Government Interventions to Correct Market Failure in the U.K.
Country of choice: United Kingdom
3 examples
1. Sugar Tax (On 6th April 2018, the UK Government intro- duced the Soft Drinks Industry Levy (SDIL) as a policy designed to reduce population level sugar consumption and related illnesses.
Government official statement: https://www(dot)gov(dot)uk/government/news/soft-drinks-industry-levy-comes-into-effect)
2. Energy Tariff Cap (A price cap on default energy tariffs (including standard variable tariffs or ‘SVTs’) came into force on 1 January 2019
https://www(dot)ofgem(dot)gov(dot)uk/sites/default/files/docs/2020/07/ofg1125_price_cap_info_sheet.pdf)
3. Doctoral loan
Up to £25,000 income contingent loan.
Doctoral loan product in Budget 2016
Necessary diagrams (must be hand drawn):
1. Market failure diagram + government intervention
2. Negative externalities of consumption + tax (for example 1)
3. Maximum price equilibrium diagram (for example 2)
Referencing: MUST BE Harvard Leeds referencing (list in alphabetical order)
Tips: Analyse mostly on government failure
Cannot use articles or any newspapers for referencing
Follow the guide, attached document carefully
GOVERNMENT INTERVENTIONS TO CORRECT MARKET FAILURE DO MORE HARM THAN GOOD
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It is essential to have an active government that cares about the welfare of its people in terms of pricing, production, and consumption of products and services. One way governments intervene to promote market and general economic fairness is by developing policies to control the pricing of commodities. This way, consumers are protected from overcharging since the prices remain standard and change with changes in the cost of production. Anon (2011; 2020); Das (2021, p. 312) imply that examples of such interventions by governments include regulating negative externalities such as overcharging, environmental pollution, and obesity among consumers due to the diet content of manufactured products breaking up monopolies. For instance, monopolies control market prices at the expense of the consumers due to a lack of competition, hence exploiting consumers based on “pay if you need it or stay without.” Sometimes governments fail when they develop interventions to correct market failure and end up causing more harm. This has been the case with many governments on several occasions, where they design strategies to have standard prices for consumers, but instead, there is more harm to either the producers, the consumers, or all parties involved in the production, supply, and consumption (Saunders 2017; Solimano 2005, p. 145). For instance, the U.K. government has been a victim of such scenarios. It placed several policies and directives to control and correct the market, but the results were more detrimental effects.
Examples of when the U.K. government became a victim of more harm resulting from its interventions to correct market failures are the sugar tax policy, energy tariff cap, and the doctoral loan. These interventions were made to benefit consumers but ended up hurting other entities and even the consumers due to changes occurring due to unseen internal and external influences.
Sugar Tax Policy by the U.K. Government
The Sugar Tax by the U.K. government was introduced on April 6, 2018. This policy was introduced to promote reduced sugar intake among school children to fight obesity, where the majority of obese children carried the obesity attributes into adulthood (Treasury 2018). This policy provided that companies would pay 24p per liter for drinks containing 8 grams of sugar per 100 ml and 18p per liter for drinks containing 5-8 grams of sugar per 100 ml. The implementation of this policy was meant to ensure that companies producing drinks with high sugar content paid levies that could support student sports in schools and promote healthy student lives by catering to healthy breakfast clubs. On the contrary, the impacts of this policy were not as expected since there were some direct and indirect changes in purchasing and remittance of levies. Due to the imposed levies for the different sugar concentrations, there were increased prices for the drinks. The increased costs were because of an increase in taxation to help cater to health-promoting activities of school children.
Consequently, there were reduced purchas...
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