Alcohol - Health Committee Contents

10  Prices: taxes and minimum prices

284. While improvements in NHS services, education and information campaigns and controls on marketing, licensing and supermarket promotions have a part to play in curbing alcohol consumption, the use of the price mechanism is seen by health professionals as the key issue. It is also very contentious.

285. We took oral evidence about prices from health professionals, including the CMO and the President of RCP, representatives of four major supermarkets, of the drinks industry companies, of the Wine and Spirits Trade Association and CAMRA. We also heard from HM Treasury and Dr Meier who undertook the study of minimum pricing for the DH and Ms Rabinovich of the RAND Corporation who has undertaken an international study. As part of our visit to Scotland, we discussed the Scottish Government's proposal for minimum pricing with officials, medical and health experts, including the Chief Medical Officer for Scotland, producers, representatives of the licensed trade and economists.

286. The protagonists for raising prices argued that:

  • Higher prices would reduce consumption (they noted that the increasing affordability of alcohol had been the major cause of increased consumption over recent decades)
  • Higher prices would have their biggest impact on heavier drinkers because they drink most (hazardous and harmful drinkers drink three-quarters of all the alcohol sold, of which harmful drinkers drink around a third)
  • In any case, it is desirable to reduce overall consumption since this will reduce the number of heavy drinkers
  • Higher prices would be particularly effective in reducing drinking among low income heavy drinkers who suffer most from alcohol-related disease.

287. These arguments are disputed. The main arguments of those who are against price rises are that

  • Price increases would have little effect on heavier drinkers
  • Price increases would be unfair, because they would also affect moderate drinkers
  • Rises in the price of cheap alcohol would particularly affect lower income groups
  • Price increases would have little effect on alcohol harm; alcohol consumption has fallen in recent years but alcohol-related harm has continued to rise; there is therefore no good reason to reduce average consumption.



288. While it seems self-evident that alcohol obeys the laws of supply and demand like almost all other commodities, some witnesses came close to implying that it did not. Their argument runs as follows. In each country the relationship between price and consumption is different. In some countries there are relatively high prices and high levels of consumption and vice versa. Therefore putting up the price of alcohol will have little effect. We were told:

It is too simplistic to apportion responsibility for problem drinking to the price of alcohol alone; if low-cost alcohol were the only factor then countries such as France and Spain, where prices are much lower than in the UK, would have similar problems and countries like Finland, where alcohol is expensive and its availability restricted, would not (Tesco)

289. To many this argument is economic illiteracy. All these contrasts reveal is that there is a different relationship between price and consumption in each country. Each individual, each group and each country responds differently to a change in price, but all respond. The extent of this change is known by economists as the elasticity of demand.[290]

290. We know a good deal about the elasticity of demand for alcohol in England and the UK. We were told of information from[291]:

a study undertaken for HMRC in 2003 (which HMT uses to assess the effect of price changes on revenues), The Treasury figures were estimated using historic expenditure data from 1970 to 2002. Separate elasticities were estimated for each category of alcohol. They also take into account how the change in price of one product will affect another.

the 'Sheffield University' Study commissioned by the DH in 2008 'to quantify the potential impact of policies targeting pricing and promotion of alcohol on alcohol related harm. ... The study used UK data on alcohol consumption of around 7,000 individuals between 2001/02 and 2005/06. Alcohol elasticies were estimated as part of this study.

A study by Oxford Economics in 2008 for the British Beer and Pub Association estimated elasticities for beer and other products.

There was also a study by the RAND in 2008 which undertook inter alia an international examination of the relationship between prices and consumption

291. Table 7 below supplied by the Treasury compares the own-price elasticities (i.e. how consumption responds to changes in the price of that product) from these three sources. For example, HMRC estimate that a 1% increase in the price of on-trade beer reduces consumption of on-trade beer by 0.48%.
Alcohol type  University of Sheffield

(Commissioned by the Department of Health)1  

HMRC2 Oxford Economics

(Commissioned by the alcohol industry)3  

Beer on trade -0.50 -0.48  -1.50 
Beer off trade -0.52  -1.03 -1.00 
RTDs on trade -0.36  -0.30 N/A  
RTDs off trade -0.38    
Spirits on trade -0.23  -1.31 -1.73 
Spirits off trade -0.62    
Wine on trade -0.33  -0.75 -0.99  
Wine off trade -0.58    
Cider on trade N/A   -2.00 
Cider off trade    -1.50 

