How will the United Kingdom’s planned action against electronic devices affect the economy?
November 3, 2023
The economics behind the UK’s planned ‘crackdown’ on vaping
Recent figures from Action on Smoking and Health show that the number of children using vapes in the past three years has tripled.
The figures prompted Prime Minister Rishi Sunak to promise action against vaping, which is to create the first ever ‘smoke-free generation’ in the UK by 2030.
In October 2023, The Department of Health and Social Care (DHSC) published a policy paper ‘Stopping the start: our new plan to create a smokefree generation’, which aims to deliver on Sunak’s promises.
We all remember sitting in biology class, learning about the harmful effects of smoking cigarettes and being left disgusted by images of the brown, damaged lungs and teeth of smokers.
We were most likely told it causes various cancers, heart strokes, lung diseases and weakens the immune system. But the message has not completely deterred young people, with teenagers switching to an allegedly ‘healthier’ alternative — vaping.
Speaking to The Guardian, the vice-president of policy for the Royal College of Paediatricians and Child Health (RCPCH), Dr Mike McKean, said that vaping leads to long-term addictions and lung damage, and that huge amounts of children spend significant money on the demerit good in which he believes they ‘are becoming addicted to a drug’.
In the Action on Smoking and Health (ASH)’s 2022 report, it estimated that 4.3 million people in the UK are regular vapers, labelling them to be in a “vaping revolution.”
Impact on customers
The decision to ban the sale of disposable vaping devices and flavours (currently, underage customers are only banned from buying vapes containing nicotine) will likely decrease the circulation of vapes consumed by teenagers. The government hopes that this will lead to lowering the proportion of the population that inhales harmful products to less than 5%.
Given how engraved the culture of vaping is amongst the UK youth, an abruptly introduced change may result in the emergence of a ‘black market’ – that is an illegal circulation of vaping devices and flavours. This would also make it easier for young people to access vapes containing nicotine, while currently, they can legally purchase only those not containing nicotine.
The change may also give rise to other harmful alternative nicotine substances such as snus, a finely ground smokeless tobacco product, which contain the same level or even higher amounts of nicotine.
Effectively, the effects of minimising the sales of vapes and its flavours may not have a noticeable impact in reducing the ‘epidemic’ of teenage vaping.
Other actions the government has taken, including regulating vape packaging and product presentation, regulating point-of-sale displays, and preventing the industry from giving out free samples of vapes to underage customers, seem to heavily reduce the exposure of young people to vapes.
Impact on vaping companies
According to Statista, the e-cigarette market in the UK made £3.2 billion in revenue in 2023. The size of this market has significantly increased in the past several years.
With the introduction of the Department of Health and Social Care’s policy on vaping, vaping firms based in the UK (such as Elf and Totally Wicked) can expect lower revenue and limited marketing opportunities.
As it is unclear to what extent the business model of these companies relies on young customers, it is not possible to assess how policy change may impact their operation.
Impact on public finances
A ‘demerit good’ is a good/service that leads to negative externalities as they are often over-consumed in the free market because of various reasons – in the case of vaping, it is due to imperfect information and a high level of addictiveness.
Government intervention takes place to regulate and influence economic activity – this is seen with vaping products being subject to VAT (20%), providing asymmetric information via designated sections of the NHS on vaping, and regulation of sales distribution and packaging.
A reduction in the sales of vapes by firms will undoubtedly shrink the government’s tax revenue. TaxLab, which is run by the Institute for Fiscal Studies, has forecasted that the UK government will receive £10.2 billion in tobacco duty tax by the end of this year (2023/24).
Despite only accounting for 1% of the total share of government receipts, this matter is further amplified with the notion of black markets.
Due to its platform of not paying any taxes to the government and still providing the overconsumption of vapes, this will create a huge opportunity cost of spending on education and healthcare (two key aspects in alleviating the effects of smoking).
Other examples may include easing the devastating impact of the cost of living crisis – resulting in the depletion of the youth’s quality of life as public spending falls.
Scaling down the operation of UK-based vaping companies does not only affect shareholders, but also the employees of these companies – in the UK, there are around 2,900 specialist stores.
On the other hand, the government may expect lower costs related to healthcare. In 2022, the Action on Smoking and Health campaign estimated that costs of smoking in England exceed £17bn annually. Effectively, limiting the consumption of tobacco and vapes may allow the government to save on public expenditure.