the role of durability.
Can you charge double and still keep your customers coming back? BBC News, Lucy Hooker (2/10/15)
Questions
- How important is the concept of price elasticity of demand in determining a company’s strategy?
- If other firms are targeting a similar strategy to that of Miele, what might this mean for prices?
- How does the brand ‘made in Germany’ affect the demand for a product? Is there imperfect information here?
- With increase competition, companies such as Miele may be pressured into moving into cheaper production markets. How would this affect the company?
- Will the recent scandal at VW have a negative impact on companies such as Miele who rely on the ‘brand Germany’?
The 2015 Rugby World Cup is now well under-way, with record crowds, surprising results and some heartbreak. But what about the economic impact of the Rugby World Cup? Big sporting events bring in spectators (estimated to be 466,000), athletes and crucially they all spend money. But what happens when the host country doesn’t make it through? Unfortunately for all England fans out there, this is a very relevant question.
Go to the area surrounding a stadium on the day of a rugby world cup match and you will barely find a pub with any room to move. Spending on drinks and food in local pubs and restaurants on match days is extremely high and many hotels are at breaking point with reservations. Predictions were that there would be an increase in direct expenditure by international visitors of £869 million. A report by Ernst and Young looked at the Economic Impact of the Rugby World Cup 2015 and it provides detailed analysis of how such sporting events can generate benefits to the host nation. The highlights are:
- £2.2 billion of output into the economy
- £982 million of value added to national GDP
- £85 million in infrastructure
- 41,000 jobs across the country
- £1 billion of added value
But, what happens when you take out the host team? Suddenly we see less interest in the daily matches and the feel good spirit takes a dive. Of course, the other home teams are still around and English fans are being encouraged to support them, but commentators suggested that this early exit will have a significant economic impact. Alex Edmans from the London Business School suggests that when a host nation exits a rugby sporting event at an early stage, the pessimism can wipe 0.15% of the stock market the following day. This translates to around £3 billion for the UK. He noted:
A defeat makes investors more negative about life in general. If England were to lose, they wouldn’t just be negative about the England rugby team but also about economic outcomes in general.
Advertising revenues may also be hit, with a significant impact on ITV, who are showing all matches. With England out, the value of advertising slots has fallen and the advertising impact on some of the key England sponsors, such as O2, may be significant. However, English ticket holders may use this as an opportunity to make money, selling on their tickets to fans of surviving teams! The following articles and report from Ernst and Young consider this latest major sporting event that has come to the UK.
Articles
The Economic Impact of Rugby World Cup 2015 Ernst and Young 2014
An England Rugby World Cup exit could have knock-on effect for our stock market The Guardian, Sean Farrell (1/10/15)
Brands cheer on Rugby World Cup in face of England’s exit Financial Times, Malcolm Moore (4/10/15)
Rugby World Cup 2015: Early England exit could cost country £3bn International Business Times, Alfred Joyner (6/10/15)
Rugby World Cup brands play down commercial losses of England’s ‘lacklustre’ exit The Drum, Seb Joseph (5/10/15)
Questions
- What is an Economic Impact Analysis?
- How would you estimate the size of the multiplier effect of a sporting event, such as the Rugby World Cup?
- Following England’s exit, what happened to the stock market?
- How will media companies be affected by the Rugby World Cup and by England’s exit?
- Why do emotions affect the stock market?
- Do you think England’s exit will lead to greater spending in other parts of the country, such as Scotland and Wales, as England fans defect?