1. 'Independent Review of the Effects of Alcohol Pricing and Promotion: Part B Modelling The Potential Impact Of Pricing And Promotion Policies For Alcohol In England: Results From The Sheffield Alcohol Policy Model Version 2008(1-1)'

2. 'Econometric Models of Alcohol Demand in the United Kingdom', Government Economic Service Working Paper No. 140, May 2003

3. 'The economic outlook for the UK drinks sector and the impact of the changes to excise duty and VAT announced in the 2008 Budget and Pre-Budget Report', February 2009

Estimates of the elasticities vary considerably between the three studies; for example, the estimates of the effect of a 1% rise in the price of off-trade spirits vary from falls in the value of sales ranging from 1.73% to 0.62%. The Sheffield study figures are more conservative than the other two but are consistent with other studies based on survey data. The differences occur for a number of reasons. The Treasury figures estimates are based on changes in overall sales figures and prices. Larger estimates of alcohol price effects are consistent with models based on aggregate sales data..[292]

292. The relationship between price and consumption is strong, as is the correlation between the price of alcohol and affordability. The increase in consumption in recent decades is clearly related to reductions in real prices and increasing affordability, as the following figures show.

Figure 14: Indices of alcohol price relative to retail price index, real households' disposable income (RHDI) and affordability of alcohol, 1980 to 2007 United Kingdom

Source: Focus on Consumer Price Indices, Office for National Statistics and Economic Trends, Office for National Statistics, 2008

Figure 15: Price of Alcohol and consumption

Source: Academy of Medical Sciences. Calling time. The nation's drinking as a major health issue. London: Academy of Medical Sciences, 2004.

293. The RAND study came to similar conclusions:

numerous international studies have generally concluded that increases in the prices of alcoholic beverages—for example through local or federal taxation—lead to reductions in drinking and heavy drinking as well as in the consequences of alcohol use and abuse


294. How are the heaviest drinkers affected by price rises? Some representatives of the drinks industry argue that the heaviest drinkers respond least to price rises and will switch to cheaper drinks to maintain their levels of drinking. The CEBR, in an analysis of the Sheffield and RAND reports commissioned by SAB Miller, the world's second largest brewer, argued that heavier drinkers were least responsive to price changes. Speaking of minimum pricing (but the comments would apply to other price rises) CEBR claimed that it would be

an incredibly blunt instrument which imposes significant costs across large sections of society, whilst having very limited benefits in terms of curbing the excesses of the minority

Mr Blood, the Chief Executive of Scottish and Newcastle, told us

I have read the Sheffield report… Why do we, in principle, not support minimum pricing? We believe that where misuse is happening and where people are drinking more than is good for them or using alcohol in the wrong way, those are the people that will not change their behaviour if you apply minimum pricing, they will carry on misusing, and you will not address the proper concerns that society has got about the misuse of alcohol through that blanket approach.[293]

295. Specifically, the CEBR argued that the Sheffield study showed that heavier drinkers were more responsive to price changes for individual alcohol products, but omitted to mention that overall heavier drinkers were least responsive to price changes; ie it failed to take into account the 'substitution effect'. The CEBR claimed that the Sheffield study overestimated the impact of price changes on consumption levels of hazardous and harmful drinkers by a factor of two.[294]

296. The Sheffield study paid particular attention to underage drinkers, 18-24 year old binge-drinkers and harmful drinkers (over 50 units per week). Consistent evidence was found for an association between alcoholic price and patterns of drinking by these groups. It also found that most policy options affect moderate drinkers in a very minor way, simply because they consume only a small amount of alcohol.

297. Even if the elasticity of demand for heavier drinkers was exaggerated by the Sheffield study (and it is unclear it was and, if so, by how much), simply because the 10% of heaviest drinkers consume 44% of all the alcohol bought, the Sheffield study is able to claim that:

Harmful drinkers are expected to reduce their absolute consumption most.

298. We asked our adviser, Professor Godfrey, to analyse the CEBR study, which had not been peer reviewed. She found that the CEBR claim about the elasticity estimates of the Sheffield study was based on a fundamental misunderstanding of the Sheffield study.

