Should minimum unit pricing be introduced in the UK?

The rise in alcohol consumption and alcohol related harms in the UK in recent decades has gone hand in hand with increasing affordability of alcoholic beverages. Minimum Unit Pricing (setting a minimum price below which a unit of alcohol cannot legally be sold) was approved by the Scottish Parliament in 2012. However, within the UK strongly opposed views have been presented regarding the likely benefits, and in addition Scotland has faced a legal challenge on its legislation.


So for this issue of Viewpoints, we have asked two eminent economists who have come to opposite conclusions on the question to give their reasoned arguments. The contributions offer different perspectives on whether Minimum Unit Pricing is the best price regulating tool to reduce alcohol harm. Each contribution offers one point of view only.
Visitors to our website who are interested in further aspects of this debate may wish to visit the websites of, for example;Scottish Health Action on Alcohol Problems; The Scotch Whisky Association; Alcohol Health Alliance; The Wine and Spirit Trade Association, House of Commons Library (briefing paper PDF).

 

 YES: Professor Anne Ludbrook

 NO: Professor Rachel Griffith

 

 


YES: Professor Anne Ludbrook

Professor Anne Ludbrook holds a Chair in Health Economics at Aberdeen University. Her recent studies have focused on minimum unit pricing for alcohol and the inequalities in the distribution of alcohol related harms. 

 

"If you want to reduce alcohol-related harm then the answer to this question is a resounding yes. Low prices lead to increased alcohol consumption and alcohol-related harms. The cheapest products are favoured by the heaviest drinkers. A minimum unit price (MUP) will reduce consumption and harms and will do this more effectively and more fairly by targeting the heaviest drinkers.

What evidence supports this?

The relationship between alcohol price, consumption and harms is well established (1-3). UK alcohol was 54% more affordable in 2014 than in 1980 (4). As alcohol became more affordable, alcohol-related harms increased. Alcohol-related hospital admissions doubled over a 10 year period (from 493,760 in 2003/4 to 1,059,210 in 2013/4). Over the same period, admissions for alcoholic liver disease increased by 87% and there was a 94% increase in admissions for alcohol poisoning (4).

The relationship between heavy drinking and cheap alcohol is also well documented. For example, in Edinburgh, patients with serious alcohol problems reported that 83% of the alcohol they purchased was priced at or below 50p per unit (5). Higher consumers paid the lowest unit price. Shopping patterns in Australia likewise show that heavier drinkers purchase most cheaply (6).

The likely effect of MUP is predicted using statistical relationships between price, alcohol consumption and alcohol-related harms (7). This type of modelling is frequently used by governments when considering a new policy. When the underlying data are robust, as they are here, the results provide an accurate estimate of what will happen if the policy is adopted.

Modelling shows that MUP will have more effect on the alcohol consumption of heavy drinkers than moderate drinkers. A MUP of 50p would reduce consumption by harmful drinkers by 5.4% compared with 1% for moderate drinkers. Increasing all alcohol prices by 10% would have a slightly greater effect on harmful drinkers (5.8%) but would penalise moderate drinkers more severely, reducing consumption by 4.4% (7 Table 4.1). Studies of alcohol purchasing patterns in both Australia (6) and the UK (8) have also concluded that moderate consumers will be little affected by MUP, making it fairer than other methods of increasing price.

Those results are reinforced by actual experience in Canada. In some provinces, government controls alcohol prices establishing a floor price below which alcohol cannot be sold. Data from British Columbia show that increasing the minimum price of alcohol reduced consumption (9) and alcohol related hospitalisations (10).

Could the same or better results be achieved through changes to alcohol duty?

Alcohol duty has increased over time but increases are not always fully passed on, particularly for lower priced products (11). If taxes were passed on to purchasers, higher prices would reduce overall alcohol consumption but would have more impact than MUP on moderate drinkers. Recent legislation preventing the sale of alcohol at prices below duty plus VAT has introduced a form of floor pricing but at a very variable level which still allows some very low prices.

Wine and cider are currently taxed on the volume of the product within wide bands of alcoholic strength. Tax rates do increase between bands but within each band higher strength products would have a lower MUP. Duty and VAT on still cider with an alcohol content below 7.5% alcohol by volume (ABV) is levied at around 47p per litre. The MUP for weaker ciders would be more than 20p (e.g. 2% ABV: MUP 23.5p) whereas a stronger cider could have a MUP of less than 7p (e.g. 7% ABV: MUP 6.7p). By contrast, beer of the same strength would have a MUP of 22p as beer is taxed on alcohol content at an increasing rate (12).

Standardising alcohol duty would be complex and the increases in duty required for some products would be huge; 3 or 4 times the current rates. Alcohol duty reforms would also need to be agreed across the EU, whereas MUP can be implemented in individual countries if the public health benefits justify any restriction on competition.

Raising duty might be preferred simply because the proceeds go to the government, even if this is less effective and less fair. The sharing of revenue from MUP is less clear. Nearly 17% of any price increase will go to the government through additional VAT. It is claimed that MUP could provide a windfall profit for supermarkets and alcohol producers but this is an assumption without evidence. It is more likely that part of MUP will be used to offset higher costs for producers whose sales are affected. Competition between supermarkets also suggests that any proceeds from MUP might be used to discount other products.

