Minimum pricing for alcohol

The question of minimum pricing for the sale of alcohol has been on the authorities agenda for a few years now. There is clearly a campaign building up here, not of course arising from genuine public concern, but instead from health campaigners, many of whom are taxpayer funded. So is there any merit in minimum pricing for alcohol?

Since the days of Hogarth's Gin Alley, governments have always sought to control the price of alcohol, with two objectives. One is to cut alcohol consumption and thus reduce the level of drunkenness, disorder, incapacity and the long term deleterious impact on health. The second is to increase revenue, thus avoiding the need to search out alternative sources of taxation which may be more unpopular, inconvenient or costly. So the principle of government raising the price of alcohol is long established, something which the more vociferous bloggers opposing minimum pricing sometimes appear to overlook.

Two main factors are driving the attack on alcohol consumption. One is the belief that government should be more proactive in ensuring that the public pursue more healthy lifestyles. The second is the 'binge drinking' scare, aided and abetted by the tabloid media. It is undoubtedly the case that alcohol is cheaper now than in the past. However, this only applies to alcohol bought from retail outlets, in particular large supermarkets. Drinks bought in pubs are still about as expensive in real terms as they have been for a long time. So a much wider gap has arisen between alcohol consumed (mostly) in the home, and that in pubs. This must be one factor causing the closure of many pubs. Many, particularly younger, people, are 'preloading' drink at home before a night out, and then just 'topping-up' in a pub afterwards, thus saving a significant amount of money for the same degree of intoxication.

Since, in real terms, the price of alcohol is lower than in the past the obvious solution would be to increase the duty when sold in retail outlets, but not for drinks in pubs. However, there appears to be some reluctance to pursue this course. This may be due to an EU directive which prevents differing rates of taxation between the two. If true this would be another example of how we are no longer able to govern ourselves as we think fit. Ironically, minimum pricing may itself be in breach of EU competition rules.

Minimum pricing as a principle seems an odd idea from a Conservative government as it appears to be reintroducing, by the back door, retail price maintenance that was abolished for most items by a previous Tory government as long ago as 1964. The benefit will not accrue to the government, since there will be no increase in tax revenue. Instead the benefit will go to retailers who will increase their profits, since costs will remain the same.

The government has suggested a minimum price of 40p per unit of alcohol. Critics have rightly suggested that this is only a start, and that pressure will mount for it to be continually ratcheted upwards. This is because one of two outcomes will occur. The first is that there will be little or no reduction in alcohol consumption. Health campaigners and binge drink alarmists will then argue that the minimum price is too low and that it should be increased. The alternative scenario is that it does lead to a noticeable reduction. In which case, those pushing minimum pricing will argue that since it works, the minimum price should be raised to reduce consumption still further. By this means the price of alcoholic drink will increase incrementally over time, becoming far more expensive for everyone.

It must be concluded that minimum pricing is a much more pernicious way of controlling the price of alcohol than duty or taxation. This is because, by the use of the latter means, the government's main concern will be to seek to optimize its revenue. Tax alcohol too much and the total tax yield will fall as consumption falls disproportionately, tax too little and revenue is lost since it would have risen more than the smaller fall in consumption. Thus reduction in consumption is a side benefit, the main objective is an easy means of raising revenue. So the relative price of alcohol will continue to be roughly stable over time.

Minimum pricing, on the other hand, gives the health and temperance fanatics and agitators a mechanism for increasingly imposing their outlook on the rest of society, which in this case is likely to be contrary to the wishes of the vast majority of people who drink sensibly and socially. For this reason the minimum pricing of alcohol should be opposed. This is despite the fact that minimum pricing at a low level would allow pubs to be more competitive, an objective which can better be achieved by imposing differing levels of alcohol duty between retail outlets and pubs.