The CEBR critique fails to recognise that the Sheffield model takes account of all the price effects across different types of consumers and is not artifically averaged as in the CEBR study. The models take account for each group not only of all the cross price effects of other alcoholic drinks but also the impact of a change in alcohol prices on the consumption of other non alcohol goods.[295]


299. The Sheffield study also found evidence linking price increases to reductions in chronic and acute health harms and in crime: 'Significant health benefits are estimated for harmful drinkers (particularly deaths avoided)'. There would be less crime because young people would drink less: 'a much larger proportion of the crime-related harm is due to reduced drinking in the underage and 18-24 year old hazardous drinker groups'.

300. Opponents of price rises argued that higher prices could affect consumption but could not affect the misuse of alcohol because they did not affect harmful drinkers or binge drinkers who, it was claimed, did not reduce consumption when prices rose. The CEBR argued that the Sheffield study was wrong in linking alcohol consumption to harm done by alcohol: since 2004 alcohol consumption had fallen in the UK, but there had not been a reduction in hospital admissions. The question arises whether this short period is enough to establish a trend.


301. Linked to the previous argument is the dispute as to whether a decline in average consumption would affect heavy drinkers—ie if we all drank less, would there be fewer heavy drinkers? As we saw in chapter 4, Ledermann's 'whole population theory'[296] states that there is a fixed relationship between average per capita consumption of alcohol and the number of problem drinkers and alcohol-related problems. The alcohol industry believes that this not the case, arguing once again that the fall in alcohol consumption since 2004 has not been associated with a fall in hospital admissions.

302. On the other hand, it is pointed out that the figures for admissions are older than the consumption ones and the recent consumption fall is slight compared to the large historic rise. It is argued that the very modest fall from the 2004 peak is not yet large enough to significantly impact on the health harms from alcohol.

303. There are a number of studies which bear out Ledermann's theory. A study of English regions (see figure 16) found a strong relationship between average weekly consumption in the region and the percentage of the population drinking more than 28 units per week.

Figure 16: Relationship between mean alcohol consumption and prevalence of drinking more than 28 units (approx 224 grams) of alcohol per week: Men

Source: Primatesta et al., 2002.

304. The average intake of a patient with cirrhosis is around 100 units/week, and deaths from liver disease are a good indicator of the levels of regular heavy drinking within a population. Figure 17 shows that liver deaths in the EU countries with the biggest changes in either death rates or alcohol consumption are strongly linked to consumption at a population level, both within countries and overall. The different gradients between countries suggest that other factors, for example nutrition, also operate to influence this relationship change.
Figure 17: Liver death rates and overall alcohol consumption

Source: British Association for the Study of the Liver


305. It is argued that raising prices would be unfair on moderate or responsible drinkers. Why should such drinkers be punished because a minority drink too much? It is also claimed that higher prices would be unfair because lower income groups drink less than higher income groups.

306. On the other hand, as we have seen, others argue that a rise in prices would have little effect on moderate drinkers because they drink so little. As we have noted, 44% of all the alcohol purchased is consumed by 10% of the population. According to the Sheffield study a minimum price of 40p per unit would cost a moderate drinker (defined as someone who drinks about 6 units per week which is the average consumption of drinkers) about 11p per week; A the same minimum price, a woman consuming the recommended maximum of 15 units would have to pay £6 for her weekly intake of alcohol , which is scarcely going to be a massive rise.

307. In fact, those most affected by of price increases, especially on cheap alcohol, would be heavy low income drinkers, as we discuss in the next section.

Minimum pricing or rises in duty

308. If prices are to rise, is this best achieved by introducing a minimum price for a unit of alcohol or by raising the level of duty or a mixture of the two?


309. Minimum pricing has recently had a number of powerful supporters including the CMO. While much of the alcohol industry and most supermarkets were against, there was some support for minimum pricing from Tesco, Molson Coors (makers of Carling lager) and CAMRA.

310. The main arguments for preferring minimum pricing to rises in duty are:

Supermarkets will not pass on the full rises in duty to customers; they will get the drinks industry to absorb them; in contrast, this could not happen with minimum prices. As a result, supermarket and other off-licence sales would be much more affected than pub sales; thus minimum pricing could help traditional pubs.

Minimum prices would be particularly effective in raising the price of the cheap alcohol; this would be particularly effective in reducing consumption by heavy drinkers in low income groups and young binge drinkers

Minimum pricing would encourage people to buy weaker alcohol.

311. We have seen that supermarkets aggressively promote alcohol to attract customers; supermarkets even sell alcohol below the cost of the duty; thus raising the duty would not necessarily lead to higher prices.

