CHAPTER 6: PRICING |
124. Within the EU, the rates of taxation and
the structure of the taxation of alcohol products are laid down
in two Directives of 1992.
RATES OF EXCISE DUTIES
125. The minimum rates of taxation of alcoholic
beverages are laid down in Directive 92/84/EEC.
It is open to Member States to tax drinks at a rate higher than
the minimum rate, and the UK has one of the highest rates of tax:
"a litre of wine in France incurs less than four euro cents
excise duty and a similar litre of wine here in the UK incurs
£2.73 excise duty".
This explains the busy cross-channel trade in wine bought for
personal consumption in the UK. It also explains why, as Mr Cummins
told us, "alcohol duty fraud is one of the largest tax crimes
in the UK; HMRC's published estimates suggest it costs taxpayers
around £1.3 billion a year. They advise that the problem
has grown somewhat since the introduction of the European single
market in the early 1990s, and there is no doubt that the significant
differences in excise duty rates between Member States can help,
to some extent, to incentivise that fraud."
126. Harmonisation of the levels of duty is not
even a distant dream. In 2013-14 the Government collected £10.5
billion in alcohol duties, around 2% of all tax revenue collected
by HM Revenue and Customs (HMRC). Most of the revenue came from
wine (£3.7 billion), beer (£3.3 billion) and spirits
(£3.1 billion), with cider making a much smaller contribution
to receipts (£0.3 billion). Alcohol duty's contribution to
HMRC receipts has remained around 2% since 2005. As Ms Willmott
told us, "the problem is that every time there is a discussion
about harmonised taxation, all the British MEPs go, 'Oh no',
because we know this is something that the UK will not even discuss."
In 2006, at the specific request of the Council, the Commission
put forward a proposal for amendment of the Directive by 'revalorising'
the rates of excise duties,
but it was last discussed in the Council in 2010, and the Commission's
Work Programme for 2015 proposes that it should be withdrawn because
there is "no foreseeable agreement".
We regret that the Commission's attempt to update minimum rates
of duty set over twenty years ago should have been blocked in
the Council in 2010 and not subsequently discussed.
THE STRUCTURE OF TAXATION
127. Amending the structure of taxation is another
matter. The principal provisions of the relevant Directive
are as set out in Box 8.Box
8: Structure of EU taxation of alcoholic beverages
|The excise duty on beer is fixed by reference to the number of hectolitre/degrees of finished product. Member States may divide beers into categories and may charge the same rate of duty per hectolitre on all beers falling within each category.
Member States may apply reduced rates, which may fall below the minimum rate, for beer with an actual alcoholic strength by volume not exceeding 2.8%.
The excise duty levied on still wine and sparkling wine and on other fermented beverages, including cider, is fixed by reference to the number of hectolitres of finished product.
Member States will be required to levy the same rate of excise duty within each category of alcoholic beverages.
Member States may apply reduced rates of excise duty to any type of wine and other fermented beverages, except for beer, with an actual alcoholic strength by volume not exceeding 8.5%.
128. The illogicality of the current position
was explained in the written evidence of ScHARR:
"Specifying that wine and ciders must be
taxed by product volume while permitting beer and spirits to be
taxed by ethanol content prevents excise duty being levied in
a way which reflects the public health risk associated with products.
Under the current system, a 750ml bottle of wine must attract
the same level of duty irrespective of whether it contains 90ml
of ethanol or 120ml ethanol, despite the public health risk being
greater in the latter case. In terms of duty levied per UK unit
of alcohol, a 500ml can of normal strength cider would attract
substantially more duty per unit than a 3L bottle of high strength
cider (8p per unit vs. 5p per unit at current UK duty levels).
For those motivated to purchase the maximum ethanol for the minimum
price, such duty structures create perverse incentives to purchase
beverages with higher alcohol contents in greater quantities.
