Health Committee - The Government's Alcohol StrategyWritten evidence from Mr Christopher Snowdon (GAS 49)

Background

Alcohol consumption in the UK is currently at an unexceptional level both in historical terms and by comparison with other EU countries. After falling to an all-time low after the Second World War, per capita alcohol consumption rose gradually during the rest of the Twentieth Century before going into decline after 2002. Between 2005 and 2010, average weekly alcohol consumption fell by 20%, as the Office for National Statistics recently reported:1

“Between 2005 and 2010 average weekly alcohol consumption decreased from 14.3 units to 11.5 units per adult. Among men average alcohol consumption decreased from 19.9 units to 15.9 units a week and for women from 9.4 units to 7.6 units a week.”

There have been declines in the number of people drinking more than the recommended guidelines:

“Since 2005 the GHS/GLF has shown a decline in the proportion of men drinking more than 21 units of alcohol a week and in the proportion of women drinking more than 14 units of alcohol a week. The proportion of men drinking more than 21 units a week fell from 31% in 2005 to 26% in 2010 and the proportion of women drinking more than 14 units a week fell from 21% to 17% over the same period.”

This drop in consumption has been particularly acute amongst young people:

“These changes were driven by falls in the younger age groups. Among men, the percentage drinking more than 21 units of alcohol a week decreased in the 16 to 24 age group (from 32% to 21%) and in the 25 to 44 age group (from 34% to 27%). Falls were also present among women; the percentage drinking more than 14 units of alcohol a week fell in the 25 to 44 age group from 25% to 19%.”

And there has also been a significant decline in the number of consumers classified as “heavy drinkers”:

“When using the average weekly consumption measure, heavy drinking is defined as consuming more than 50 units a week for men and consuming more than 35 units a week for women. There have been falls in the proportions of both men and women who drink heavily since 2005. The estimates for men fell from 9% to 6% and for women fell from 5% to 3% from 2005 to 2010.”

By comparison with other EU countries, alcohol consumption is almost exactly at the EU average (between Portugal and Cyprus).2

Campaigners for minimum pricing frequently assert that alcohol has become more affordable since 1980. Whilst true, this tells us nothing more than that Britain has enjoyed very significant economic growth in recent decades As a consequence, almost everything has become more affordable and it is to be hoped that almost everything will be still more affordable in 30 years’ time. A more normal measure of calculating prices over time is, of course, to adjust them for inflation. If we do this, we can see that alcohol has become more expensive in real terms. The Office for National Statistics reports that the real price of alcohol has risen by almost 20%.

“Between 1980 and 2008, the price of alcohol increased by 283.3%. After considering inflation (at 21.3%), alcohol prices increased by 19.3% over the period.”3

Some campaigners have confused affordability with real terms decreases. The charity Cais, for example, has publicly stated that “in real terms, [alcohol is] cheaper than it’s ever been.”4 This is simply untrue and, contrary to popular perception, the UK has the second highest rate of duty on beer and wine, and the third highest duty on spirits. Alcohol duty makes up 45% of the price of a bottle of wine, 14% of a pint of beer and 47% of a bottle of whisky.5

These statistics do not obviously support the widely held perception that the UK is in the midst of a drinking epidemic caused by a flood of cheap alcohol. Extraordinary policies can only be justified in extraordinary times and there is little empirical evidence to support the narrative of a crisis of “binge-drinking”. The British have long indulged in periodic moral panics about drinking, from the “gin craze” of the eighteenth century to the “lager louts” of the 1980s. We concur with Yeomans (2009) that the current perceived crisis—which was sparked by the Licensing Act (2005)—fits much the same mould.6

It can be argued that overall consumption figures are a poor proxy for harmful drinking by a small minority, whose behave has a disproportionate impact on public order offences and healthcare. Evidence for such a phenomenon in Britain today is largely anecdotal, but even if it were true, the fact that public concern has been mounting even as drinking has been waning suggests either that the crisis is much exaggerated or that overall consumption is not strongly related to public disorder and alcohol-related ill health. While we would expect attempts to manipulate price to have some effect on overall consumption, we have serious doubts about claims that this would produce significant health benefits without creating major negative unintended consequences. The Home Office has acknowledged that “price is only one factor that may affect levels of alcohol consumption, with individual, cultural, situational and social factors also influential.”7 We agree with this analysis and suggest that crude attempts to manipulate supply and demand will penalise the responsible majority while ignoring the fundamental causes of addiction and violence.

The Economics of Minimum Pricing

It is a fundamental principle of economics that, ceteris paribus, an increase in price leads to a decrease in consumption. On this principle does the case for minimum pricing rest. However, there are other factors which concern economists which tend to be overlooked by those who support this policy. Specifically, we appreciate that the elasticity of demand varies for different consumers, and that increases in the price of licit goods lead to increased consumption of illicit goods. These two factors have received inadequate attention in the debate over minimum pricing.

All predictions as to how minimum pricing might affect levels of crime, consumption and ill health are necessarily speculative and while the conjectural nature of the evidence is not sufficient reason to discard it, we believe there are sufficient flaws in these projections for them to be treated with great caution.

