Minimum pricing for alcohol is back in the news today, as ministers are expected to announce that the price per unit will be 45p.
Since the new information is rather technical (importantly, the average price-per-unit in a recent IFS study was 44.8p, so this price will have a material effect), what we’re actually getting is less a discussion of whether 45p is too high, too low or just right, and more rehashing of old arguments. So here they are again.
Minimum pricing lowers alcohol consumption
Natural experiments in Europe consequent to economic treaties have shown that as alcohol taxes and prices were lowered, so sales, alcohol consumption, and alcohol-related harm have usually increased.
A 2008 model by the University of Sheffield suggested that a high enough minimum price could significantly reduce the impact and cost of alcohol to society. It found that problem drinkers seek out the cheapest ways to get drunk as they tend to be either young or those who drink a lot, and therefore would change their behaviour in response to price increases more than moderate drinkers would.
It’s hardly surprising. All that is being concluded is that, on a societal basis, alcohol sales obey the laws of supply and demand (as an aside, it’s fascinating that those normally most wedded to this rule of thumb are quickest to argue with it in this situation).
There is some countervailing evidence. An IEA paper suggests that there is no cross-national correlation between affordability of alcohol and total consumption:
Nonetheless, the balance of evidence is strongly on the side of minimum pricing having some effect on consumption.
Minimum pricing hits some types of problem drinkers harder than others
Alcoholics – people with a pathological addiction to alcohol – are unlikely to reduce their consumption that much in the face of minimum pricing. It is nearly the definition of addiction that you prioritise feeding that addiction, and that is no different with alcoholism. Minimum pricing hurts alcoholics with basically no upside (although for a few it may be the final straw to seek help).
The policy is instead aimed at a different sort of problem drinkers: binge drinkers, who suffer their own health problems but are thought to be far more price-sensitive.
In this aspect it can be seen as a trade-off: hurting alcoholics to help binge drinkers.
Minimum pricing hits the poor 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.’
Additionally, price-based controls always hit the poor hardest by their very nature. That doesn’t necessarily mean they’re aimed at the poor, just that the mechanism by which they work has less effect on people with enough disposable income not to care (cf. fuel duty, carbon taxes, prescription charges and passport fees).
Minimum pricing is a boon for supermarkets
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’.
This transfer is largely unavoidable if the major benefit of minimum pricing – the fact that it prevents retailers absorbing the cost – is to be maintained. As I wrote in March:
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.
It might be illegal under EU law
The European Union is quite prescriptive about how sin taxes work. The European Commission has warned that Scotland’s implementation “causes problems with the compatibility with the EU Treaty”, and previous attempts have been shot down by the courts. Not that that’s not a reason not to try.
Of course, none of these questions address what is really the heart of the matter: how far does the government’s right or responsibility to alter people’s behaviour to protect them extend? That’s a valid debate to have; but it is a separate one from whether minimum pricing would work at achieving its stated goals. To that, the answer is a cautious yes, but it remains worth noting that its goals are reducible to “stopping poorer binge drinkers from drinking so much”. That may still be a valid aim, but its a weaker one that many defenders have made it out to be.