More than 10,000 people die every year in the UK from alcohol-specific deaths. Evidence shows that more than 1,300 of those lives could be saved by simply raising the cost of the very cheapest alcohol – such as large bottles of very cheap cider – which is often most associated with the heaviest and most harmful drinking.
Minimum unit pricing (MUP) has been identified as one of the most effective ways of raising the cost of these products, and reducing the harm they cause. We know MUP works because it was introduced in Scotland in 2018 and then in Wales in 2020. Though the data is not perfect, MUP in Scotland is estimated to have reduced alcohol consumption by 3%, alcohol-attributable hospital admissions by 4%, and alcohol-attributable deaths by 13%.
Despite these encouraging signs from north of the border, successive governments in Westminster have been reluctant to introduce a similar regime in England, even while recognising the need for stronger public health measures. Following our latest research on the issue, we address some of the more prominent objections to MUP – including how to tax it.
What are the political obstacles to minimum unit pricing?
It is a common misconception in Scotland, where MUP has been successful, that the revenue raised from the additional price goes back to the government. In fact, retailers who raise their prices simply make greater margins and hold on to those revenues. It is this issue that we are focused on in our latest paper. We estimate that this windfall amounts to about £54 million a year in Scotland, and would be worth £550 million in England if MUP was introduced along similar lines. At the same time, we would see duty receipts fall as the sales of some drinks decline.
We argue that rather than seeing this as a mark against MUP, government should look to tax these windfalls, neutralising the objection, and turning the policy into a revenue neutral, or even revenue raising, proposition. We argue that the UK should introduce a minimum unit tax (MUT) for alcohol, so that the very cheapest drinks – whose profitability rises most due to minimum unit prices – are taxed more. These two measures work hand-in-hand: MUP maintains that prices do not fall below a certain level, and MUT ensures that the windfall profits from the price increase is taxed appropriately.
While devolved governments do not have control of the duty system, they still have plenty of options if they want to claw back some of the MUP windfall. We suggest that a new retailer levy on rateable value would be the best option. Though this is not as well targeted as MUT would be, it is still focused on retailers who stand to benefit the most from MUP. The Public Health Supplement, which was implemented for a time in Scotland, shows that such an approach is feasible, but we argue that any new tax across the whole of the UK could be better designed.
Minimum unit taxes can strengthen the case for MUP while being fair on consumers
In 2017, the UK Government imposed a minimum excise tax on cigarettes, ensuring that a minimum level of tax is imposed on every pack. We argue that a similar approach could be taken to taxing alcohol. Alcoholic beverages are currently taxed twice – first as part of the duty system, and then, through VAT, proportional to the sale price. A minimum unit tax would raise taxes on the cheapest drinks by requiring that the combined duty and VAT does not go below a specified level – in our modelling we have set this at 36p per unit with a higher 46p rate for spirits (which are often very cheap on a per unit basis despite facing a higher duty rate than other drinks).
One possible objection to MUT is that it levies an additional tax on alcoholic drinks where duty is already being paid. Our response is that the vast majority of drinks on the market are already taxed at more than the 36p a unit. Under the current system, it is the very cheapest drinks on the market that face the lowest tax rate thanks to VAT. A minimum unit tax therefore merely levels the playing field at the bottom of the market – the cheapest options available – ensuring that there are no longer tax incentives to offer the lowest possible price per unit.
Politicians are sometimes wary of proposals like ours, because they worry that increasing prices, taxes, or both, will punish ordinary consumers. This is particularly pressing given the recent increases in the cost of living. We show that the effects of MUP and MUT are heavily concentrated at the very cheapest end of the market, where the products most associated with heavy drinking sit. We looked at the flagship products from the top 20 UK brands and found that eight would be completely unaffected while another four would see a tax increase of less than 5% of the retail price.
For example, we would expect the price of a 2.5 litre bottle of Frosty Jack’s cider, currently only £5.25, to increase to more than £12 under the proposal. Meanwhile we would only expect a 4-pack of Carling, currently about £4.50 in supermarkets, to increase by 28p. A bottle of Hardys white wine, currently around £5.50 would see no price increase at all. It is a similar story for spirits – a 70cl bottle of Sainsbury’s own brand whiskey would increase in price by £5.71, but a bottle of Jack Daniel’s would not be affected. These figures are an estimate for the combined effect of MUT and MUP – we assume the price rise will be the increase in price required to reach the MUP, or the tax increase – whichever is highest.
Of course, under this proposal some prices would rise for some consumers – which is, after all, the mechanism by which these interventions are intended to reduce harmful drinking. The idea is to ensure that the average moderate drinker is affected as little as possible, while ensuring that the price effects at the bottom end of the market are significant enough to influence demand.
Finally, we want to note that these measures are not intended to negatively affect the on-trade. Very few drinks are sold in pubs and restaurants below the discussed MUP of 65p a unit. Minimum unit taxes needn’t be applied to the on-trade at all. Even if they were, the higher prices at pubs and restaurants mean that few, if any, drinks would be affected. Indeed, we might expect to see some benefit to pubs, as the price differential between the cheapest drinks at the supermarket and those in pubs shrinks.
Conclusions
Public health measures like minimum unit prices are always about balance. Price based interventions have been proven again and again to be effective at reducing harms caused by everything from sugar to tobacco. This must however be balanced against the interests of consumers, particularly those for whom the risk of harm is minimal. We believe that MUP strikes the right balance, ensuring that prices rise on the products that cause the most harm, while leaving most of the market unaffected.
The best price interventions also follow a ‘polluter pays’ model, whereby the extra money paid for the goods in question finds its way to the state rather than to those causing the harm. We looked at a number of ways governments might ensure that any windfall from MUP goes back to the taxpayer rather than the retailers. Minimum unit taxes are the best way to do this, but devolved governments also have other viable options.
Written by Barney Dowling, Researcher, the Social Market Foundation.
All IAS Blogposts are published with the permission of the author. The views expressed are solely the author’s own and do not necessarily represent the views of the Institute of Alcohol Studies.