312. Traditional pubs have lost custom for years. Rises in duty hit them; minimum prices would not since most pubs sell alcohol at a higher price than the any minimum price which has been proposed. For this reason CAMRA supports minimum pricing. Mr Benner, the Chief Executive of the organisation, told us:

I think the price ratio at the moment is about five to one (ie the ratio of the off-sale to the on-sale price). If a minimum price of around 40 pence was introduced, that would make the ratio about three to one. Therefore, I think that is enough for there to be a shift in consumption towards drinking in community pubs.[297]

313. While most pubs would benefit, some pubs and clubs, such as those which offer 'Happy Hours' and special promotions, would be affected. The Sheffield study found that the greatest impact on crime and accident prevention would be achieved through reducing the consumption of 18-24 year old binge drinkers, by raising the cost of cheap drinks in pubs and clubs and by reducing off-licence sales which encourage pre-loading. Off-licence sales can be very cheap with alcohol being sold for as little as 15 p per unit in some outlets.

314. 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

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.

315. According to the Sheffield study, a minimum price of 50p per unit would save over 3,000 lives per year,[298] a minimum price of 40p, 1,100 lives.

316. Minimum pricing would encourage people to buy weaker alcohol; for example, at a minimum price of 40p a 70cl bottle of 10% abv wine could sell for £2.80, of 12% wine for about. £3.40 (8.4 units), of 15% wine, about .£4.20p.

317. Opponents of minimum pricing argue that it would be illegal under EU competition law. The Scottish Government, which has examined this issue thoroughly, strongly disagrees and EU Competition Law does provide for a public health exemption. This exemption has been successfully used by the French Government to ban alcohol advertising and sponsorship in certain circumstances, winning a number of cases in the ECJ which were brought by the alcohol industry.

318. The DH memorandum to this inquiry stated that the Government had made no decision about minimum pricing. However, when the CMO's report which advocated minimum pricing was leaked, a Government representative rejected minimum pricing.


319. The main case for higher sales duties rather than minimum prices is that minimum prices would lead to higher profits for producers and vendors of alcohol, assuming that any fall in sales would be more than offset by the increase in revenue from each unit. In contrast, a rise in duty would avoid this, producing not additional profits but extra money for the Exchequer. A rise in taxes can also be justified, as we found in Scotland, on the basis of recovering the costs imposed by alcohol—estimated at £20-55bn; the duty on alcohol currently raises far less. The duty on alcohol in the UK raised £14.7 bn (£8.3 bn excluding VAT) in 2007/8 and £14.7 bn (8.5bn excl VAT) in 2008/9

320. In addition, minimum pricing is likely to lead to a large increase in expenditure on marketing and other forms of non-price competition as price competition declined. This would not happen with a rise in prices since supermarkets and others could more readily compete on price.

321. Another potential advantage of increasing duty is that increases can be targeted on stronger drinks. Alcohol duty rates and structures in the UK must comply with European Directives on the structure and minimum rates of alcohol duty. Under this legislation, beer and spirits must be taxed in direct proportion to the alcohol they contain. For example, the duty on a pint of beer at 6% alcohol by volume is double that of a pint of 3% abv. Wine and cider must be taxed in strength bands; thus 10% abv wines can be taxed more heavily per unit of alcohol than 12 or 14% abv wines. However, it is possible to tax some different products at different rates; thus in the UK spirits are taxed more heavily per unit of alcohol than beer and wine. Member states can also charge lower rates on beer products below 2.8% abv (beer of this strength currently accounts for a tiny amount of beer sales—less than 0.5 %).[299] In addition, the main beer duty rates can be and have been reduced for small breweries.

322. We questioned the Treasury in oral evidence about two apparent anomalies in the present tax system: first, the low rate of duty on cider and secondly the fall in real terms in price as a result of the freeze on the duty on spirits from 1997 to 2007. It is little wonder that cheap cider and spirits are popular with many young people and heavy drinkers.

