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Higher alcohol taxes would boost the economy

Raising alcohol taxes could benefit the UK economy, according to a new study from the University of Strathclyde’s Fraser of Allander Institute (FAI) and the Institute of Alcohol Studies (IAS). The research, to be published in the journal Drug and Alcohol Review, finds that higher alcohol taxes would lead to an increase in both national income and employment, provided the additional revenue is invested in public services.

Using a sector-by-sector model of the economy, the researchers estimated the effects of a 10% increase in alcohol tax, with the government using the proceeds to increase spending on public services, finding that:

  • The higher rate of duty would raise an extra £789 million for the Treasury
  • UK GDP would rise by £847 million
  • There would be over 17,000 more full-time equivalent jobs 

Opponents of policies to reduce harmful drinking, such as raising alcohol taxes, often claim that reducing alcohol sales will lead to job losses and negatively affect the economy. Yet the new analysis shows that any adverse impact on the alcohol industry can be offset by higher spending on other goods and services, with more jobs created in sectors like health and education. 

These results are likely to underestimate the full economic benefit of higher alcohol taxes, as the model did not account for any reduction in alcohol-related illness and injury, which in turn would increase productivity and reduce sickness-related absence from work. 

Peter McGregor, director of the Fraser of Allander Institute, and one of the authors of the study, said:

'For an increase in alcohol duties we find evidence of a net positive effect on both value-added and employment in addition to improved health outcomes, indicating that here there is no trade-off between the two: indeed, there is potential for a "double dividend" of a simultaneous improvement in health and a stimulus to the UK economy.'

Aveek Bhattacharya, policy analyst for the Institute of Alcohol Studies, and a co-author on the study, said:

'This study clearly demolishes the argument that we cannot afford to tackle cheap alcohol. While the weight of evidence that reducing the affordability of alcohol would save lives and reduce crime and violence should be reason enough to take action, this research strengthens the economic case for raising its price. 

'Supermarket beer is 188% more affordable today than it was in 1987. The government should get back on track and ensure that alcohol taxes rise above inflation, as well as introducing a minimum unit price to address the cheapest products.'

The full article, Can a policyinduced reduction in alcohol consumption improve health outcomes and stimulate the UK economy?: A potential ‘double dividend’ is available to view on the Drug & Alcohol Review website. You can also watch a video summarising the study.