Minimum alcohol pricing: cracking the proverbial walnut with a sledgehammer

You'll probably think that because we're a wine merchant and in the alcoholic drinks industry, we're instinctively against a minimum unit price (MUP). You'd have good reason to think it given the stink the Government's proposals have kicked up.

Yet you'd only be half right. Yes, wine merchants peddling mid-to-higher range wines ought to be delighted. The difference will turn out to be slight, but our wines shall seem more affordable relative to the wafer-thin margin wines sold in supermarkets. One merchant reckons it's a "win-win situation that will level the playing field"; another is "totally in favour"; both want the price set higher than the 45p suggested.

From a purely self-interested viewpoint, it's great. David remains completely unaffected (for instance, all our wines cost more than the proposed baseline), while Goliath (with his 80 per cent market share) gets shafted.

However, having considered it at length, I can't support this policy. Firstly, I just don't believe governments should be setting prices like this, and I am not in the slightest a libertarian. Yet that in itself is not a reason to oppose it. What matters most is that there is little evidence to suggest the minimum alcohol price policy will do what it is supposed to do. That makes it a bad law, and bad laws should not be on the statute book.

The Adam Smith Institute has produced a helpful paper critiquing the methodology behind the policy. Caveat emptor, the ASI comes with its own dogmatic baggage as a strident proponent of the free market from an academic and not altogether always practical standpoint. Of course they would oppose this. Yet their analysis is compelling and worth reading, at least in summary.

Essentially, they attack the utility of the Sheffield Alcohol Policy Model (SAPM), a computer model developed by the University of Sheffield, for providing "false" and "unreasonable assumptions" and ignoring "statistical error" and certain policy outcomes.

I was previously a management consultant specialising in pricing, so I'm not fazed by a price-demand curve. I also know that a computer model is only as good as the statistics feeding it and the assumptions coded into it. Have a look at the ASI's analysis and decide for yourself; but for my part, I am nervous about the SAPM being used as the basis for this scope of policymaking.

The health lobby is in favour of MUP because doctors and other healthcare professionals believe it will reduce incidence of alcohol-related diseases. I do not presume to second-guess doctors about a subject they are far more familiar with than me. However, real-life statistics do not bear this assumption out.

According to the ASI, the SAPM stated that at certain MUP levels, with consequent drops in consumption (based on flawed price sensitivity assumptions) disease would reduce at a certain rate per year from 2006 levels. However, since 2006 alcohol consumption has fallen in this country at a rate that according to the SAPM is equivalent to that produced by a MUP of 70p. Alcohol-related diseases have not fallen with it.

The consumption-disease argument is a fallacy. Campaigners presume that an overall fall in average consumption will reduce disease. Yet this is a policy prescription akin to cracking the proverbial walnut with a sledgehammer. The true problem is more nuanced than that.

Overall alcohol consumption is barely more now than what it was in 1980. What's more, it has been on a steady decline for much of the last decade, including among younger age groups.

Health and social policy has to be far more targeted at problem drinkers. Price is a powerful mechanism, but not for someone in the grip of alcohol dependency. Forty per cent of alcohol in this country is drunk by ten per cent of the population. Why penalise the other ninety per cent?

There is a valid argument, put to me today, that this will address the anti-social side of drinking, the 'pre-loading' and binge drinking that does indeed mar so much of modern Britain on a Friday or Saturday night. Pubs might benefit as their drinks look relatively more affordable compared to a supermarket's crate of lager cheaper than mineral water. Make a 2-litre bottle of white cider more expensive and perhaps our bingers shall conduct their proclivities with less abandon and more taste, or something to that effect. So it might. Yet with or without minimum pricing, a vodka & Red Bull made from filthy supermarket own-brand vodka and a gloopy energy drink is always going to be less expensive than one mixed up in a night club.

To top it off, the whole policy is illegal under EU law, as the Scottish government is discovering to its irritation. The EU has over the years mushroomed into a many-headed hydra. Yet it is at its heart a free trade area.

So where to go from here? We know that alcohol is a real problem in certain parts of Britain and among certain demographics at certain times. Alcohol-related illness and alcohol-induced anti-social behaviour create massive disruption and enormous costs for the NHS, the police and corollary public services. Too often does the maniacal 'something must be done' mentality hold sway today, but in this situation then evidently something must indeed be done.

The price mechanism is a blunt tool for fixing such a complex problem that crosses multiple sectors of public policy and government departments. Yet if the Government is set on fixing prices, why do it through a MUP that hands more profits to big retailers? Instead, why not consider simplifying and streamlining alcohol duty across product verticals and according to alcoholic strength, and in so doing set a floor price that way? Make duty flatter and cheaper but still insist on basic prices for alcohol and spend the revenue generated on supply-side alcohol strategies (such as education and prevention) and healthcare.

Fundamentally, this would be a bad law based on weak policy based on flawed methodologies. And as tempting as it might be to support it out of self-interest in the short-run, bad law begets bad law.

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