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Ban on below cost sales

In its statements that it would not be introducing minimum unit pricing, the UK Government presented a ban on below cost sales as an alternative policy addressing the same issue. For example, in the parliamentary debate on the Alcohol Strategy consultation, then Minister of State for Home Affairs, Jeremy Browne announced, “We will tackle the most egregious examples of cheap alcohol by banning sales of alcohol below the level of alcohol duty plus value-added tax”.[1] However, this measure has been strongly criticised for its minimal impact and for failing to address neither the issue of cheap alcohol nor that of ‘predatory pricing’.

The low prices of some alcohol in supermarkets has elicited not just health concerns, but also concerns about fair economic competition. In 2007, ten grocery retailers, including the ‘big four’ supermarkets (Asda, Morrisons, Sainsbury’s and Tesco), admitted to a Competition Commission inquiry that alcohol, along with packaged groceries, was one of the two leading types of ‘loss leader’. In other words, supermarkets sold alcohol for less than they paid for it from wholesalers, for the following reasons:

  • To “avoid being beaten on price by competitors”
  • To “tempt customers into store at certain times of the year”
  • To cushion the impact of changes in supplier costs
  • To “support the launch of a new product”

In total (across all products), it was estimated loss leaders account for 3% of sales.[2]

Regularly selling goods at a loss is seen as problematic because it is can be a sign of anti-competitive ‘predatory pricing’, whereby large incumbent retailers use sharp discounts to ward off or force out smaller competitors who cannot subsidise these losses for so long from other goods.

A number of countries, such as Poland, France, Spain, Italy and Belgium, address this issue by banning below cost sales (for a number of goods, including alcohol).[3] For example, in France, retailers are forbidden from selling goods for less than the invoice price plus transportation costs and taxes.[4]

In the UK context, discussion of a ban on below cost sales has centred around a much weaker proposal – as described above, banning sales only below the rate of duty and VAT (and excluding invoice and transportation costs). The measure was originally included as part of the Conservative/Liberal Democrat programme for government in 2010.[5] Having been dropped from the 2012 Alcohol Strategy on the grounds that the policy was superseded by minimum unit pricing,[6] the policy returned following the dropping of MUP in the response to the consultation on the strategy.[7] It then came into force in May 2014.[8]

The Government’s guidelines on applying the ban on below cost sales calculate the implied minimum prices resulting from the policy include:[9]

  • 39p for a 440ml can of 4% ABV lager
  • £1.14 for a 440ml can of 9% ABV lager
  • £8.72 for a 70cl bottle of 37.5% ABV vodka
  • 24p for a 500ml bottle of 4.5% ABV cider
  • £2.51 for a 750ml bottle of 12.5% wine

Note that these are significantly lower than the equivalent minimum unit prices that had been proposed. Analysis by the Institute for Fiscal Studies found that only 0.9% of products in the off-trade would be affected by the policy.[10] The policy’s effectiveness was criticised by a number of bodies from the pub trade and the alcohol industry, for failing to account for the full cost wholesale cost of alcohol to supermarkets. For example, Mark Hunter, Chief Executive of Molson Coors claimed that “tax is not a proxy for cost”. The Campaign for Real Ale estimated that a minimum price of 40p per unit – over double the effective rate of the below cost ban – was necessary to prevent supermarkets selling alcohol at a loss.[11]

Analysis using the Sheffield Alcohol Policy model supports the view that the ban on below cost sales has minimal effect. It suggests that the policy reduces harmful drinkers’ consumption by 0.08% a year (around 3 units), preventing 14 deaths and 500 hospital admissions a year in England.[12]

In May 2016, the first conviction for selling below cost was made, with a shopkeeper in Gateshead fined £3,000.[13]

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[1] UK Parliament (July 2013), ‘Hansard HC Deb. Vol 566’ <>

[2] Freeman P et al (2008)., ‘The supply of groceries in the UK market investigation’, Competition Commission, p. 94–5 <>

[3] Hunt P et al (June 2010)., 'Preliminary analysis of the economic impacts of alcohol pricing policy in the UK', Brussels: RAND Europe, p. 19 <>

[4] OECD (2006), ‘Resale below cost laws and regulations’, p. 42 <>

[5], ‘The Coalition: our programme for government’, The Coalition documentation, p. 13 <>

[6] HM Government (2012), ‘The Government’s Alcohol Strategy’, op. cit., p. 12

[7] Home Office (2013), op. cit

[8] Home Office (2016), ‘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’, p. 3 <>

[9] Home Office (2016), op. cit., p. 5

[10] Griffith R et al (2013)., ‘Price-based measures to reduce alcohol consumption’, IFS Briefing Note BN138, p. 8.

[11] Foottit L (January 2011)., ‘Pub trade fury at below-cost plans, Publican’s Morning Advertiser’ <>

[12] Brennan A (2014)., ‘Potential benefits of minimum unit pricing for alcohol versus a ban on below cost selling in England 2014: modelling study’, BMJ 349. <http://10.1136/bmj.g5452>

[13] Green M (May 2016)., ‘First conviction for selling alcohol “below cost” sees retailer fined’, Off Licence News <>