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13 March 2013

Minimum alcohol pricing fails the coalition’s “cost of living test”

Policy irony of the day: the Tories reject minimum alcohol pricing because it "hits the poorest hardest".

By George Eaton

The most notable thing about the government’s apparent U-turn on minimum alcohol pricing is the basis on which the policy has been rejected. Theresa May, Michael Gove and Andrew Lansley have led a cabinet revolt against the proposal on the grounds that it would hit the poorest hardest and punish responsible drinkers as well as irresponsible ones. 

On a point of fact, they are correct. Minimum pricing would have a disproportionate effect on the poorest since they spend a greater proportion of their disposable income on alcohol. An IFS report found that a price of 45p per unit (the level proposed by ministers) would cost the poorest households 2 per cent of their total food budget, compared to 1.3 per cent for the richest. Lansley, a long-standing opponent of minimum pricing, told the Spectator last year: “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”. 

The policy, it appears, has failed the coalition’s new “cost of living test”. After the great pasty tax revolt, ministers are wary of anything that increases the price of people’s pleasures, particularly at a time when the government is about to hand 8,000 millionaires an average tax cut of £107,500 by scrapping the 50p rate. 

But if the new measure of a proposal is to be whether it hits the poorest hardest (as Lansley’s stance suggests) it’s worth noting how many of the government’s existing policies fail this test. The decision to raise VAT, for instance, a regressive tax that takes no account of income, inevitably had a disproportionate effect on low earners. A study published in 2011 by the Office for National Statistics showed that the poorest fifth spend nearly 10 per cent of their disposable income in VAT compared with 5 per cent for the richest households.

Alongside this, the government has capped benefit increases at 1 per cent (a policy that will force even more to choose between heating and eating), reduced the fund for council tax benefit by 10 per cent (a measure that will force thousands to pay the tax for the first time) and elected to charge social housing tenants for their “spare” rooms (the notorious “bedroom tax“), all at the same as cutting income tax for the highest earners. Confronted by a government that has so often chosen to hit the poor, while sparing the rich, it’s hard to take their new emphasis on the “cost of living” entirely seriously. 

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