Consideration should be given to reforming alcohol duty structures
to permit taxation which consistently reflects the alcohol content
of products and the public health risk which this entails."
129. In her oral evidence Prof Meier elaborated
on this: "The way taxation is currently legislated in EU
Directives is such that you cannot tax all alcohol by alcohol
strength. Alcohol strength is the driver of harm, so it entirely
makes sense to have something that is proportionate to alcohol
content. You can do that for beer and spirits but not for wine
or cider under current EU legislation. Several countries have
tried to find ways around that, but it is not currently possible."
130. This was the only topic on which the health
lobby and the manufacturers and retailers had a measure of agreement,
though perhaps for the manufacturers this is less a matter of
principle and more a desire to see wine taxed more highly. In
written evidence the Scotch Whisky Association told us: "The
defect of existing EU legislation is that it produces distortions
of competition by taxing differently the same level of alcohol
purely because it appears in a different kind of drink. The SWA
supports all alcoholic beverages being taxed on the same basis
according to alcohol content, with clearer horizontal minimum
rates applying to all alcohol. We believe this is the only fair
and responsible way to tax alcohol." The WSTA agreed, and
thought that this was "an area in which a reviewed strategy
could more reasonably be involved and provide potential benefits
to consumers in a less intrusive and possibly more effective way
than Minimum Unit Pricing."
131. As Prof Sheron pointed out, wine, unlike
beer and spirits, is taxed in bands: "There is a band at
7.5% and at 15%, so there is no financial incentive for manufacturers
to make weaker wines, which, given the population-level link,
would be much healthier."
A revised structure might also promote the sale of weaker beers:
Brigid Simmonds, the Chief Executive of the British Beer and Pub
Association (BBPA) explained: "Under the Structures Directive
low-strength beer can be taxed at a lower rate only if
it is less than 2.8%. We would like to have the ability to innovate
and to make the taste better by raising that to 3.5%."
132. The Government also agrees on the desirability
of amending the Structures Directive. Mr Acton said: "The
Directive already allows taxation to relate closely to alcoholic
strength for beer and spirits but not for wine and cider. You
can argue that that is illogical
We are arguing that it
should be possible for duty across the board to relate to alcohol
133. EU rules on the structure of alcohol
taxation should be reviewed to allow the implementation of variable
tax rates for wines and ciders in line with alcoholic strength,
and to give an incentive to the manufacture of lower strength
134. There is a considerable measure of agreement
that one of the main causes of binge drinking in the UK is 'pre-loading'.
Paul Waterson, Chief Executive of the Scottish Licensed Trade
Association (SLTA), explained: "We see many young people
now preloading before they come out, so they come into the
pubs and nightclubs and they have already had parties at home,
where they are drinking significant amounts of alcohol
people, especially younger inexperienced drinkers, are seduced
into drinking more than they would normally by price. Within the
[Licensing (Scotland) Act 2005] there is a package of measures
in Scotland to stop irresponsible promotions, but it cannot be
totally prescriptive. Minimum pricing would be a far more efficient
way of stopping irresponsible promotions." He did not agree
with the idea that alcohol "should be sold cheaper than water
and more or less given away as a loss leader to get people into
stores to make money off other products".
135. Needless to say, industry representatives
did not agree with this view. Mr Beale's dismissive comment
was: "What often gets in the way of a good story are the
was referring to the reduction in recent years in under-age drinking.
This reduction, however, does not seem to us to be inconsistent
with the sort of conduct described by Mr Waterson.
136. It is entirely within the competence of
Member States to take steps to prevent alcohol being "sold
cheaper than water" or "given away as a loss leader".
A ban on selling alcohol below the "permitted price"
was introduced through the Licensing Act 2003 (Mandatory Conditions)
Order 2014 and
came into force on 28 May 2014. The schedule to the Order defines
the "permitted price" as the level of alcohol duty plus
VAT. This means that a 440 ml can of average strength lager (4%
ABV) cannot be sold for less than 40p, a 70 cl bottle of vodka
(37.5% ABV) for less than £8.89, or a 75 cl bottle of wine
(12.5% ABV) for less than £2.46.