Policy decisions involve a degree of uncertainty. Governments can get it wrong either by implementing a policy that fails to deliver or by not implementing a policy that works. The likelihood of each outcome and the size and nature of the consequences of wrong decisions have to be weighed. The likelihood of MUP having no effect on alcohol consumption or alcohol-related harms is low. If it had no effect, the negative consequence would be that consumers would have paid a higher price for cheap alcohol for no benefit to society. If MUP is not introduced, however, there is a high probability that an opportunity to reduce alcohol harm has been lost. This negative consequence would be measured in avoidable deaths, ill health, social problems, crime and unemployment."

Competing interest declaration: The Health Economics Research Unit receives core funding from the Chief Scientist Office, Scottish Government Health and Care Directorates, and from the University of Aberdeen. All opinions expressed are those of the author and should not be attributed to any funding body

 


NO: Professor Rachel Griffith

Professor Rachel Griffith is a Deputy Research Director at the Institute for Fiscal Studies, with specific interests in the retail food sector, nutrition and corporate tax. In 2015, she was awarded a CBE for her work on economic policy

 

"Concern over the level of alcohol consumption in the UK has led some to call for the introduction of a minimum unit price on alcohol. It is well established in the economics literature that higher prices reduce alcohol consumption (13). Our analysis at the Institute for Fiscal Studies (IFS) suggests that reforming alcohol taxes would be a more effective policy.

Reforming the system of alcohol taxation could do a better job of reducing the alcohol consumption of heavy drinkers and the increased price paid by consumers would go to the government in the form of additional tax revenue; revenues that could be used to alleviate the impacts of the tax system on poorer households, or could be invested in the healthcare system. In contrast, the increase in price resulting from a policy that imposed a minimum unit price would give windfall profits to large retailer and alcohol producers; revenues that could be used, for example, to increase advertising of alcohol products.

Heavy drinkers tend to buy alcohol that is both cheaper and stronger per volume than more moderate drinkers (14). Therefore, increasing the price of cheaper or stronger alcohol is likely to reduce the consumption of those individuals most likely to harm themselves and others as a result of their drinking. A minimum unit price is targeted at cheaper alcohol, while taxes could be targeted at stronger alcohol.

The current system of alcohol taxation uses excise taxes. The amount of tax levied depends on the strength (the amount of alcohol by volume) and the type of alcohol (wine, sparkling wine, spirits, beer and cider all face different tax rates). However, the current system does a poor job of targeting high strength alcoholic drinks: beer is the only product for which the tax rate is higher for products with higher alcoholic strength. Griffith, Leicester and O’Connell (15) show that a straightforward reform that systematically taxes stronger drinks more heavily could achieve larger reductions in alcohol consumption among heavy drinkers than a minimum unit price.

In fact a two-pronged reform to alcohol taxation could be used to establish a price floor that mimicked the reduction in alcohol consumption achieved by a minimum unit price. First, move towards a more equal tax treatment of different types and strengths of alcohol in which the tax is based on alcohol content. Second, restrict alcohol from being sold for less than the total tax due on each product in order to prevent tax increases from being absorbed by retailers. This reform would affect both stronger and cheaper alcohol products and it would ensure that revenues flowed to the government rather than firms (16).

Griffith, Leicester and O’Connell (17) show that if we compare a minimum unit price of 45p with a tax reform of similar magnitude they lead to similar overall reductions in the quantity of alcohol, with consumers paying more; the big difference is how the extra spending by consumers is distributed between government tax revenue and industry revenue. The minimum unit price reduces tax revenue by £290 million (drinkers reduce the amount of alcohol purchased and this reduces tax revenue), but increases industry revenue by £840 million. In contrast, tax reform would increase tax revenues by £980 million.

That analysis looked only at off-trade alcohol, which accounts for about three in every four alcohol units purchased. Minimum unit pricing and tax reform are likely to have different implications for the on-trade (alcohol in pubs and restaurants). On-trade prices are much higher, so a minimum unit price would have little direct impact there. Tax reforms would affect on-trade alcohol as well. If those who drink on-trade alcohol in excess also purchase stronger products (as with off-trade sales), then an excise tax reform would also be well-targeted at reducing consumption of these individuals. In addition, a tax reform targeted on alcohol strength is likely to raise off-trade prices relative to on-trade since, on average, alcohol purchased off-trade is stronger than alcohol purchased on- trade.

Both reforms to taxes and a minimum unit price would encounter some form of regulatory barrier. Minimum unit prices go against competition regulation, while tax reform would require EU-wide agreement; however, the government could work to win the necessary support to enable tax reforms. It is somewhat curious that the recent debate around alcohol pricing has focused so much on a minimum unit price. Much less has been made of the fact that the current, complex set of alcohol taxes does a poor job of targeting harmful drinking.

Reforming the way in which we tax alcohol could provide a better route to reducing harmful drinking than the introduction of a minimum price. It would reduce the alcohol purchases of heavy drinkers by more, have less impact on moderate drinkers, and raise additional useful revenue for the government.

In contrast, a minimum unit price would be less well targeted than the tax reform, reduce tax revenues and increase the revenues of alcohol retailers and manufacturers."

Competing interest declaration: Professor Griffith is funded by the Economic and Social Research Council and the European Research Council

 

 

Viewpoints contributors are guest authors, they do not receive a payment of any kind for this and are not a part of The Drinkaware Trust.

 

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