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The Chancellor of the Exchequer proposes an increase in taxation of alcoholic spirits, except beer and wine by 2%. - Write a 1500 word essay analyzing the impact on the groups likely to be affected and whether you think the representatives have a strong c

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Introduction

The Chancellor of the Exchequer proposes an increase in taxation of alcoholic spirits, except beer and wine by 2%. A number of protests are made from various groups, amongst which a group of local representatives from Scotland arguing that Scotland is exempt of the tax. They approach you for an informed opinion. Write a 1500 word essay analyzing the impact on the groups likely to be affected and whether you think the representatives have a strong case. Tax is a useful policy instrument used by a government and affects people's lives in many ways. This devise for the government is an efficient way to raise revenue.(David Begg, 1994.) This tax proposal put forward by the Chancellor of the Exchequer is a normative statement, prescribing a tax increase of 2% on alcoholic spirits. Controversy is expected with this proposal and this taxation is already being questioned by some Scottish people. This proposal would have a great impact on the nation especially since it is taxing a good that is sells so well in the country. Many different sectors of society are affected by this proposal, therefore I must analyse what the effects of a 2% tax increase proposal considering all the varying sectors of society. ...read more.

Middle

Although the tax is being increased on alcohol every year these figures clearly show that the consumer is continuing to purchase alcohol. This in turn signifies that no matter how much tax is imposed on alcoholic spirits the consumer will continue buying it even though they are being burdened with the tax. Also it has been recorded that alcohol consumption has increased by 50% since 1970. (http://news.bbc.co.uk/1/hi/health/3533315.stm) This enhances my argument as to how alcoholic spirits have an inelastic demand. The consumer is willing to pay the tax on alcohol. This theory is illustrated on graph 2. The demand curve in this case is not very slanted (D) as the demand is relatively inelastic. The red shading shows the producer surplus, this is much less than that of alcoholic spirits with an elastic demand. The blue shading shows the producer surplus. Evidently the consumer pays much more tax than the producer in this case. This makes the price of alcoholic spirits more expensive for a consumer. In this case the beer and wine markets will not be affected as the consumer is willing to pay the increased amount of tax on the alcoholic spirits. ...read more.

Conclusion

If this tax is proposed it may well result in a great upheaval within the Scottish economy and result in subsequent jobs losses for many people as Scotch distilleries provide a high amount of employment e.g. the recent opening of Perthshire's Tullibardine Distillery, creating 120 jobs. The spirit industry is very popular too regarding tourism attracting thousands of people annually. (http://www.whiskymag.com/links/producers_and_distilleries.html) In conclusion, considering the situation of all the different market sectors and the Scottish viewpoint I understand that alcohol would be a major target for the government to propose indirect tax as demand will remain constant. This is a useful means of increasing government revenue. It is also apparent that alcohol is without a doubt very inelastic. Almost a constant amount is consumed regardless of price. (Page 182, Murray Wolfson, 1978.) This is only a proposal and the Chancellor of the Exchequer usually only increases alcohol taxation once a year in his budget. Scotland will have to work hard to support their case. The consumer loses out with this proposal, as he has to pay more as taxation is burdening him, however I have outlined his choices and he has available substitutes. In the end it is a question of a consumer's disposable income as to what extent this tax could potentially burden him. Word Count (excluding refernces.) =1,445 ...read more.

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