Perhaps the most influential research in this debate comes from a team at Sheffield University who used data from Scotland.8 These researchers predict that a minimum unit price of 45p would lead to overall alcohol consumption falling by 3.5% and would result in non-trivial reductions in alcohol- related crime and morbidity. According to these projections, the effect on harmful drinkers would be many times greater than the effect on so-called moderate drinkers. However, these figures are based on the assumption that harmful drinkers are as price sensitive as moderate drinkers—a claim that has no basis in the scientific literature. Very many harmful drinkers are to a greater or lesser extent addicted to alcohol. Although the price elasticity of alcohol is −0.44, for heavy drinkers it is a more inelastic −0.28.9 For those who are most heavily addicted to alcohol, demand is almost entirely inelastic, which is to say they will consume alcohol at almost any price even if they have to turn to crime in order to do so.

The Sheffield University studies only briefly acknowledge the issue of price elasticity and none of their headline-making figures are adjusted to factor in this crucial variable. This is a major oversight when the whole point of minimum pricing is to address problem drinking, street-drinking and alcoholism.

Even under the mistaken assumption that alcoholics are as price sensitive as occasional drinkers, this research predicts that a 45p unit price would reduce alcohol consumption by harmful drinkers by 278.3 units a year. This sounds impressive until one considers that elsewhere in their report, the researchers show that these harmful drinkers consume between 10 and 30 units every day. We doubt whether an average decline in consumption of less than one unit per day would result in any material health benefits for the group being targeted.

In common with other researchers, the Sheffield University team ignore the likely effect of higher prices on the illicit trade. They make no attempt to predict the effect on cross-border purchases, nor is any account taken of home-brewing and home-distilling, nor of mass produced counterfeit products. Although we cannot predict the scale of the black market under a minimum pricing regime, it would almost certainly grow in proportion to the minimum price itself. Without an acknowledgement that counterfeit alcohol is already a significant problem in this country—and that illicit spirits are more hazardous to health than the regulated product—all predictions of per capita consumption and resulting health benefits must be considered highly suspect. Predictions about falling crime must be considered doubtful for the same reason. Indeed, it is likely that criminal activity in the black market would increase with no commensurate decline in alcohol-related violence to accompany it.

Minimum Pricing is Doubly Regressive

The Institute for Fiscal Studies estimates that a minimum unit price of 45p would result in a transfer of wealth from drinkers to the beneficiaries (currently assumed to be the drinks industry and supermarkets) of £700 million per annum.10 As large as this figure is, it would rise much further if and when the unit price rises. We fully expect the public health establishment and temperance groups to demand above inflation rises in the unit price on a regular basis once this Pandora’s Box is opened. Indeed, they are already doing so. If the policy is seen to work, there will inevitably be calls for the government to “build on its success” by increasing the unit price. But if, as we expect, the policy fails to make any impact, these same groups will insist that its failure derives from the price being too low and, therefore, should be raised. In either instance, the introduction of minimum pricing will give a powerful weapon to groups who will forever believe that the price of alcohol is too low.

At whatever level the price is set, it will require the general population, and particularly the poor, to subsidise supermarkets and the drinks industry. The high cost of alcohol in this country is a major cause of secondary poverty. Nearly all indirect taxes are, of course, regressive. As the Office for National Statistics notes, indirect taxes “take a higher proportion of income from lower income households, and therefore increase income inequality.”11 In the UK, direct taxes take 24% from the richest and 10% from the poorest, but the figures are almost exactly reversed when it comes to indirect taxes such as fuel duty, tobacco duty, VAT and alcohol duty.

Minimum pricing would be doubly regressive because it targets products which are disproportionately consumed by people on low incomes. But whereas the iniquitous nature of some sin taxes can be partially, though inefficiently, remedied through increased welfare payments to the poor, this would not be a solution in the case of minimum pricing because it would only serve to make alcohol “affordable” again. This implies that poverty itself would be a solution to alcoholism and drunkenness since it makes alcohol less affordable, a notion that runs counter to all the evidence which indicates that poverty is better seen as a cause of alcoholism and drunkenness. And whilst alcohol can be a cause of ill health, so can poverty—whether primary or secondary. (It is, however, true that per capita alcohol consumption is lower for those on low incomes. The very fact that these groups experience the highest rates of alcohol-related harm indicates that reducing per capita consumption is not an efficacious way of reducing harm.)

The policy only makes sense if we believe that low income drinkers will significantly reduce their alcohol consumption as a result of higher costs, but that is to allow hope to triumph over experience. As the old Russian joke goes, when a boy asks his father if he drink less when the price of vodka does up: “No,” the father replies, “it means that you will eat less.”

Other Issues

As regards raising the drinking age, lowering the strength of alcoholic drinks, banning advertising and mandating plain packaging, these are all policies entirely at odds with the principles of a free society. Drinking alcohol is an adult pastime and those who are 18 and over should not be prohibited from engaging in it and have a right to know which products are available. Plain packaging, like minimum pricing, would be a serious infringement of commercial freedom which would likely violate a number of free trade agreements to which the UK is a signatory. We find it troubling and scarcely believable that the government is contemplating creating a country in which bureaucrats not only set the price of products but also design their packaging.

About the Author

Christopher Snowdon is an Institute of Economic Affairs Fellow and an independent writer and researcher. He is the author of The Art of Suppression (2011), The Spirit Level Delusion (2010) and Velvet Glove, Iron Fist (2009). His work focuses on pleasure, prohibition and dodgy statistics. His blog is Velvet Glove, Iron Fist.

May 2012