Sale at these prices still results in a loss to the retailer.
137. We recommend that the Government review
the formula laid down by the 2014 Order for calculating the minimum
permitted price of alcoholic drinks. We hope that other Member
States may take equivalent action.
Minimum Unit Pricing
138. Minimum unit pricing (MUP) of alcohol is
a legislative prohibition against the sale of alcoholic drinks
at a price below a fixed cost per unit of alcohol. It is not to
be confused with minimum pricing, which does not relate to the
price per unit but is the prohibition of the sale of an alcoholic
drink below a fixed pricefor example, a prohibition on
the sale of wine below cost price as a loss leader.
139. No Member State currently has a MUP law.
Indeed John Duffy, a statistics and policy consultant, told us
that MUP had "never been applied anywhere in the world".
He explained that a policy applied by certain Canadian Provinces,
described to us by Professor Theresa Marteau, the Director
of the Behaviour and Research Unit at the University of Cambridge,
in fact related to minimum pricing rather than minimum unit pricing.
THE MUP DEBATE
140. MUP is a highly controversial topic on which
we received a great deal of evidence, with sharply polarised views.
ScHARR has carried out modelling studies into the impact that
the introduction of MUP would have on drinkers across the different
socio-economic groups. In written evidence ScHARR concluded: "MUP
would provide a substantial public health benefit which, for a
45p MUP implemented in England in 2014-15, was estimated to be
a reduction in alcohol-related deaths of 860 per year, in hospital
admissions of 29,900 per year and reductions in direct costs to
the NHS of £561m over 10 years."
141. Ms Brown, describing the work of ScHARR,
"Their modelling predicts that the people
who would benefit the most in terms of reduced rates of liver
disease, negative health outcomes and social problems would be
the heaviest drinkers from the lowest social economic groups.
So this is a specifically targeted policy that could help to reduce
the gap in inequalities across the UK. That is such an important
message that needs to be understood from the research that is
coming out. This is exactly the solution that we want to see,
because it does not unfairly penalise responsible drinkers across
the board, be they from high or low incomes; it just targets drinkers
who drink the very strong, cheap drink."
142. Prof Sheron supported this view: "a
minimum unit price does not affect the price of all alcohol, only
the price of the cheapest alcohol. Specifically, we are talking
about 7.5%, three-litre bottles of electric soup cider, which
is what my patients with cirrhosis are drinkingand frankly,
if you are drinking that stuff, you have a drink problem. Normal
people do not drink that stuff. So it is not perfect, but it is
very heavily targeted to where the problem is compared to a general
increase in taxation."
143. On the other side of the fence is the industry,
led by the Scotch Whisky Association, who gave us both written
evidence and oral evidence through their Chief Executive, David
Frost. In their written evidence, supported by spiritsEUROPE,
they cited the same Sheffield research to reach the opposite conclusion:
"According to modelling by [ScHARR], hazardous and harmful
drinkers do not anyway mainly drink alcohol which is cheap relative
to its strength (and most such drinkers are relatively well-off
144. Mr Frost amplified these views: "We
think that minimum unit pricing is quite a heavy-handed way of
getting people who already drink responsibly to drink slightly
more responsibly by making their drink that bit more expensive,
while having no effect on those who drink harmfully or hazardously
all the international studies that we are aware of suggest
that harmful and hazardous drinkers, in those circumstances [if
the price is increased], simply cut other things in order to maintain
alcohol consumption or they go to illicit alcohol instead. In
other words, the price responsiveness of heavy drinkers is close
145. Mr Beale supported this view and strongly
criticised the Sheffield model: "Any economist will tell
you that this [MUP] is a populationbased measure. It is
in no way targeted; it cannot be. As a result, it hits the poorest
drinkers hardest. There is no evidence to suggest that they are
the most irresponsible drinkersquite the reverse
Equally, the heaviest drinkers we know very well are the least
responsive to price. The only thing I am sure about with minimum
unit pricing is disappointment will ensue."
