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Imposing an MUP directly, as campaigners suggest, and as the Scottish government is now committed to doing, would channel the resulting price increases straight to industry profits. Last year’s IFS study (which Pete linked to earlier) estimated that, assuming ‘no behavioural response from consumers and no wider price effects’, the 45p MUP proposed by the SNP in 2010, if introduced across the UK, ‘would transfer £1.4 billion from alcohol consumers to producers and retailers’. By contrast, an MUP implemented indirectly, via changes in duty, would transfer this money to the Exchequer, which could reduce the need for spending cuts or tax increases elsewhere.
In terms of the level at which an MUP might be set, the Scottish proposal of 45p is towards the ambitious end. The IFS study found that in 2010 this would have raised the price of ‘71% of all off-licence alcohol units, including 87% of cider units and 81% of lager units’. Even this doesn’t satisfy the more zealous health campaigners, who favour an MUP set at 50p, but modelling suggests that significant health and social benefits start to kick in below 45p. A sensible approach — leaving the politics aside for the moment — would be to start at 35p per unit, but announce an intention to increase in 5p increments over a number of years, after monitoring the effects on tax revenue, health, and crime. (The main drink types that would be caught at the initial level of 35p would be strong cider, supermarket multi-buy beer, and supermarket own-brand spirits.)
The main counter-arguments to an MUP are the same however it is implemented, and whatever level is chosen — and they are the same today as they were when Labour was considering this three years ago. First, that an MUP is a blunt instrument. Moderate drinkers are already drinking less; the problem is that heavier drinkers are drinking even more heavily. These are the drinkers who are imposing costs on others, either through NHS treatment or crime, but a blanket MUP would treat all drinkers the same — particularly unfair for moderate drinkers on low incomes. Second, the political version of that argument, that it would be mad for any government, at a time of squeezed living standards, suddenly to jack up the price of one of life’s cheap luxuries. And third, that an MUP is illegal under EU regulations.
As an advocate of an MUP, I believed these objections were serious, but not conclusive. The legal issues are too complex to go into here, but are certainly not as clear-cut as opponents suggest: the experience of the Scottish government will be a useful test. The blunt-instrument objection is true as far as it goes. Whether an MUP is imposed directly, or indirectly via changes in duty, people will pay more for their drink — including, regrettably, moderate drinkers and, even more regrettably, moderate drinkers who are badly off. The health experts and academics who lobbied me and others in support of an MUP were not able, at that time, to provide any evidence that it would target problem drinkers very effectively: problem drinkers do buy cheap alcohol, but so do many moderate drinkers (especially those taking advantage of supermarket multi-buy promotions); and there is some evidence that problem drinkers are more likely than moderate drinkers to adjust to rising prices in part by reducing spending elsewhere, rather than reducing their drinking. However, health experts are able to provide convincing evidence that higher prices will reduce problem drinking to some extent, and also reduce the negative externalities in health and crime. A blunt instrument maybe, but still an effective one.
In the end, it was probably the political objection which tipped the balance in our internal debate, and I expect the same will apply to the present government, despite some of the briefing around Cameron’s speech today. But, over the longer term, when living standards start to rise, there will be a strong argument for returning to the issue of alcohol prices. If the costs of problem drinking continue to rise, a future government should at least raise duty to offset the fall in the real price of off-sales over recent decades. (This could also have a side-effect of helping pubs — the change in relative cost of on-sale and off-sale being one of the drivers of their decline.)
Ideally, the government should go further and both raise and adjust levels of duty to impose an effective MUP, as outlined above, increasing the level gradually while monitoring the effects, and using the revenue raised to reduce spending cuts or tax increases elsewhere. If this truly does require changes in EU regulations, the government should start lobbying for these changes now. I would hope that many people would agree that the UK should have the option to adjust its alcohol duty regime in this way — whether or not they believe we should actually exercise that option.
Matt Cavanagh is an Associate Director at IPPR.
Because you read about alcohol
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