Minimum pricing: a view in favour

Minimum pricing of alcohol has been hitting the news recently with governing parties in both Westminster and Holyrood supporting the measure. It is also a policy that raises hackles across the political spectrum as commentators on the right attack it as an affront to personal freedom and commentators on the left attack it for smacking of nineteenth century paternalism. It is particularly easy to attack the policy as, in England at least, it is seen as belonging to David Cameron. North of the border in Scotland, on the other hand, minimum pricing has been suggested as a cornerstone to a positive health campaign. The issue of alcohol related illness is particularly important in Scotland where the percentage of deaths of over 35s that can be directly related to alcohol abuse is pushing twenty-five percent.  An ISD Scotland report from 2009 suggested that, in Scotland alone, nearly 3,000 deaths were alcohol related including cancers, liver diseases and heart disease.  Clearly, alcohol abuse kills, to say nothing of its affect on the social welfare of vulnerable people exposed to those who abuse alcohol.  However, minimum pricing still has its critics.  This criticism focuses, it seems, on two aspects. Firstly a misunderstanding over what it actually entails and, secondly, the accusation that this is a policy designed to specifically penalise the poor.

Let’s start by addressing what minimum pricing is, or, rather let’s start by addressing what minimum pricing isn’t. Firstly, it is not a Thatcheresque attempt to snatch the precious British pint from the hands of working people in the way she snatched milk from the hands of the nation’s children. It will certainly raise the price of some alcoholic drinks and it will raise the price of some alcoholic drinks bought and consumed by some of the most disadvantaged in our society; however, the average pint will be unaffected.

Basically, minimum pricing is the idea that ethanol, the thing that makes an alcoholic drink alcoholic, should have a unit price set by the government. The SNP, in the bill that has just passed, set this unit price at 50p, David Cameron wants it to be 40p. Studies suggest the higher the unit price the greater the benefit, with peak benefit being around about the 75p-£1 mark depending upon which study. But, like the Laffer curve and taxes, evidence be damned and the 50p mark probably marks a watershed beyond which the public mind is uncomfortable. Even at 40p, health benefits will be accrued and 40p is better than nothing.

It is important that one realises precisely what it is being priced here and how it will affect prices. In the UK a unit of alcohol is 10ml of pure ethanol (in the Republic of Ireland a unit is smaller). So a litre (1,000 ml) of wine with an alcohol-by-volume (ABV) of 10% has 100ml of pure ethanol in it, diluted by the rest of the wine. It thus has 10 units. A 75cl (750ml) bottle of vodka at 40% ABV has 300ml of pure ethanol and thus has 30 units. We need not worry about proof or any other method of marking the strength of a drink. Proof is no longer used in the UK. Historically it’s a Royal Navy term to describe the strength of a drink (specifically rum). If the rum was 100 proof it had sufficient alcohol in it that, when poured on gunpowder, it did not stop the gunpowder igniting. If it did prevent ignition then it was termed “under-proof” because it did not “prove” sufficiently strong. For those interested, the proof of any given drink can be calculated by multiplying the ABV by one and three quarters (7/4). So 100 proof has an ABV of about 57.14% and 40% ABV vodka is 70 proof. The only bottle of rum I have in the house is a bottle of Lamb’s ‘Genuine’ Navy Rum. At 40% ABV this is considerably under-proof and would have been unacceptable to an nineteenth century British tar and is just one indication of how alcohol strength in some drinks has gone down without the world coming to an end.

We should also note that minimum pricing differs from duty and alcohol taxes in a very important way which also explains why an increase in alcohol duty does not necessarily reduce consumption. Alcohol duties are, like VAT, a consumption tax which is added onto a base price. For the example of VAT: if the price of something, excluding VAT, is £3, the consumer pays £3.60 of which 60p goes not to the shop but to the treasury. Current alcohol taxes are (as of 28 March 2011) quite complicated but are available at the HMRC website. The kind of duty payable is dependent on the alcohol delivery method. Beer is taxed differently to wine and wine is taxed differently to spirits. Likewise alcoholic mixers (like alcopops) are taxed differently to the duties payable on the neat spirit. Unlike some of the other types of alcohol, it is simple to work out the duty for spirits One can work out how much tax should be added to spirits very easily because it is based purely on ABV. If we know the ABV then the calculation for spirits is

Tax payable = (Tax rate x (ABV/100)) x (size in ml / 1000)

