News and Press
Comment on IFS report on the impact of introducing minimum pricing in Britain
28 Sep 2010
The Institute of Fiscal Studies (IFS) report published today on the impact on minimum pricing in Great Britain does not in essence say anything new about the possible effects of minimum pricing, but highlights specific points in order to make the case for increasing alcohol taxation over introducing a minimum price per unit of alcohol.
The IFS confirm that a minimum price of 45 pence will impact most on households that buy large amounts of alcohol, not only because they buy more units but also because they buy more low-priced units. Their evidence indicates that a minimum price of 45 pence can be an effective tool in reducing consumption and thereby alcohol-related harm in the heaviest drinking households. However, the IFS argue that the policy will result in large financial gains for alcohol producers and retailers and therefore tax increases which mimic the effects of minimum pricing, but which also raise government revenue, should be preferred.
The prediction by the IFS that the introduction of a minimum price of 45p per unit will result in transfers of the order of £700 million to alcohol producers and off-licence retailers is almost certainly an over-estimate. The IFS calculation is based on an average off-licence unit price of 36p (in 2007), whereas latest industry sales data from market analyst Nielsen indicate an average price of 43p per unit in 2009. The sales data utilised by the IFS to illustrate the percentage of units of popular brands sold under 45p per unit (Table 3.2) show that, for example, almost 100 % of some well-known spirit brands – Smirnoff Vodka (1 litre), Bells Scotch Whisky (1 litre), Gordon’s Gin (1 litre) - retail below 45p per unit. However, a brief examination of prices on www.mysupermarket.com today suggests that 0% of these brands currently retail below 45p per unit. An overestimation of the percentage of products captured by a minimum price of 45p will lead to an over-estimation of the potential transfer of revenue from consumers to producers and retailers.
The IFS calculation of the financial benefit to retailers and producers assumes that retailers and producers will do nothing in response to the introduction of minimum pricing. However, as noted by the IFS this is highly unlikely. Big multiple retailers are known to sell alcohol as a loss-leader to drive footfall and overall sales. (Competition Commission Pricing Practices Working Paper 2007) Alcohol sold below cost by supermarkets is effectively subsidised by increased profit margins on other purchases. If the introduction of a minimum price per unit of alcohol prevents these pricing practices in relation to alcohol – a dependence-inducing, psychoactive drug – there is no reason to conclude that in a competitive market supermarkets will not switch their price promotions to other goods.
From the perspective of safeguarding public health, the best policy options for regulating the price of alcohol will be those that will work most effectively to moderate alcohol consumption and minimise harm. Evidence demonstrates that alcohol taxes set at an appropriate level can curb problem consumption and harm as well as raising government revenue. However, in the current alcohol taxation system increases in alcohol taxation cannot be directed at the cheapest forms of alcohol that are associated with harmful consumption in the same way as minimum pricing. The structure of alcohol duties in the UK is governed by an EU directive and the IFS suggest that the government seek to change the way that tax is levied in the Directive. However, the prospect of any change to the Directive in the near future is more than likely to be nil.
Public health campaigners believe that minimum pricing and increased alcohol taxation are complementary regulatory mechanisms for reducing problem alcohol use and harm, not substitutable. Evidence clearly indicates that minimum pricing can achieve health goals that increases in alcohol taxes alone cannot, as well as leading to considerable financial savings in the NHS, criminal justice and in the workplace (not considered in the IFS report).