Alcohol pricing should bring in revenue, says IFS

26 Mar 12
The forthcoming minimum price for alcohol should raise money for the Treasury instead of producers and retailers, according to a leading economic think-tank.

By Richard Johnstone | 26 March 2012

The forthcoming minimum price for alcohol should raise money for the Treasury instead of producers and retailers, according to a leading economic think-tank.

The Institute for Fiscal Studies said today that the proposal, launched last week, for a minimum price of 40p could boost drinks companies’ revenues by as much as £850m a year. The proposal was contained in the Home Office’s Alcohol Strategy, which stated that this would put ‘a sensible price on those drinks that cause harm’. It is currently out to consultation.

But the IFS argues that a ‘preferable approach’ would be to introduce a floor price for alcohol through the duty system, alongside moves to equalise the tax treatment of alcohol types and strength. A restriction should also be placed on selling alcohol below the total tax levied on it.

Andrew Leicester and Martin O'Connell, senior economists at the institute,  said this would achieve a similar increase as a minimum unit price, while also raising money for the Exchequer.

The IFS has also found that a 40p minimum price would have a ‘significant impact’ on off-licence sales, where nearly half of the alcohol sold – 47% of units – is priced below this level.

Over 80% of cider units would increase in price, however alcopops and sparkling wine would be largely unaffected.

Minimum pricing is also more likely to affect low-income people, the study found. Those with annual incomes below £10,000 pay an average price of around 42p per unit, compared to 51p for those earning above £60,000.

Overall, there would be an average increase in cost of alcohol of around 0.6% of grocery budgets, or £21 per year in cash terms. However, this increases to a 5.9% increase for low-income, heavy drinkers. They could, without any change to behaviour by either consumers or retailers, be charged £206.50 extra a year.

There are also potential side effects that are hard to predict, said the IFS, including what would happen to the range of drinks available, and whether non-alcoholic drinks prices would change.

Westminster may benefit from a ‘Scottish laboratory’ if the policy, also proposed in the Alcohol (Minimum Pricing) (Scotland) Bill currently before the Scottish Parliament, is implemented by Holyrood first.

The Home Office said that it intends to legislate for a minimum unit price for England and Wales ‘as soon as possible’ after consultation, but the IFS said that lessons from Scotland should be ‘robustly evaluated’.

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