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Alcohol Minimum Pricing
UPDATE FROM CENTRE FOR RETAIL RESEARCH
Minimum pricing for alcohol sounds like a great idea. Who isn't against binge drinking, alcohol-related violent crimes, drink-fuelled disorder, and the excessive cost to the health services and the police?
Alcohol Problems. The Home Office says that irresponsible drinking costs the taxpayer £21 billion a year, with nearly a million alcohol-related violent crimes and 1.2 million alcohol-related hospital admissions last year. The UK Government is consulting on a minimum price for alcohol of 45p in England and Wales, aimed at reducing consumption by 4.3%. The main case for the policy is that "The evidence shows us that heavy drinkers and young drinkers are more affected by higher alcohol prices." The Scottish Government has already opted for 50p per unit.
Costs of the Policy. Our estimate is that minimum pricing will cost 'responsible' drinkers between £71 and £126 more every year, made up of £40-£70 through price increases (Institute for Fiscal Studies estimate, 2012) and £31-£56 caused by the ending of multi-buy promotions (CRR estimate, 2013). Harmful drinkers (35 units + per week) will pay £151-£280 extra (£120-£224 through price increases and £31-£56 caused by the ending of multi-buy promotions.
The price increases for alcohol will consume 2% of the average consumer's food budget (IFS).
Retailers and suppliers will benefit by £1.4 billion from the new higher prices. This may lead to further taxes on retailers.
Retailers will have to implement the new policy.
The Home Office has stressed that the consultation was targeted at "harmful drinkers, problems pubs and irresponsible shops", not those "who enjoy a quiet drink or two".
This webpage update covers
- What action retailers need to take.
- What the policy means for consumers.
- What Governments will do next.
The law and the regulations to give effect to minimum pricing have not been published, so we do not know the full details. This webpage sketches out the implications based on what has so far been announced. There may be changes to the proposals at a later stage.
As always, the Centre for Retail Research examines solely the implications of these policies for the retail industry without being concerned about any of the wider issues.
The Benefits of Minimum Pricing
Using a model from Sheffield University (see later) the Government Consultation states that the 45p minimum price will reduce alcohol consumption by 4.3%, saving 2,000 lives and 66,000 hospital admissions after 10 years. There will also be curbs on multi-buys and much promotional activity, justified by the need to reduce binge drinking and public order problems in town centres at the weekend. This policy is backed by the Alcohol Health Alliance, an umbrella organisation of 32 medical and counselling organisations, as well as by CAMRA, the real ale organisation and Greene King the brewer and pub chain.
Key Impact on Retailers
- It will be against the law for any retailer, including publicans, off-licences and supermarkets to retail to final consumers any amount of alcohol at any time for any reason at a price below 45p per unit. This would make a minimum floor price of around £4.20 for a bottle of 12.5% wine, £1.28 for a pint of 5% beer, and £0.89 for a .33 ltr bottle of 6% beer. It could be sold for more than 45p but not for less.
- All products now sold at less than 45p per unit (between 25% and 35% of most retailers' stock) will go up in price or be withdrawn.
The minimum price regulations will be aimed squarely at supermarkets and the off-licence trade, including online alcohol retailers. Public houses, clubs and restaurants will be exempted from some of the regulations regarding promotions and offers, but most already charge more than the minimum price and will not be allowed to sell at a price below the minimum floor price.
Further Curbs on Retailers, But The Details are Unclear
- Multipacks (at a lower price) and other promotions will be banned. Our current understanding is that this will apply to all drink promotions, even where the final price is above 45p. This would prevent multiple promotions including, say 3 bottles of wine for £10, 12 bottles of wine for the price of 11 and multipacks of beer at a promotional price.
- Promotions on individual products, such '20% off', would be legal unless the alcohol when discounted was being sold at below 45p per unit.
- Mixed promotions such as M&S' 'Dine in for £10' would also be banned. The M&S offer, it appears, provides a main course, side dish, dessert and bottle of wine or a non-alcoholic alternative. This is a by-product of the legislation rather than a fundamental purpose and a way around this curb may be found.
- Depending on how they frame the legislation, restaurants and pubs offering a meal for two and a 'free' bottle of wine will also have to rethink their marketing, because this will potentially be banned. Multi-buy deals in pubs, clubs and restaurants however will not be prohibited.
