Economics论文模板 – Economics of Organizations

Introduction

Alcohol excise in the UK raises about $12 billion in revenue (Antony, 2014 June 12). This is a great contribution to the government revenue from a single sector of the economy. These significantly higher taxes compared to standard tax are used as a deterrent factor to alcohol consumption while at the same time act to fill budget deficits at the federal and state level. Alcohol excise however is at a low of 12 percent of pre-tax prices compared to 50% in 1970 (kenkel 1996).

The pub business in the United Kingdom has seen a sharp decline in the overall number of pubs. The business has been characterized with a steady rate of pubs closing down since the early 1980s. From 1980 a total of 21,000 pubs have been closed down or are no longer operational. Approximately half of all these bars having closed down after 2006 (London Economics, 2014).

This trend could be attributed to a number of factors affecting the pub business in the country. A combination of regulatory, economic and consumption trend changes have been proposed to explain this trend. Some of the reasons include failure of the PubCo business model, taxation, lower supermarket prices compared to pub prices, the recessions that have hit the British economy as well as the 1986 smoking ban (Berry, 2012).

A notable consumption trend is the change in alcohol consumption scenery. Former loyal pub goers are now opting in their great numbers to indulge at the comfort of their homes. Some argue that this is as a result of reduced alcohol prices in supermarkets and the introduction of the smoking ban. For instance, many pub owners attribute this to the consistently reducing numbers of people who drink in pubs (Angulo, 2001).

Reduced number of pub goers could also be argued from the point of view that pubs are no longer a necessity since. This could be due to the fact that more people now have comfortable housing and would simply just prefer to remain in the comforts of their houses and drink or smoke from there. The British people have also experienced a change in their drinking taste.

1. Trends in Alcohol Consumption

The UK has seen a dramatic change in its taste of alcohol. This has affected the pub’s fortunes. The figure below shows a steady rise in consumption of lager as compared to the traditional ale and stout which have seen a sharp decline in consumption (Kuhn, 2008).   

This trend has a negative impact on the pub business. unlike traditional ale and stout sold in the pubs  the larger sold in bottles or cans from off-license or supermarkets is identical to that sold from the taps of pubs increasing competition for the pub business,.
       The performance of the pub business is directly related to the sale of beer. This is bad news for the pub owners as sale of beer has seen a fall since 2003, beer consumption has fallen by thirty percent from 218 pints to 152 pints in 2011.

This decline has been in both licensed and off-license trading but affecting mostly the on trade business. The number of beer sold in the off trade has seen a reduction in 16% in 2013 from 2003 while the on trade has had a reduction of 54%. In the early times of the millennium almost all the beer was sold in on trade businesses (pubs). This observation shows that Britons are more particularly loosing their taste of beer sold in pubs. Britons are also reducing their consumption of alcohol in general, as of 2004 Britain has experienced an 18% decline in per capita alcohol consumption. This would explain closers of pubs, less pubs are required as people are drinking less.  

2. The PubCo Business Model

The PubCo business model entails a pub company buying a series of pubs and either manages them or rents them out. This business model arose because of a then new legislation known as ‘the Beer Orders’ which sought to reduce monopoly in alcohol retail. The legislation read that breweries were limited to a maximum of 2,000 tied pubs (London Economics, 2014). A majority of PubCos are tied; this means that the bars and pubs are obligated to buy products from the PubCo, this product mainly being beer.

       This PubCo tie and model at large has being on the receiving end of criticism. With critics saying that it has lead to the collapse of the pub industry in the UK (London Economics, 2014). Snowdon argues that the model clearly failed observing that both Enterprise inns and punch tervans each had losses of £2 billion each. Non-managed Pubs fell by 12% while those of the independent or freeholds fell by only 2% during the period of 2008-2012 (Antony, 2014 June 12).

       PubCo owned pubs declined by 3,500 during the 2009-2010 periods. During the same period independent owned pubs saw an increase of 3,025. This shows an increase of new entrants into the industry by the independent sector and also possibly the independent sector is buying of shares from the PubCo owned pubs. Snowdon also suggests that if viable pubs were closing or being traded off new pubs will open in order to satisfy the demand if it exists. 

       Snowdon observes that there exists a short term correlation between the number of pubs and income. During recessions income generally tends to go low and remains low even after the recession is declared over. Since 1980 there has been three recessions, the recessions occurred between 1980-1981 then 1990-1991 and the most recent one of 2008-2009 (British Beer and Pub Association, 2012).

As portrayed in the graph below, the number of pubs closing their doors permanently increased drastically during the times of recession and decline in income. The long term correlation of these two, income and pubs closing is generally negative. As shown in the graph below the general trend of income has been increasing but the general number of pubs has been decreasing due to closure.  

3. Snowdons Policy Solutions

       In his book Closing time, who’s killing the British pub? Briefing 14:08(December 2014), Christopher Snowdon analyses and comes up with some solutions which he suggests will save the British pub industry. Snowdon’s solutions include, reducing alcohol duty and reducing the VAT, amending the smoking act to allow pubs to accommodate smoking in their premises.

       In his solutions, Snowdon does not seem to have considered the effects if the solutions were to be implemented. Alcohol and smoking taxes are intentionally set above the normal standard rate by the government so as to curb the negative effects brought about by the addictive products. Essentially, it is the role of the government to protect its citizens even from themselves if need be. In light of this, and considering that people have inconsistent preferences to addictive goods taxation on these goods hiked to control their consumption by limiting their accessibility.    Smoking has been proven to have negative effects on human health and so has the excessive consumption of alcohol (Lohr, 2005). This health concerns have chipped in on the logic of taxing this products highly (Leung, 1981). If Snowdon’s suggestions are put in place and alcohol duty is reduced, VAT on these goods is also reduced and the smoking ban amended, this will translate to cheaper costs of alcohol and tobacco. With this products being cheaper more people will use them and fall victim to the adverse health complications brought on by this products.

   Alcohol consumption and smoking also has some negative externalities like drunken driving, crime and an increase in violent tendencies (Lohr, 2005). To curb or reduce this unwanted behavior from the society, the government has introduced extra taxes on these addictive goods. Snowdon’s suggestions that these taxes be lowered will only lead to an increase in the unwanted negative externalities. The polluters pay principle also applies to smoking and alcohol industry as most of the taxes collected from the taxation of these products is used on financing and strengthening health and environmental policy. These high taxes must be maintained in order to continue financing policy (Jones, 1995).

       Young people are more price sensitive than adults. This could be looked at from the point of view that adults have been using for longer and given the addictive nature of these goods (Townsend, 1994). Adults are less sensitive to price changes, from this we observe that if taxes are reduced the effect on youths will be more far reaching than in adults.

Conclusion

       From the above analysis of factors affecting the British pub business I conclude that alcohol taxes should remain as they are. This is because the taxes in place are not to blame for the closing down of pubs in the UK and to add to this the taxes in place act against negative externalities of alcohol and tobacco smoking.

The British culture is also evolving and drifting away from the pub business as many people now have comfortable housing and prefer to drink at the convenience and comfort of their own houses. This culture change can not be reversed by lowering the taxes or amending the smoking ban.

       The general income for the British people has been on the rise, only slowing down during times of recession and for the short periods of depressed income that followed. This is an indicator that the decline in purchase of alcohol at pubs is not as a result of reduced customer spending power.

       Pubs have suffered the most as a result of reduced beer sales. The business should come up with new models of effectively doing business and restructure the industry to appeal to new clients as well as maintain their current customers.

References

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