Minimum price for alcohol – pros and cons

The government has tentatively proposed a minimum price for a unit of alcohol at 45p (reports say they are going to drop it). A minimum is mainly aimed at preventing the sale of very cheap alcohol by supermarkets. The hope is that a higher price will discourage binge drinking, improve health, and make people pay the true social cost of alcohol. Opponents argue it is unfair and a regressive price which will hurt the living standards of those on low income.

The UK has a problem with binge drinking. Overconsumption of alcohol can lead to many social problems, such as increased crime, increased accidents. It contributes to a variety of health problems such as premature death, cirrhosis of the liver, heart disease, cancer, alcoholism, and mental problems.  All this places costs on the NHS, which have to be borne by the tax payer. The UK’s alcohol problem is much worse than most European countries, like France. According to the ONS, in 2010/11, there was an 11 per cent increase on alcohol-related (hospital) admissions (based on attributable fractions) giving a total of 1,168,300 admissions. This is more than twice as many as in 2002/03 (510,700). (Channel 4 report on alcohol)

Social Costs of Alcohol

Some studies showing costs of alcohol:

Academics say that total deaths from the “wider harms” caused to society by alcohol could reach 250,000 in England and Wales by 2019 if current trends continue. (250,000 deaths from alcohol)

According to a report, “Health First: An evidence-based alcohol strategy for the UK”. “The personal, social and economic cost of alcohol has been estimated to be up to £55bn per year for England and £7.5bn for Scotland,”

alcohol
A diagram showing the social cost of alcohol is greater than private cost

 

The 45p minimum would mean a can of strong lager could not be sold for less than £1.56 and a bottle of wine below £4.22.

Research carried out by Sheffield University for the government shows a 45p minimum would reduce the consumption of alcohol by 4.3%, leading to 2,000 fewer deaths and 66,000 hospital admissions after 10 years. Researchers also claim the number of crimes would drop by 24,000 a year.

5p makes a difference

Research by Sheffield University shows that if alcohol is priced at 45p per unit consumption drops by 4.3% – a 75% greater effect than would be seen at 40p. In addition, the biggest effect is amongst young ‘binge’ drinkers who are most price sensitive. Scotland is considering a minimum price of 50p – where the effect would be even greater.

 

Arguments for a minimum price for alcohol

  • It makes people pay the social cost of alcohol.
  • It is not a panacea, but higher minimum price can be a factor in dealing with the very high social costs of alcohol abuse.
  • It can particularly discourage young drinkers from overconsumption
  • It will have a positive effect on the more ‘upmarket’ alcohol brands and pubs. People may go out to a pub and spend there, rather than ‘preloading’ on cheap alcohol from supermarkets.

Arguments against minimum price for alcohol

  • Some politicians have argued it would reduce living standards for those on low incomes. The minimum price is highly regressive and will effect those on low incomes the most. There is already substantial tax on alcohol.
  • A higher minimum price could encourage people to switch to illicit ‘home brews’ and replacement alcohol. This is potentially dangerous as it leaves people exposed to alcohol of an unknown quantity and composition.
  • It will be an easy way for supermarkets to increase their profits.
  • The government would be better off just increasing tax on alcohol so that society pockets the extra cost rather than supermarkets. Then the tax revenue raised could be used to fund the cost of treating alcohol related diseases.

 Conclusion

The argument about equality and living standards is misplaced. I don’t think that avoiding minimum alcohol pricing is the way to promote greater equality. The most important thing is to set a price for alcohol which is optimal for society. Given the widespread abuse and social costs associated with consumption of cheap alcohol, the price should be raised and we should see a significant reduction in some alcohol related problems. It is by no means a panacea, there are many other things that need to be done to address problems related to alcohol, but high prices do have some effect in reducing demand – especially amongst some young people.

Suppose alcohol was already at 50p per unit, and this was considered to be a good socially efficient price, would it make sense to cut the price of alcohol to improve the living standards of those on low incomes? No. If we wanted to improve living standards it would make more sense to redistribute income through benefits, taxes – rather than make it cheaper to buy a demerit good.

Economics of minimum price

Just a brief note on the economics of minimum prices. A simple supply and demand model suggests a minimum price above the equilibrium could cause a surplus (supply greater than demand). This did occur with the minimum prices of the Common Agricultural Policy (CAP).

Minimum Prices

minimum-price

However, with alcohol pricing this wouldn’t occur. Supply and demand are both very inelastic, supermarkets would just put up the prices

Minimum price at Home office

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