For example, for 70cl of 37.5% vodka the tax payable is £6.70. This seems a little hard to credit when one realises that one can buy a bottle of vodka of that size and that strength from Asda for £8.72. Surely the base price of 70cl of vodka can’t be £2.02? It is possible that vodka could be produced that cheaply, but of course it highlights another reason why alcohol can be so cheap and why tax is not an efficient means to reduce consumption. Alcohol can be, and frequently is, used as a loss leader. For instance, Asda could lose money on the sale of every bottle of vodka but make it back on the sale of crisps or nuts or anything else. In other words, the marginal cost in tax of an item does not need to be passed to the purchaser. It usually is, in the case of VAT or petrol (to give but two examples of other consumption taxes), but it does not need to be.

Not so with minimum pricing. That vodka has 26.3 units in it. It will have 26.3 units in it even if the payable duty is cut in half or reduced to nothing. It will have 26.3 units in it as long as it continues to be that strength. At 50p per unit it must cost £13.15. It would be illegal for it to be sold for any less. £7.18 of that would still be payable in tax, but the vodka could no longer be sold as a loss leader. If the minimum price of alcohol was increased to 60p, the minimum price it could be sold at would increase by £2.63. The increase in its price would discourage purchase in a way that an increase in tax would not because it could not be absorbed by the seller. In actuality it isn’t the supermarkets that absorb the tax increases, it’s the drinks manufacturers. It is, therefore, not an additive price, like duty or VAT is. The bottle of vodka would not be having £13.15 added onto the £8.72 it is currently being sold for by Asda, it is, instead, a price floor below which the price must not fall.

Certainly, as in this example, this will increase the price of some booze. But only certain booze. Let us be clear, the majority of alcoholic drinks would be entirely unaffected by this law. Indeed you could drink three times the Chief Medical Officer’s recommended unit intake every week and still pay not a penny more after minimum pricing as you did before minimum pricing. The price of a pint in a pub certainly won’t go up. An average pint of about 2.5 units would have a minimum price of £1.25 and that is a cheap pub pint. As minimum pricing is a price floor, if the price of the drink is already above the minimum price, it won’t go up any further because the basic principle that the ethanol content must cost 50p per 10ml would already be met.

To give some examples, all from Asda:

As can be seen most of the changes of premium or named brands are not significant.  The exception here is the crate of Fosters which would cost an extra £7.34, a rise of 46%, but one that still means that one is purchasing a pint for less than £1.20; a price that brings in line with the majority of premium high strength lagers. Incidentally, a reduction of just 1% ABV, which would have minimal effect upon the taste would bring the minimum price down to under £19. The majority of these price rises are less than £2 with the exception of Fosters, the own price vodka and the cheap cider. Minimum pricing is an effective way of ensuring that the price of ethanol is not absorbed as a loss leader (as a tax can be) and it sets a price floor for the price of the ethanol in a drink.

Where concerns from the Left come in is this conflation of minimum pricing with taxation and duty. As the proportion of income spent on goods and services is greater amongst poorer people than amongst richer people, consumption taxes generally hit poorer people harder than richer people. The concern is that an increase in price brought about by minimum pricing would likewise hit poorer people harder than richer people. This is possibly true though it would entirely depend upon the proportion of disposable income spent on alcohol. Counter-intuitively, particularly to the bourgeois commentators in the soi-disant “up market” tabloids who do bang on so about “drunken chavs” and the like, professional social classes (1, 2, 3, 4) generally drink more than other classes (5, 6, 7, 8). However, this study, by the British Association for the Study of the Liver (BASL) has shown that, despite this, the health of poorer groups was more affected by the alcohol that was drunk.

BASL pointed out that alcohol-related ill health and mortality was very strongly linked to socio-economic status, with the most deprived experiencing between a three and five fold increase in death rates (health statistics quarterly 33) compared to the most privileged. For any level of drinking, lower income groups suffer more. The organisation argued that given the strong link with socio-economic status, one would predict that changes in the affordability of alcohol over time would have had the most impact on death rates in the poorer sections of society, which is what happened to liver death rates between 1991 and 2001. We know that professional groups drink more than lower income groups but, astonishingly, as the figure below shows, lower income groups suffer far more from liver disease. In the 1990s as price fell and consumption increased, liver disease increased among more deprived social groups but fell among the ‘higher’ social classes. Alcohol duty increases can therefore be predicted to reduce mortality in those lower socio-economic groups most at risk.