- Co-op Dividend systems and loyalty cards that offer cash or cash equivalent would need rethinking, as they may inadvertently provide alcohol at less than 45p per unit on some purchases once the rebate is taken into account. We are unaware whether exchanging supermarket or credit card points for bottles of alcohol will be permitted or banned as, formally, this breaks the minimum price rule.
What Retailers Must Do to Conform
The only ways for a retailer to guarantee conformity with the law would be:
- Apply the minimum price to all products
- End all multi-buy promotions
- End all price promotions on products at or near 45p per unit
- End dividend or loyalty card payments or points on all alcohol sales to avoid the possibility (however small) of the final net price charged being slightly below 45p
- End any practice of providing alcohol as 'gifts' to customers, including free samples, though alcohol can be supplied (eg in a Christmas hamper) as long as each item is individually priced.
Retailers will avoid having too many goods sold at the minimum floor price, so we expect some products to be de-stocked and stores will also reconsider all their low-to-mid-range prices to ensure that there is sufficient differentiation by price. This last point is termed 'premiumisation' (ie putting prices and values up)
What Will This Mean for Retailers?
- Every retailer will put up notices in-store advising customers that government minimum pricing forces them to charge more for alcohol.
- Minimum pricing will would increase products like the Bulmers' 6x568ml cider pack now sold at £3.50 which would rise in price to £6.13, a 75% increase. All low-price products will be subject to price increases, unless they have very low alcohol levels. Low-cost 12.5% wine sold today at £4.00 will be increased in price to £4.22.
- Retailers will know that the media and Consumer bodies will be checking to ensure there is no 'profiteering'. Hence
> Retailers will need to get the calculations right first time;
> They will need to apply any supply price increases (manufacturers increasing the prices they charge retailers) long before minimum pricing occurs, otherwise these normal supplier-induced price increases will be seen as profiteering;
- Supermarket chains in particular can expect widespread criticism because minimum pricing reduces competition and the policy will make £1.4 billion available to retailers and alcohol suppliers. Expect a lot of trouble about this one.
- The present or offer to a customer of an extra free bottle of wine as a sample in a case of wine bought online (at say twice the minimum alcohol price) would be prohibited.
- Rational drinkers who purchased more than a single bottle at any one time would lose the volume discount given by most supermarkets, ranging between 5% and 9%, costing them between £31 and £56 per annum (depending on precisely how many bottles they buy on a supermarket visit).
- Potentially they might also lose loyalty card points (depending on how the Minimum Price regulations are framed) which could no longer be given on alcoholic products (because they are a promotional device).
- 'Cooking wine' and other low quality alcohol would be eliminated from the market, because minimum pricing means their prices would have to rise to something like a cheap Argentine wine.
45p or 50p
The government originally spoke in terms of 40p and is now consulting at 45p. The Alcohol Health Alliance has already called for the minimum price to be 50p per unit, which the Wine & Spirit Trade Association warns would increase the prices of 65% of the alcohol in supermarkets (Hickman, 2012). University of Sheffield figures claim that a minimum unit price of 50p would reduce total alcohol consumption by 6.7 per cent (saving 20,000 hospital admissions in the first year) compared to a fall of 4.3% at a 45p minimum price ((Hickman, 2012).
Once the policy is introduced at 45p, it will only be a matter of time before the minimum price becomes 50 and then 60p or more. This means that when assessing the policy one needs to be very clear that this is only the start.
We assume that minimum pricing will be introduced at 45p in England and Wales, 5p lower than in Scotland. This differential is too small to make much of a difference to demand on either side of the Border, although towns such as Berwick on Tweed should benefit.
UK consumers already pay more tax on alcohol than the great majority of European countries. There are also plenty of anomalies, such as the fact that beer is taxed more than cider which is normally much stronger. Government proposals would put up prices even further. Some of it is perverse: since 2004, beer duty rates have increased by 42%, and beer duty revenue by just 8%, while beer consumption has fallen by 23 per cent (BBPA, 2012).
The Tesco Tax. Scotland has also introduced what is informally called the Tesco tax, expected to cost major multiples £110 million over the next three years. Stores with a rateable value of £300,000+ (240 outlets, mostly superstores) pay a public health levy (extra tax) if they sell alcohol and tobacco. The sales of these goods through convenience stores, specialist shops and smaller supermarkets are not subject to the Tesco tax, thus making explicit that these changes are aimed at the large supermarket groups. However one way to avoid the tax is to cease stocking tobacco, which Sainsbury's are doing in ten of their Scottish stores, although continuing to sell tobacco at most of their petrol stations.
