The minimum price dilemma

Yes, minimum prices put money in the pockets of the supermarkets - but that's the necessary evil of the project.

The IFS yesterday released its analysis of the effect of a minimum price for alcohol, and it made some interesting points.

Far from what one would believe from Theresa May's statement on the matter, and the press focus on "supermarket multi-buys" and "cut-price alcohol", it is by no means just the cheapest booze which would be hit by a proposed floor of 40p a unit. With the average price-per-unit just 44.8p in their sample, a total of 47.8 per cent of drinks would have their prices hit by the changes. For some types, it's even worse. Over 80 per cent of ciders will see price increases.

The correlations between price and wealth, and price and quantity consumed, are as you would expect (or even slightly weaker):

The average price for those with incomes below £10,000 per year is around 42p per unit, compared to 51p for those above £60,000. Households consuming fewer than 7 units of alcohol per adult per week pay almost 49p per unit, compared to 41p for those consuming more than 35 units.

One area where the report isn't quite so compelling, however, is in its call for minimum pricing to be enacted through the tax system rather than a simple floor.

In this, the authors echo an argument made by Matt Cavanagh in the Spectator last month (Cavanagh clearly being psychic, he managed to address the issues a month before the Home Secretary even raised them), when he wrote:

Last year’s IFS study [pdf] estimated that, assuming ‘no behavioural response from consumers and no wider price effects’, the 45p MUP proposed by the SNP in 2010, if introduced across the UK, ‘would transfer £1.4 billion from alcohol consumers to producers and retailers’. By contrast, an MUP implemented indirectly, via changes in duty, would transfer this money to the Exchequer, which could reduce the need for spending cuts or tax increases elsewhere.

The problem for both the IFS and Cavanagh is that the single biggest argument the government has in favour of minimum pricing is wrecked if it is implemented through duty.

The rough plan (which would still be an enormous shake-up to the current way "sin taxes" are administered, and is likely illegal under EU law) would involve changing duty so that it is charged at a flat rate per unit, rather than the current variable rates depending on the type, as well as the strength, of alcohol. At present, only spirits, fortified wine and beer are taxed purely in relation to strength, with all other drinks merely striated into broad categories.

In order to prevent this increase being absorbed by supermarkets as a loss-leader (even with duty at the much lower current rates, it is possible to buy some drinks which are sold for less than the combined duty and VAT charged on them), this would have to be combined with legislation preventing shops from selling for less than the duty charged on the drink.

Enacting this plan would indeed result in a sharp rise in alcohol prices, with most or all of the increase going to the treasury rather than the supermarkets or drinks companies. But the increase would come from all drinks, rather than just the cheaper ones that the proposed minimum price is targeting.

With a minimum price, a drink which is already over the floor would see no price increase at all. If a three-unit bottle of beer costs at least £1.20 before the change, it will cost the same after. This allows the government to truthfully say that the price will hit heavy drinkers hardest and have the happy side-effect of aiding our flagging pubs (while slightly less truthfully claiming moderate drinkers aren't affected; the IFS confirms they are still "substantially affected").

The same is not true if the increase is put in through the tax system. That £1.20 bottle of beer may have around £0.60 of duty on it before the change, with production making up the other £0.60. After an increase, it suddenly has £1.20 of duty on it, with production still taking up £0.60. While, of course, supermarkets and drinks companies have profits which they may choose to cut into to prevent a price increase, it is unlikely they would be able to suck up all the extra cost.

In a 2011 paper, the IFS offer some concessions to this problem. They point out that as a percentage increase, a higher duty would still hit cheaper drinks more, and it is certainly the case that the public will be a lot more comfortable with any price rises going into general taxation than into the pockets of businesses.

Nonetheless, the strongest argument the government has in favour of minimum pricing is that it only affects the cheapest drinks and the heaviest drinkers. The IFS study already puts that on shaky ground, but trying to do the same thing through general taxation would blow a hole in the argument altogether. If the aim is simply to discourage drinking by raising prices across the board, then that can be achieved through taxation. But the aim of minimum pricing is more nuanced than that, and there's no point in pretending that it can be done any other way.

Not hit by a minimum price: a cocktail in the Ritz-Carlton hotel. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Is Yvette Cooper surging?

The bookmakers and Westminster are in a flurry. Is Yvette Cooper going to win after all? I'm not convinced. 

Is Yvette Cooper surging? The bookmakers have cut her odds, making her the second favourite after Jeremy Corbyn, and Westminster – and Labour more generally – is abuzz with chatter that it will be her, not Corbyn, who becomes leader on September 12. Are they right? A couple of thoughts:

I wouldn’t trust the bookmakers’ odds as far as I could throw them

When Jeremy Corbyn first entered the race his odds were at 100 to 1. When he secured the endorsement of Unite, Britain’s trade union, his odds were tied with Liz Kendall, who nobody – not even her closest allies – now believes will win the Labour leadership. When I first tipped the Islington North MP for the top job, his odds were still at 3 to 1.