Figure 18: Changes in age standardised liver mortality rates (deaths / million) according to socio-economic status (Click to enlarge)

Age standardised alcohol mortality rates according to social class for 1991 -3 (1) when socio-economic status was assessed by social class, and again for 2001-3 (Health Statistics Quarterly no 38) by which time socio-economic status was assessed by NS-SEC groupings—hence the different x axes in the graph.

(Parliamentary Health Committee – First Report, Alcohol, §314)

The fact of the matter is that British drinking habits have changed significantly even since the 1970s. We drink more than we did 40 years ago and are approaching a level of alcohol consumption equal to that of the Edwardian period, a period known as the “Great Binge”. Whereas in other European countries against whom we used to measure ourselves (particularly France, Italy, and Spain) there has been an decrease in alcohol consumption, in Britain this has been increasing with correlated rises in death due to liver disease. For the first time since records in the World Health Organisation’s European HPA Database began, British deaths due to liver disease are greater than in France, Italy, or Spain. While deaths from diabetes, cancer, respiratory disease, heart disease, strokes and road accidents have all been decreasing since 1971, deaths from liver disease have been increasing and by 2007 had increased by nearly 250%.

Another accusation leveled is that because this might cost, financially, poor people more than rich people, it is a deliberate plan by the haves to stop the have-nots having any fun. This seems to the gist of some of the columns written in the Scottish Observer by Kevin McKenna.

More than 400 years later, the poor, the ugly, the ignorant and the irresponsible are still being penalised. In 16th-century Scotland, you were quite often taxed with your life or your liberty if you enjoyed yourself too much; in the 21st century, we just tax you or put it beyond your reach. Every post-devolution Scottish government seems to be obsessed with how poor people behave and this one is following the trend.

Last week, the Holyrood prohibitionists and witchfinders who run our country all filled their boots. Making good on their promise to place the demon drink out of the reach of the feckless poor, they imposed a minimum price of 50p per unit on supermarket booze…So, having done absolutely nothing of any consequence to address the obscenity of poverty and deprivation, we now deny them the opportunity to escape from time to time.

(The Observer, 20 May 2012)

That McKenna is a Labour supporter should be obvious. He denigrated the idea of minimum pricing when the SNP suggested during the last Parliament when due to their minority status they were unable to get it passed in the face of Labour opposition. Labour’s opposition was that of a severe lack of principle whereby they would support minimum pricing if the Westminster party supported it. This was a clear shirking of responsibility on the part of the Scottish Labour Party to address Scottish issues. The position of both McKenna and the Scottish Labour Party bear striking similarities to that held by John Reid when Health Secretary. In June 2004, Reid angered health campaigners for the following:

“I just do not think the worst problem on our sink estates by any means is smoking, but it is an obsession of the learned middle class,” he said. “What enjoyment does a 21-year-old single mother of three living in a council sink estate get? The only enjoyment sometimes they have is to have a cigarette.”

(The Guardian, 9 June 2004)

To some degree he has a point. We do have major problems in our most deprived areas but one of them is the lack of health and shortened life expectancy that brings. Reid (and McKenna) are hiding bourgeois disregard for the long-term health of the poorer members of society beneath a populist stance that is seemingly one of support.  Health issues affect all elements of an individual’s life. Poor health in childhood is a massive indicator of poor health in adulthood which would both affect educational opportunities and working opportunities. Those of us who stand on the left side of the fence should be applauding every opportunity to increase the health and well-being of those that are the most neglected and deprived in our society.  We should be attempting to alleviate and end the sorrows of the Precariat not enable, even encourage, them to temporarily drown these sorrows in the waters of alcoholic oblivion because of our allegiance to bourgeois neo-liberal capitalism masked as democratic socialism. Increasing personal and social health by introducing a minimum price on alcohol to reduce its consumption can go some way to doing this. To oppose a minimum price on alcohol on the principle that this is the only fun poor people have is to miss the point. It would have been like opposing installing clean municipal running water in tenements on the grounds that carrying jugs of water up four flights of stairs was the only exercise some of the residents got. The benefits that the fresh potable water brought in terms of hygiene and cleanliness outweighed the small benefit of climbing stairs. Likewise the benefits of minimum pricing outweigh the small benefit of being able to afford to drink cheap booze.

50p for a unit of alcohol is a small price to pay for decreased alcohol consumption and improved personal health and social health of thousands.