146. Mr Waterson explained to us that the
SLTA had supported MUP since the late 1960s, and that MUP would
be an efficient way of stopping "the constant race to the
bottom in supermarkets on price".
But he was the only one of our witnesses from the industry to
THE POSITION IN SCOTLAND
147. Health in Scotland is a devolved matter.
As we have explained in Chapter 2, Scotland has particularly high
rates of alcohol abuse and alcohol-related harm, and aims to be
the first country in the world to introduce MUP. One of the leading
protagonists has been Scottish Health Action on Alcohol Problems
(SHAAP), an independent medical advocacy organisation set up by
the Scottish Medical Royal Colleges, who sent us very full written
evidence. The Scottish Government carried out a consultation in
2008, and in November 2009 Nicola Sturgeon MSP, then the Scottish
Health Secretary, introduced a Bill to give effect to MUP by amending
the Licensing (Scotland) Act 2005. The MUP provisions of the Bill
were opposed by the parties other than the SNP, and those provisions
were removed. After the 2011 election a second Bill was introduced,
and the Alcohol (Minimum Pricing) (Scotland) Act 2012 received
Royal Assent on 29 June 2012.
There is, as we explain below, a challenge to its legality, but
if and when it enters into force, it will prohibit the sale on
licensed premises of alcoholic drinks at a price which is less
than the product of the volume, strength and minimum price per
unit. The price will be set by Order, and Scottish Ministers propose
a minimum price of 50p per unit.
THE POSITION IN ENGLAND AND WALES
148. The United Kingdom Government is of course
responsible for health in England and Wales.
The Government's Alcohol Strategy of March 2012
included the following commitment: "We will introduce a minimum
unit price (MUP) for alcohol meaning that, for the first time
ever in England and Wales, alcohol will not be allowed to be sold
below a certain defined price. We will consult on the level in
the coming months with a view to introducing legislation as soon
as possible." This was specifically endorsed by the Prime
Minister in his Foreword: "So we are going to introduce a
new minimum unit price."
149. This is not what happened. In November 2012
the Home Office issued a consultation paper, entitled A consultation
on delivering the Government's policies to cut alcohol fuelled
crime and anti-social behaviour, which, as anticipated in
the Strategy, sought views on the proposal that the minimum price
per unit should be 45p. In July 2013 the Home Office issued a
further paper, entitled Next steps following the consultation
on delivering the Government's alcohol Strategy,
in which the Home Secretary stated: "[The consultation] has
not provided evidence that conclusively demonstrates that Minimum
Unit Pricing (MUP) will actually do what it is meant to: reduce
problem drinking without penalising all those who drink responsibly.
In the absence of that empirical evidence, we have decided that
it would be a mistake to implement MUP at this stage. We are not
rejecting MUPmerely delaying it until we have conclusive
evidence that it will be effective."
150. In other words, 16 months after giving a
commitment to introduce legislation for MUP "as soon as possible",
following a consultation ostensibly limited to the level of the
minimum price per unit, the Government changed its mind because
of opposition from 56% of respondents to the consultation. That
opposition was, however, to the specific suggestion of a 45p minimum
price; the Minister conceded that he did not know how many thought
the minimum price should be higher, or lower, or were opposed
to MUP altogether.
THE LACK OF EVIDENCE
151. The Government is not alone in using the
argument that there is "no conclusive evidence" that
MUP would be effective. We heard this also from the SWA in their
written evidence: "Accordingly, there is no convincing evidence
that MUP as a policy will reduce alcohol-related harm because
it has not been shown that it will reduce the number of hazardous
and harmful drinkers."
