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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Former Irish premier John Bruton on Brexit: "Britain should pay for our border checks"

The former Taoiseach says Brexit has been interpreted as "a profoundly unfriendly act"

At Kapıkule, on the Turkish border with Bulgaria, the queue of lorries awaiting clearance to enter European Union territory can extend as long as 17km. Despite Turkey’s customs union for goods with the bloc, hauliers can spend up to 30 hours clearing a series of demanding administrative hoops. This is the nightmare keeping former Irish premier John Bruton up at night. Only this time, it's the post-Brexit border between Northern Ireland and the Republic, and it's much, much worse.   

Bruton (pictured below), Taoiseach between 1994 and 1997, is an ardent pro-European and was historically so sympathetic to Britain that, while in office, he was pilloried as "John Unionist" by his rivals. But he believes, should she continue her push for a hard Brexit, that Theresa May's promise for a “seamless, frictionless border” is unattainable. 

"A good example of the sort of thing that might arise is what’s happening on the Turkish-Bulgarian border," the former leader of Ireland's centre-right Fine Gael party told me. “The situation would be more severe in Ireland, because the UK proposes to leave the customs union as well."

The outlook for Ireland looks grim – and a world away from the dynamism of the Celtic Tiger days Bruton’s coalition government helped usher in. “There will be all sorts of problems," he said. "Separate permits for truck drivers operating across two jurisdictions, people having to pay for the right to use foreign roads, and a whole range of other issues.” 

Last week, an anti-Brexit protest on the border in Killeen, County Louth, saw mock customs checks bring traffic to a near standstill. But, so far, the discussion around what the future looks like for the 260 border crossings has focused predominantly on its potential effects on Ulster’s fragile peace. Last week Bruton’s successor as Taoiseach, Bertie Ahern, warned “any sort of physical border” would be “bad for the peace process”. 

Bruton does not disagree, and is concerned by what the UK’s withdrawal from the European Convention on Human Rights might mean for the Good Friday Agreement. But he believes the preoccupation with the legacy of violence has distracted British policymakers from the potentially devastating economic impact of Brexit. “I don’t believe that any serious thought was given to the wider impact on the economy of the two islands as a whole," he said. 

The collapse in the pound has already hit Irish exporters, for whom British sales are worth £15bn. Businesses that work across the border could yet face the crippling expense of duplicating their operations after the UK leaves the customs union and single market. This, he says, will “radically disturb” Ireland’s agriculture and food-processing industries – 55 per cent of whose products are sold to the UK. A transitional deal will "anaesthetise" people to the real impact, he says, but when it comes, it will be a more seismic change than many in London are expecting. He even believes it would be “logical” for the UK to cover the Irish government’s costs as it builds new infrastructure and employs new customs officials to deal with the new reality.

Despite his past support for Britain, the government's push for a hard Brexit has clearly tested Bruton's patience. “We’re attempting to unravel more than 40 years of joint work, joint rule-making, to create the largest multinational market in the world," he said. It is not just Bruton who is frustrated. The British decision to "tear that up", he said, "is regarded, particularly by people in Ireland, as a profoundly unfriendly act towards neighbours".

Nor does he think Leave campaigners, among them the former Northern Ireland secretary Theresa Villiers, gave due attention to the issue during the campaign. “The assurances that were given were of the nature of: ‘Well, it’ll be alright on the night!’," he said. "As if the Brexit advocates were in a position to give any assurances on that point.” 

Indeed, some of the more blimpish elements of the British right believe Ireland, wedded to its low corporate tax rates and east-west trade, would sooner follow its neighbour out of the EU than endure the disruption. Recent polling shows they are likely mistaken: some 80 per cent of Irish voters say they would vote to remain in an EU referendum.

Irexit remains a fringe cause and Bruton believes, post-Brexit, Dublin will have no choice but to align itself more closely with the EU27. “The UK is walking away,” he said. “This shift has been imposed upon us by our neighbour. Ireland will have to do the best it can: any EU without Britain is a more difficult EU for Ireland.” 

May, he says, has exacerbated those difficulties. Her appointment of her ally James Brokenshire as secretary of state for Northern Ireland was interpreted as a sign she understood the role’s strategic importance. But Bruton doubts Ireland has figured much in her biggest decisions on Brexit: “I don’t think serious thought was given to this before her conference speech, which insisted on immigration controls and on no jurisdiction for the European Court of Justice. Those two decisions essentially removed the possibility for Ireland and Britain to work together as part of the EEA or customs union – and were not even necessitated by the referendum decision.”

There are several avenues for Britain if it wants to avert the “voluntary injury” it looks set to inflict to Ireland’s economy and its own. One, which Bruton concedes is unlikely, is staying in the single market. He dismisses as “fanciful” the suggestions that Northern Ireland alone could negotiate European Economic Area membership, while a poll on Irish reunification is "only marginally" more likely. 

The other is a variation on the Remoaners’ favourite - a second referendum should Britain look set to crash out on World Trade Organisation terms without a satisfactory deal. “I don’t think a second referendum is going to be accepted by anybody at this stage. It is going to take a number of years,” he said. “I would like to see the negotiation proceed and for the European Union to keep the option of UK membership on 2015 terms on the table. It would be the best available alternative to an agreed outcome.” 

As things stand, however, Bruton is unambiguous. Brexit means the Northern Irish border will change for the worse. “That’s just inherent in the decision the UK electorate was invited to take, and took – or rather, the UK government took in interpreting the referendum.”