A minimum alcohol price would hit the poorest hardest

Cameron's new policy would further squeeze those on low incomes.

If David Cameron's announcement of a minimum price for alcohol was designed to distract attention from the Budget [Paul Waugh notes that in the last 10 years there have only been three ministerial statements on a Friday], it seems an odd choice of policy. At a time of falling real wages, here's yet another policy that tightens the squeeze on consumers.

The proposed 40p minimum unit price would increase the price of a £2.99 bottle of red wine to £3.76, the price of a 75p can of lager to £1.20 and the price of an 87p can of strong cider to £1.60. In addition, the government is considering banning the sale of multi-buy discount deals [e.g two crates for £20] in supermarkets. The Guardian notes that at 40p a unit, two 20-pack crates of Strongbow cider would cost a minimum of £37.30 as opposed to £20 at present.

Cameron's justification for the policy is that it could mean "50,000 fewer crimes each year and 900 fewer alcohol related deaths per year by the end of the decade." But whether or not these claims are born out [and if it doesn't work, will the government increase the price further?], the policy has two major shortcomings. First, that it penalises responsible as well as irresponsible drinkers [an approach at odds with Cameron's traditional emphasis on "individual responsibility"] and second that it hits the poorest hardest. As a recent ONS study noted:

People in poorer households spend a greater proportion of their disposable income on alcohol duty than higher wage earners.

In addition, any windfall will go to retailers and drinks manufacturers, rather than the state, which could use it for deficit reduction or alcohol-related programmes.

It's for these reasons that some in the cabinet, most notably Andrew Lansley, are sceptical. The Health Secretary told the Spectator last year:

I don't like a minimum price, we are acting against below cost selling. My problem with a minimum price, well I have two problems. One is it's regressive, so there are perfectly normal families who just don't happen to have much money who like to buy cheap beer or cheap wine. Should they be prevented? No, I don't think so and if you put in a minimum price, one of the journalists calculated that if you set it at 50p a unit it would add £600 million to the profits of retailers and drinks manufacturers which doesn't seem to me to be the right thing to do in these circumstances.

But, unsurprisingly, the hapless Lansley has been overruled.

There could, however, be some virtuous outcomes from the policy. It could help revive the pub trade, where the minimum unit price already exceeds 40p, by reducing the availability of cheap supermarket alcohol. In turn, this could encourage more sociable drinking.

But what do the public think? According to a recent ComRes poll, 44 per cent are in favour, with 41 per cent opposed. The political problem for Cameron is that, at a time of austerity, this is yet another policy that hits the poorest hardest. Forget the "squeezed middle", minimum pricing will hit the squashed bottom.

George Eaton is political editor of the New Statesman.

Show Hide image

Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: www.oldmutualwealth.co.uk/ products-and-investments/ pensions/pensions2015/