The written evidence of spiritsEUROPE was identical. The WSTA
written evidence concluded: "There is no evidence that Minimum
Unit Pricing of alcohol would promote public health and it fails
to take into account differing taxations levels, consumer prices,
consumption, cultures and harm across each of the EU Member States."
In Brussels Paul Skehan, the Director General of spiritsEUROPE,
told us: "It astonishes me how much people talk about the
robust evidence that is behind it [MUP]. It is a model and a model
depends on the data you put in and the assumptions you apply to
those data. If you put in the right assumptions you might get
good evidence coming out. If you do not, you will not. We have
seen the Sheffield model change two or three times now. We do
not have a lot of faith in it."
152. It is of course true that there is no hard
evidence that MUP will work in reducing alcohol-related harm,
especially among the lowest socio-economic groups; there could
not be, since it has never been tried. But that alone is not a
reason for not trying it; if governments never embarked on any
policy without proof that the policy would be successful, they
would be giving a poor example of leadership. As the Prime Minister
said in his Foreword to the Alcohol Strategy: "Of course,
I know the proposals in this strategy won't be universally popular.
But the responsibility of being in government isn't always about
doing the popular thing. It's about doing the right thing."
We agree, and we regret that the Government has decided not to
introduce the legislation to which it was committed.
153. The Scottish Government is faced with a
particularly acute problem of alcohol-related harm. It has carried
out a consultation. The SNP went into the 2011 election with MUP
as one of its key policies. Having been elected, it introduced
the legislation. It cannot, however, be predicted whether the
legislation, if and when it enters into force, will be successful.
THE LEGALITY OF MUP UNDER EU LAW
154. Within a month of the Scottish Act receiving
Royal Assent, the SWA, together with two European groups of wine
and spirit manufacturers, petitioned for judicial review of the
Act. Shortly before the hearing in the Outer House of the Court
of Session they abandoned the argument that this was not a devolved
matter, and so was outwith the powers of the Scottish Parliament.
They maintained however that the Act, and any Order made under
it, were contrary to the prohibition by Article 34 TFEU of quantitative
restrictions on imports and measures having equivalent effect,
and not saved by the derogation in Article 36 which provides that
these prohibitions do not preclude prohibitions or restrictions
justified on grounds of the protection of public health.
155. Lord Doherty dismissed the petition
and declined to refer questions to the Court of Justice. The petitioners
appealed to the Inner House. There the Lord Advocate and
the Advocate-General for Scotland conceded that the Act would
be in breach of Article 34 TFEU unless justified under Article
36. The court decided that the relationship between the two Articles
was unclear, and referred a number of questions to the Court of
Justice of the European Union (CJEU) for decision. There the matter
156. Since the United Kingdom is the Member State
concerned, the United Kingdom Government has intervened in support
of the Scottish Government, and in written evidence to the Committee
the Department of Health said: "In our response in July 2013
to the consultation on a proposed minimum unit price of 45p for
England and Wales, we made clear that we remain confident of the
legal basis for the policy and we will continue to support the
Scottish Government in the current legal case."
157. The Commission will in due course be submitting
its observations to the Court, but its views are already known.
Article 8 of the Directive on technical standards
requires Member States to seek clearance from the Commission for
any new technical regulation. Accordingly on 25 June 2012 the
UK Government sent to the Commission the draft Alcohol (Minimum
Price per Unit) (Scotland) Order 2013,
under which Scottish Ministers would set the 50p minimum price
per unit. The Commission's opinion was that the draft Order would
be in breach of Article 34, noting that 82% of French brandy was
sold at a price lower than a 50p minimum price, and that all major
supermarket chains would have to increase the price of French
brandy. The Commission then considered the possible justification
under Article 36, but concluded that MUP would be a disproportionate
way of achieving the goal of reducing alcohol-related harm. Its
view therefore was that the draft Order, if made, would be in
breach of Article 34 TFEU. Mr Carlin described the Commission's
response as "ill-informed, inaccurate and plainly wrong and
strongly influenced by industry lobbying". He added: "From
the discussions that we have subsequently had with DG SANCO officials,
it appears that they were not even involved in preparing that
158. The Commission took it upon itself to advise
the Government that, in its view, a better way of achieving its
object would be to raise alcohol duties. It does not seem to us
to be any part of the Commission's functions to advise a Member
State on the policy it should adopt in a matter almost entirely
within its competence. Moreover, as a number of our witnesses
pointed out, the EU Directive on the structure of alcohol taxation
actually prohibits a taxation system for all beverages based on
their alcoholic strength.