Alcohol Consumption is Already Falling
There has been little or discussion of the fact that alcohol consumption has been falling in the UK year by year, and in 2010 fell by more than the Government expects to achieve in 10 years from its 45p minimum. In 2011, consumption fell again from 8.4 litres (of alcohol) to 8.3 litres per person per annum and is now 13% lower than 2004. Over the next five years further reductions in alcohol consumption are forecast by the Office for Budget Responsibility (OBR) which estimates that by 2018 2.4 billion fewer units of alcohol will be consumed than now, taking no account of minimum pricing. ONS data show falls in binge drinking (amongst men from 28% to 19% [2004-2010] and women from 16% to 13%) and lower consumption of alcohol by children compared to 2004. Binge drinking is defined as taking 5 or more drinks in succession. The industry has taken 1 billion units of alcohol out of its products. The proportion of the population drinking to levels regarded as 'harmful' is now only 4%.
The Impact on Consumers
- The Institute for Fiscal Studies (IFS, 2011) suggests that vast majority of people who purchase alcohol will be affected. People who drink responsibly (below the 14 units for women per week and 21 units for men) will pay between £40 to £70 more per annum, and harmful drinkers (35+ units per week) will pay £120-£224 extra per year.
- The final additional cost to consumers must include the ending of price reductions on multi-buys. The total cost will increases by between £71 and £126 more pa for responsible drinkers, comprising £40- £70 through price increases and £31-£56 by ending multi-buy. Harmful drinkers (35 units + per week) will pay £151-£280 extra, (£120-£224 price increases and £31-£56 by ending multi-buy).
- For consumers of alcohol, it will snaffle up around 2%-2.5% of their food budget. Those with incomes of £10K will pay over 2.59% for minimum prices and those with £30K-£40K around 2.01%.
- For those purchasing alcohol costing more than 45p per unit, the direct impact on retail prices will be small, though there will still be costs owing to the elimination of multi-buys and similar promotions, which are worth more for people who buy pricier alcohol.
- Supermarkets would become rather less cheap for alcohol, other things being equal, than pubs, but this is unlikely to have a significant impact on the number of people who visit pubs although say 5% might switch.
- Some consumers may switch to low-alcohol beers and wines. A bottle of 8% ABV wine would have a minimum floor price of £2.52 (but would probably not be sold so cheaply) and 6x 330 cans of 2.5% beer would have a floor price of £2.23 rather than a floor price of £4.90 for 5.5% ABV beer.
- We can expect criminals to attempt to provide cheaper alcohol, using smuggled (zero-duty) product and increasingly counterfeit product especially vodka, ie more crime, which may offset some fall in crime if the minimum prices policies work.
What Do People Think?
Hagger, Lonsdale, Baggott, Penny & Bowen (2012) report that 28 focus groups they studied showed widespread scepticism about whether the new policy would work and concern that it would affect the moderate drinker, while expressing support for the need for new policies to tackle excess and under-age drinking.
A YouGov poll (Henry, 2012) found that respondents were evenly split over support for or opposition to minimum alcohol pricing. An idle glace through the blogosphere in January 2013 showed that most opinion was anti, often violently, although left-wing oriented journals (eg Hearn, 2012, New Statesman) were in favour on the lines of 'something must be done'. Interestingly enough there was little discussion of whether the Sheffield Studies (see below) were any good.
Respect for the Law
Supporters of minimum alcohol pricing argue that it will reduce/eliminate under-age drinking and reduce town centre alcohol-related violence and other disturbances. This may occur, but both problems are currently unlawful so it is difficult to see how yet another law is going to be more successful.
Under-age drinking is already illegal and the sale of liquor to young people is an offence.
People who are drunk in public thereby commit and offence. Licensees who serve persons that are already drunk (or will be) commit an offence. Having a fight in public is an offence, being rude to or refusing to obey an instruction from a police officer is an offence, striking a police officer is an offence and refusing to disperse is an offence in most town centres. If they wanted to, the new Police Commissioners could clear up the problems of our town centres in eight weeks, simply by enforcing the law using a strictly proportionate level of violence and taking offenders before the courts. But it is hard to see how increasing the minimum price to people who are mostly going to drink in pubs anyway will have a significant impact on town-centre rowdiness.
