Fast food drinks face 25p tax as government looks to extend the 'latte levy' to

crack down on plastic cups

By Georgia Edkins For The Daily Mail
Published: 21:00 EDT, 13 September 2018 | Updated: 02:05 EDT, 14 September
2018
Fast food chains could face a 25p tax on plastic drinking cups as the Treasury looks to extend the 'latte
levy', according to reports. The Chancellor of the Exchequer Philip Hammond, who is already poised to
slap the tax on plastic coffee cups in his upcoming Budget, is looking to extend it to the drinks
containers used by chains like McDonald's. The possible move comes after a record 162,000 Britons
responded to a Treasury consultation on how to deal with throwaway plastic packaging.
Earlier this year, Parliament's cross-party environmental audit committee called for a 'latte levy' on
disposable coffee cups to help reduce waste and encourage recycling.
Ministers suggested a 25p tax to tackle plastic waste from coffee franchises such as Starbucks and
Costa Coffee. The firms would either have to pass this cost on to customers or use other types of cups.
Around 2.5 billion coffee cups, which are lined with a thin layer of plastic, are thrown away each year
and only one in 400 are recycled.
Levies could also be introduced on a number of other single-use items, such as black plastic trays used
as packaging for vegetables, as part of the continuing war on plastic pollution.
And it now seems that Treasury officials might also target the plastic lining of fast food chain cups, the
Sun reported.
Concerns have been raised that while customers of coffee chains may be willing to pay the extra cost,
many of those who go to fast food restaurants such as McDonald's and KFC may be unreasonably
targeted.
Last night Chris Snowdon of the Institute of Economic Affairs said a tax would be a 'slap in the face' for
poorer families.
He said: 'If this tax grab goes ahead it will be another slap in the face for people struggling with the
cost of living.
'If the government wants to encourage economic growth it should be cutting taxes, not discriminating
against people on the basis of what they eat and drink.'
But industry insiders have been told that 'nothing is off the table' in terms of attempts to reduce
plastic waste in Mr. Hammond's upcoming Autumn Budget.
A senior Treasury official last month told the Mail that the department would also be trying to use
taxes to cut the use of 'virgin' plastic so producers used more recycled material.
Currently, only a third of our plastic packaging is being recycled – with the rest heading for landfill or
incineration.
The Mail's Turn the Tide on Plastic campaign has already led to the introduction of a 5p levy on plastic
bags, a ban on microbeads and pledges of action on a range of other items like plastic stirrers.
Last month, Robert Jenrick, Exchequer Secretary to the Treasury, thanked the Mail for its 'powerful'
voice on plastic waste, and added: 'We want to drive systemic change throughout the whole of the
supply chain to encourage producers of single-use plastics to take greater responsibility to make the
right choices when they make the packaging that ends up on shelves.'
Catalogue：
1． Introduction
2． First section-Externality
3． Second section-Demand
4． Evaluation
Introduction
The article discusses the U.S possible decision to levy tax on plastic drinking cups to help reduce
waste and encourage recycling. The use of plastic drinking cups is very frequent in fast food
industry. It is an idea to restrict fast food by increasing the cost of production of one of its key
factor of production. Therefore, this commentary will analyze the motives and outcomes of the
policy and evaluate its effectiveness.

Fast food has negative externalities of consumption, meaning that a third party is adversely
affected due to overconsumption of fast food. This is a case of market failure, as market forces
alone fail to allocate resources efficiently because consumers act in their own interests and neglect
social costs. The diagram below illustrates this point.

First Section

Diagram 1. Negative externalities of consumption of fast food

In diagram 1, marginal private costs (MPC, the total cost consumers or businesses pays for the
consumption of another unit of good in the economy) are equal to marginal social costs (MSC, the
total cost society pays for the production of another unit of good in the economy) since the
production of fast food itself does not generate any externality in the economy. However, marginal
private benefits (benefits consumers and businesses gain from their consumption of another unit of
good) are above marginal social benefits (benefits society get from the consumption of an extra
unit of good) for every unit of good consumed. Each unit creates social cost. In a comparatively
free market, like the U.S, consumers would maximize private benefits by consuming at the level
where MPB=MSC (X1), but this produces external costs for a third party which is not relevant to
either consumption or production. For example, time, money and energy spent treating patients
with health conditions that are exacerbated by their consumption of fast food. affects the
efficiency, availability and cost of medical care. Because the social optimum level is at
MSB=MSC (X2), the over-consumption of Q2 to Q1 and a welfare loss is indicated in the shaded
area.

Second section
To eliminate negative externalities and correct market failure, the government is motivated to
impose tax on the production of fast food, plastic drinking cups. It would increase the cost of
producing fast food to consumers and increase the price of fast food as well. With the increase in
price, it would decrease the demand for fast food as shown in the diagram.
The factor that affects the demand for fast food is the price of its complementary good, which
moves along the demand curve instead of shifting the demand curve. The demand curve does not
shift. The price increases from P1 to P2. The demand moves from X1 to X2. The quantity
demanded decreases from Q1 to Q2. It surely meet the purpose of issuing the tax on plastic
drinking cups.
Evaluation
Other than reducing the demand for fast food, making the cost of producing plastic drinking cups
is also a method to eliminate externality. The plastic cup is a type of nondegradable good which
requires a lot of time and effort to recycle or simply destroy it. The graph of plastic cup is the
same as the first one. It creates social cost with each unit of consumption. Negative externalities
like being lethal to animals that eat the plastic cup by mistake.
However, the imposition of tax on plastic cups might make poor families worse off. As mentioned
in the passage, many consumers who usually take fast food are unreasonably targeted. Since fast
food is an acceptable burden for many poor families, the extra cost on plastic drinking cups surely
increase their cost of living. It’s not easy for these families to locate a substitute with cheaper
prices.
On the other hand, the increase in the cost of producing the fast food may result in the
unemployment of some unskilled workers. In order to keep the cost of production low or the same,
the restaurants might cut the number of workers. These unskilled, unemployed people may cause
social problems and burden the government in more budget on the unemployment benefit.
Therefore, in order to cooperate all of these problems. The government could use the taxation they
gain from the producers to provide more social welfare to low-income families and unemployment
benefits. The government should think carefully before they purpose the tax on plastic drinking
cups. The tax could reduce the pollution of plastic and the negative externality of fast food, but
also include the opportunity cost of decreasing the living quality of poor families and some
unskilled workers.

Source:
https://www.dailymail.co.uk/news/article-6166445/Fast-food-drinks-face-25p-tax.html