159. It is regrettable that the Commission's
decision appears to favour economic interests over the health
and well-being of EU citizens, and seeks to deny Scotland the
opportunity to test whether MUP will achieve the result it seeks.
160. If the Court rules that minimum unit
pricing is lawful under EU law, we recommend that the United Kingdom
Government monitor the effects of its introduction in Scotland.
If MUP does appear to be successful in bringing health benefits
to the heaviest drinkers, the Government should implement the
undertaking it gave in 2012 to introduce MUP in England and Wales.
126 Council Directive 92/84/EEC of 19 October 1992
on the approximation of the rates of excise duties on alcohol
and alcoholic beverages (OJ L 316, 31 October 1992, page 29). Back
Q183 (Stephen Cummins) Back
Proposal for a Council Directive on amending Directive 92/84/EEC
on the approximation of the rates of excise duty on alcohol and
alcohol beverages, COM(2006) 486 final Back
Annex 2 to a Communication from the Commission to the European
Parliament, the Council, the European Economic and Social Committee
and the Committee of the Regions on the Commission Work Programme
2015: A New Start, COM(2014) 910 final Back
Council Directive 92/83/EEC of 19 October 1992 on the harmonization
of the structures of excise duties on alcohol and alcoholic beverages
(OJ L 316, 31 October 1992, page 21). Back
In essence, a measure of alcohol by volume. Back
140 The Licensing Act 2003 (Mandatory Conditions) Order 2013, SI 2014/1252 Back
Home Office, Guidance on banning the sale of alcohol below
the cost of duty plus VAT for suppliers of alcohol and enforcement
authorities in England and Wales (May 2014): https://www.gov.uk/government/uploads/system/
[accessed 24 February 2015] Back
The distinction between minimum pricing and minimum unit pricing
is not helped by the fact that the Scottish legislation refers
to 'minimum pricing' and 'minimum price'. Only later in the legislation
is it made clear that the minimum price is calculated by reference
to a minimum price per unit. Back
So that MPs representing Scottish constituencies have responsibility
for policy in England and Wales, but MPs representing English
or Welsh constituencies have no responsibility for policy in Scotland-the
West Lothian question. Back
The Government's Alcohol Strategy, Cm 8336, March 2012,
presented to Parliament, not by the Secretary of State for Health,
but by the Home Secretary: https://www.gov.uk/government/uploads/system/uploads/
[accessed 27 February 2015] Back
Home Office, Next steps following the consultation on delivering
the Government's alcohol strategy (July 2013): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/223773/Alcohol_consultation_response_report_v3.pdf
[accessed 24 February 2015] Back
Jeremy Browne MP, Minister of State, Home Office: HC Deb,
17 July 2013, col 1120 Back
Written evidence from SWA (EAS0020) Back
Written evidence from WSTA (EAS0016) Back
Directive 98/34/EC of the European Parliament and of the Council
of 22 June 1998 laying down a procedure for the provision of information
in the field of technical standards and regulations. Back
The Draft Alcohol (Minimum Price per Unit) (Scotland) Order 2013:
[accessed 24 February 2015] Back
Written evidence of Eurocare (EAS0006), Institute of Alcohol Studies
(EAS0002), and Balance (EAS0017), among others. Back