Is This Lawful?
The Scotch Whisky Association has argued in court that the minimum price law in Scotland is unlawful because (a) this power has not been devolved to Holyrood, hence it is ultra vires (b) it affects trade between states and therefore breaches the Treaty of Rome. The case is being heard and the Scottish Government has postponed implementation until April 2013.
The UK Government may find that its own proposals also fall foul of the EU because 'they hinder actually or potentially intra-Community trade effectively equivalent to quantitative restrictions' (ECJ, Procureur du Roi v. Dassonville [case 8/74]). However the ECJ has tended to keep away from these issues, particularly if they are mandatory requirements for all sellers, are proportional and can be construed as regulating 'selling arrangements' rather than being trade restrictions. Those hoping that the ECJ will prevent minimum alcohol pricing may hope in vain (Woods and Watson, 2012).
The Sheffield Stats
Estimates of the gains from alcohol minimum pricing are almost completely based on one computer model, the Sheffield Alcohol Policy Model (SAPM) (Brennan et al, 2008). Government statistics for the effects of their 45p policy are based solely on the SAPM. Duffy and Snowdon (2012) argue that SAPM's assumptions are deficient and therefore its conclusions are meaningless. The key assumption that heavy drinkers are more likely to reduce their alcohol intake as a result of a price rise is based on dogmatic views about how prices affect consumption, which do not reflect modern thinking or the empirical research on this micro-economic (not medical) topic. Behaviours vary and there is no conclusive evidence that average per head alcohol consumption in a region and rates of harm (ie harmful levels of drinking) are correlated statistically. The studies ignore statistical error in the alcohol-harm relationship and some of the coefficients have embarrassingly small significance rates. Data is drawn from different populations, applied to England and Scotland as if patterns of consumption and harm are identical in both, and any missing data are inserted using methods which do not command universal acceptance.
The Sheffield studies also ignore that fact that drinking in moderation has been shown to have health benefits, which need to be included in the model.
Whether harmful drinkers will cut their alcohol consumption is unknown. Much of the European evidence relates to showing that better affordability of alcohol leads to higher consumption, but there is little evidence that this higher consumption leads to harm. No one knows whether the harmful drinkers will consume less: we do know that the proportion of harmful drinkers has fallen in the UK even though drink has become more affordable.
Are You A Drunk?
If, having read this, you feel irresponsible; the Centre for Retail Research suggests you take this short test devised by the National Health Service to determine whether you are an alcoholic.
BBPA (2012) Government's alcohol strategy, http://www.beerandpub.com/news/publication-of-government-alcohol-strategy-bbpa-comments
Brennan, A. et at (2008) University of Sheffield: Modelling alcohol pricing and promotion effects on consumption and harm: Independent Review Of The Effects Of Alcohol Pricing And Promotion: Part B, Sheffield: University of Sheffield
Duffy, J. C. and Snowdon, C. (2012) The Minimal Evidence for Minimum Pricing, London: Adam Smith Institute.
Hagger, M S, Lonsdale, A J, Baggott, R, Penny, G, and Bowen, M. The Cost of Alcohol: The Advocacy for a Minimum Price per Unit in the UK , pre-published at http://www.ourlife.org.uk/silo/files/aruk-report.pdf
Hearn, A. (2012) 'Minimum Pricing: The Key Questions', New Statesman, 28 Nov, found at http://www.newstatesman.com/politics/2012/11/minimum-pricing-key-questions
Henry, J (2012) Minimum Alcohol Pricing -Are You Happy to Pay More? YouGov survey, 16 May.
Hickman, (2012) 'Teresa May Sets Out Dearer Alcohol Plan to End Binge-drinking', Independent, 28 Nov, p3.
Griffiths, R. and Leicester, A. (2010) The Impact of Introducing a Minimum Price of Alcohol in Britain, IFS Briefing Note 109, London: Institute for Fiscal Studies
Leicester, A. (2011) Alcohol Pricing And Taxation Policies, IFS Briefing Note BN124, London: IFS.
Woods, L and Watson, P (2012) Steiner and Woods EU Law, 11 edition, Oxford: OUP.