Hook£6bn a year, and rising
The NHS spent an estimated £6.5bn on obesity-related conditions in 2024. None of that cost sits on the can of Coke. Every time a sugary drink is bought, society absorbs a small slice of long-run NHS spending that the buyer never sees on the receipt. Economists call this a negative consumption externality: the private cost (what you pay) sits below the social cost (what your buying actually imposes), so the unregulated market over-consumes.
The Sugar Tax is the textbook intervention: a Pigouvian tax designed to push the price up by roughly the marginal external cost, so private decision-makers face the social cost. It is not designed to raise revenue. It is not designed to "discourage" in some moral sense. It is designed to correct the divergence between MPC and MSC.
ModelFive flavours of failure
Externalities (positive/negative, consumption/production) drive MPC/MPB apart from MSC/MSB. Public goods (non-rival, non-excludable: street lighting, national defence) are under-supplied because of free-riding. Information asymmetries (used cars, pension products) cause adverse selection and moral hazard. Merit and demerit goods (education, healthcare; tobacco, gambling) — consumption diverges from what individuals would choose with perfect information. Market power (monopoly, oligopoly) — supply diverges from competitive output.
The interventions follow the failure: tax/subsidy to internalise an externality, public provision for public goods, regulation/disclosure for info gaps, paternalism for demerit goods, competition policy for market power. The mark scheme reward is for matching intervention to failure, not just listing both lists.
ExamWhat examiners want
Draw the diagram. The MSB/MSC divergence with the welfare-loss triangle shaded in is what separates a 6/12 essay from a 10/12 one. If your answer doesn't reference a specific diagram, you're below the band.
And always argue both sides of the intervention. Government intervention can fail too — regulatory capture, unintended consequences, information shortages on the regulator's side. The Sugar Tax is a partial success; saying so is more credible than calling it a "good policy".