323. The Treasury's rationale for the low duty on cider was to protect small producers.[300] While this is a laudable aim, some 'white cider' is an industrial product which uses fermented corn syrup.[301]

324. The rationale for freezing the duty on spirits from 1997 to 2007 was that Government wanted to equalise rates of duty so that the duty on each product would be equivalent to its alcoholic strength; ie the tax on a unit of alcohol would be the same for all alcoholic products. In contrast, older policies taxed strong liquors such as spirits at a higher rate per unit of alcohol than weaker products such as beer. The decade long freeze on the duty on spirits was unusual but in line with a long trend that has seen a very significant decline in spirits duty as a percentage of average earnings. This has transformed drinking habits: spirits were once an expensive occasional tipple; now they are a cheap way for teenagers to get drunk. The remarkable figure below shows the dramatic fall in affordability. The rate of duty on spirits per litre of pure alcohol in 1947 was almost 60% of a average male manual weekly earnings; in 1973 when VAT was introduced, it fell and since then it has declined consistently as the figure below shows.

Figure 18: Duty level per litre of spirits as a percentage of average weekly wages of manual workers (1948 to 2002)

Source: House of Commons Library, based on HM Treasury statistics on duty levels

Conclusions and recommendations

325. The consumption of alcohol, like that of almost all other commodities, is sensitive to changes in price as all studies have shown. Because some countries with high alcohol prices have high levels of per capita consumption and vice versa some countries with low levels of consumption have low prices, it is sometimes implied that alcohol sales do not respond to price changes. This is economic illiteracy. Different countries, like different people and groups, respond differently to price, but they all respond. Studies have shown varying elasticities of demand. The increase in alcohol consumption over the last 50 years is very strongly correlated with its increasing affordability.

326. Increasing the price of alcohol is thus the most powerful tool at the disposal of a Government. The key argument made by the drinks industry and others opposed to a rise in price is that it would be unfair on moderate drinkers. We do not think this is a serious argument. The Sheffield study found that for the moderate drinker consuming 6 units per week a minimum price of 40p per unit would increase the cost by about 11p per week. At 40p per unit a woman drinking the recommended maximum of 15 units could buy her weekly total of alcohol for £6.

327. Opponents also claim that heavier drinkers are insensitive to price changes, but these drinkers will be most affected by price rises since they consume so much of the alcohol purchased in the country (10% of the population drink 44% of the alcohol consumed; 75% of alcohol is drunk by people who exceed the recommended limits).

328. We believe that the Government should introduce minimum pricing for the following reasons:

  • It would affect most of all those who drink cheap alcohol, in particular young binge-drinkers and heavy low income drinkers who suffer most from liver disease
  • It is estimated that a minimum price of 50p per unit would save over 3,000 lives per year, of 40p 1,100 lives per year.
  • Unlike rises in duty (which could be absorbed by the supermarkets' suppliers and which affect all sellers of alcohol) it would benefit traditional pubs and discourage pre-loading. For this reason it is supported by CAMRA
  • It would encourage a switch to weaker wines and beers.

329. However, without an increase in duty minimum pricing will lead to an increase in the profits of supermarkets and the drinks industry and an increase in marketing, promotions and non-price competition. The Treasury must take into account public health when determining levels of taxation on alcohol as it does with tobacco. Alcohol duty should continue to rise year on year above incomes, but unlike in recent years duty increases should predominantly be on stronger alcoholic drinks notably on spirits.

330. The duty on spirits per litre of pure alcohol was 60% of male average manual weekly earnings in 1947; in 1973 (when VAT was imposed in addition to duty) duty was 16% of earnings; by 1983 it was 11% and by 2002 it had fallen to 5%. We recommend that in stages the duty on spirits be returned in stages to the same percentage of average earnings as in the 1980s. Cider is an extraordinary anomaly; the duty on industrial cider should be increased. To protect small real cider producers, their product should be subject to a lower duty. Beer under 2.8% can be taxed at a different rate: we recommend that duty be reduced on these weak beers; although at present there a few producers of beers of this strength, the cut should encourage substitution.

331. In the longer run the Government should seek to change EU rules to allow higher and more logical levels of duty on stronger wines and beers; it should also seek to raise the strength of beer which can be subject to a lower duty rate from 2.8 to slightly higher levels.

332. The introduction of minimum pricing would encourage producers to intensify their marketing. This will make it all the more important to control marketing.

290   Q 271 (Rabinovich) Back

291   The studies are described in AL 72 Back

292   AL 72 Back

293   Q 385 Back

294   An Assessment of Minimum pricing of Alcohol; (WSTA) Back

295   AL 67 Back

296   See chapter 4 above. Back

297   Q 395 Back

298   Oral evidence Back

299   AL 72 Back

300   Q 956 Back

301 Back

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