IFS Briefing Notes (BN109)

The impact of introducing a minimum price on alcohol in Britain

Date: 28 September 2010
Authors: Rachel Griffith and Andrew Leicester
DOI: 10.1920/bn.ifs.2010.00109

In this Briefing Note, we use detailed data on the grocery shopping of more than 25,000 households during 2007 to provide descriptive evidence of alcohol purchases from supermarkets and other off-licensed premises retailers. We calculate the impact of a 45p per unit minimum price and describe how different households and retailers would be affected. Our calculations are based on a number of assumptions about consumer and firm behaviour which we discuss; more precise estimates would require estimation of a detailed model of household purchasing and firm pricing decisions. Our figures are based on a sample of households from Great Britain and we consider a minimum price that is applied nationally.

We estimate that if a policy like this were rolled out across Britain it could transfer £700 million from alcohol consumers to retailers and manufacturers. This contrasts to increases in alcohol taxes, which largely result in transfers to government in the form of much needed tax revenue. In the long-term, it would be desirable to restructure alcohol taxes so that they were based on alcohol strength, thus allowing the tax system to mimic the impact of a minimum price but ensuring the additional revenues went to the Government rather than firms.