Minimum unit pricing on alcohol – it’s all about cider

Perhaps to distract attention from the poor publicity surrounding last week’s budget (notwithstanding my general endorsement of it…), our Prime Minister David Cameron has moved the policy circus onto the pricing of alcoholic drinks.  A rather unedifying debate has ensued.  It’s worth trying to unpack this a bit.

The proposal is to force a minimum retail price on alcohol of 40p per unit.  The argument put forward in its support is highly paternalistic, in the way of modern British policy making (or “evidence-based” in the fashionable euphemism).  Alcoholic drinks are available very cheaply, especially from supermarkets.  It is thought that this has encouraged excessive drinking.  Although overall alcohol consumption is on the decrease there really does seem to be a problem with excessive drinking.  The most conspicuous problem is “binge drinking” by young people, which tends to disfigure many city centres at night.  There may also be a much less visible problem with middle class drinkers overdoing a daily dose of wine/gin-and-tonic.  This all comes out in increasing problems with liver disease.  It was reported by the NHS last week that deaths from liver disease in England have increased by 25% over the last decade, although alcohol consumption is only one factor, alongside obesity and hepatitis C.

It is, of course, the binge drinking that is creating the political pressure, upsetting as it this is to middle class and elderly voters.  Most of the noise and antisocial behaviour occurs in the region of pubs and bars where the prices aren’t particularly low – but the story goes that the youths get themselves tanked up on the cheap stuff first.  There may also be a problem with “happy hour” promotions by the bars to get people started.  The Home Office strategy paper launched by Mr Cameron (as reported by the BBC) makes the rather extravagant claim that the policy would mean 25,000 fewer crimes a year and 900 fewer deaths “by the end of the decade” (in a classic use of confusing statistics – I think this means 100 or so fewer deaths per year, or 1% of liver deaths).

For paternalists it’s a simple matter of costs and benefits.  The gains from reduced crime and health problems are set against the hardships and political costs for people who pay extra without indulging in antisocial behaviour.  The last government baulked.  Mr Cameron, it seems, is more determined to “do something”.

But liberals have a lot more angst about this.  People should be allowed to make their own choices as far as they don’t harm others.  Of course excessive alcohol consumption is antisocial – but there are two counterarguments.  First a lot (most?) drinking is not antisocial.  Second, taxes on alcohol are quite steep anyway, and surely cover all the extra costs, and more.  And there is a rather nasty class twist.  Few middle class drinkers will be affected, including the antisocial ones, but those less well off will be, including those that are not antisocial.

And that is about far as the public debate that I have seen gets.  But it isn’t so simple.  The big question to ask is how much profit are the sellers of drinks making?    This matters, because if businesses are loss-leading on booze sales we need to ask why.  Supermarkets aren’t charities.  If they are losing money on booze then they are making it up somewhere else.  I am deeply uncomfortable about this, and it undermines the argument that raising the price is an attack on the poor.  People may be underpaying on the booze, but at the expense of overpaying on other goods.  It may of course all be part of a careful segmentation strategy whereby middle class customers pay more for their supermarket goods than poorer ones, without the need for varying individual product prices.  Even so, the idea that for poorer supermarket customers to benefit they have to by lots of drink has rather difficult implications.  The issue of bars offering discounted prices in happy hours  seems to be more straightforward: to entice customers into a state where their judgement is impaired and they will accept overpriced drinks later.  This again will cause even liberals some angst.

So will a 40p per unit price just stop pernicious loss-leading, without impinging much on overall living costs?  Retailers must pay excise duty (and VAT on top) regardless of the price they charge the customer.  By my calculations this works out at about 20p per unit for beer, 25p for wine and 27p for spirits – but a mere 11.5p for ordinary strength cider (5%).  Leaving aside the special case of cider that leaves 13p to 20p (or 11p to 17p allowing for VAT) to pay for the product itself and make a margin.  That looks quite tight, but maybe feasible for beer at least.

But the case of cider is quite striking.  Duty is much lower (especially for strengths under 7.5%), and the impact of the 40p price could be quite significant.  In 2010 the dying Labour government increased the tax on cider – but this created such a stink that the change was lost when the election was called.

And that, I think, is the key.  The government thinks that cider is unhealthily cheap, but it is afraid of tackling the problem directly by harmonising the duty with that charged for beer. So this minimum pricing is an alternative.  The extra cost to the customer goes to retailers and manufacturers rather than to the state – but maybe that can be rectified at  a later date.  It will be easier to put up duty on cider if the minimum pricing policy is in place.

But liberals are right to be sceptical.  40p is a bit high to simply prevent pernicious loss-leading.  And wouldn’t it be more honest to tackle cider duty head-on?