Remember bookmakers aren’t trying to predict the future, they’re trying to turn a profit. (As are experienced betters – when Cooper’s odds were long, it was good sense to chuck some money on there, just to secure a win-win scenario. I wouldn’t be surprised if Burnham’s odds improve a bit as some people hedge for a surprise win for the shadow health secretary, too.)

I still don’t think that there is a plausible path to victory for Yvette Cooper

There is a lively debate playing out – much of it in on The Staggers – about which one of Cooper or Burnham is best-placed to stop Corbyn. Team Cooper say that their data shows that their candidate is the one to stop Corbyn. Team Burnham, unsurprisingly, say the reverse. But Team Kendall, the mayoral campaigns, and the Corbyn team also believe that it is Burnham, not Cooper, who can stop Corbyn.

They think that the shadow health secretary is a “bad bank”: full of second preferences for Corbyn. One senior Blairite, who loathes Burnham with a passion, told me that “only Andy can stop Corbyn, it’s as simple as that”.

I haven’t seen a complete breakdown of every CLP nomination – but I have seen around 40, and they support that argument. Luke Akehurst, a cheerleader for Cooper, published figures that support the “bad bank” theory as well.   Both YouGov polls show a larger pool of Corbyn second preferences among Burnham’s votes than Cooper’s.

But it doesn’t matter, because Andy Burnham can’t make the final round anyway

The “bad bank” row, while souring relations between Burnhamettes and Cooperinos even further, is interesting but academic.  Either Jeremy Corbyn will win outright or he will face Cooper in the final round. If Liz Kendall is eliminated, her second preferences will go to Cooper by an overwhelming margin.

Yes, large numbers of Kendall-supporting MPs are throwing their weight behind Burnham. But Kendall’s supporters are overwhelmingly giving their second preferences to Cooper regardless. My estimate, from both looking at CLP nominations and speaking to party members, is that around 80 to 90 per cent of Kendall’s second preferences will go to Cooper. Burnham’s gaffes – his “when it’s time” remark about Labour having a woman leader, that he appears to have a clapometer instead of a moral compass – have discredited him in him the eyes of many. While Burnham has shrunk, Cooper has grown. And for others, who can’t distinguish between Burnham and Cooper, they’d prefer to have “a crap woman rather than another crap man” in the words of one.

This holds even for Kendall backers who believe that Burnham is a bad bank. A repeated refrain from her supporters is that they simply couldn’t bring themselves to give Burnham their 2nd preference over Cooper. One senior insider, who has been telling his friends that they have to opt for Burnham over Cooper, told me that “faced with my own paper, I can’t vote for that man”.

Interventions from past leaders fall on deaf ears

A lot has happened to change the Labour party in recent years, but one often neglected aspect is this: the Labour right has lost two elections on the bounce. Yes, Ed Miliband may have rejected most of New Labour’s legacy and approach, but he was still a protégé of Gordon Brown and included figures like Rachel Reeves, Ed Balls and Jim Murphy in his shadow cabinet.  Yvette Cooper and Andy Burnham were senior figures during both defeats. And the same MPs who are now warning that Corbyn will doom the Labour Party to defeat were, just months ago, saying that Miliband was destined for Downing Street and only five years ago were saying that Gordon Brown was going to stay there.

Labour members don’t trust the press

A sizeable number of Labour party activists believe that the media is against them and will always have it in for them. They are not listening to articles about Jeremy Corbyn’s past associations or reading analyses of why Labour lost. Those big, gamechanging moments in the last month? Didn’t change anything.

100,000 people didn’t join the Labour party on deadline day to vote against Jeremy Corbyn

On the last day of registration, so many people tried to register to vote in the Labour leadership election that they broke the website. They weren’t doing so on the off-chance that the day after, Yvette Cooper would deliver the speech of her life. Yes, some of those sign-ups were duplicates, and 3,000 of them have been “purged”.  That still leaves an overwhelmingly large number of sign-ups who are going to go for Corbyn.

It doesn’t look as if anyone is turning off Corbyn

Yes, Sky News’ self-selecting poll is not representative of anything other than enthusiasm. But, equally, if Yvette Cooper is really going to beat Jeremy Corbyn, surely, surely, she wouldn’t be in third place behind Liz Kendall according to Sky’s post-debate poll. Surely she wouldn’t have been the winner according to just 6.1 per cent of viewers against Corbyn’s 80.7 per cent. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.