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The Home Office has today published its alcohol strategy which contains a number of measures designed to curb excess alcohol consumption and the associated social harms. The most high-profile is the plan to introduce a minimum price per unit of alcohol in England and Wales (a similar policy is currently before the Scottish Parliament), with 40p per unit set as an illustrative rate.
As in our previous analyses of minimum pricing, we continue to argue that a preferable approach would be to introduce a floor price for alcohol through the duty system, moving towards a more equal tax treatment of alcohol by type and strength combined with a restriction on selling alcohol below the total tax levied on it. Such a system could be designed to achieve an increase in the price of low cost alcohol similar to that that from a minimum price. But it would have the advantage of raising money for the Exchequer, whereas a minimum price would transfer revenues to the alcohol industry instead. If set at 40p, we estimate that these transfers could be as much as £850 million per year. The alcohol strategy document suggests that the government will "... work with industry to use any additional revenue to provide better value to customers in other areas ..." though quite how this could be enforced or monitored is hard to see.
How significant would a 40p minimum price be? We examine the policy using detailed data recording the off-licence alcohol purchased by more than 19,000 households in 2010. The data do not include alcohol bought in pubs and restaurants. However, it is unlikely that a minimum price would have much direct impact for on-licence prices.
Table 1 shows that the average off-licence alcohol unit sells for around 44.8p. Overall, 47% of units would be directly affected by the proposed minimum price. The policy would therefore have a significant impact for off-licence alcohol retailing, and would not simply affect the very bottom of the price distribution. There are also substantial differences across alcohol types. Over 80% of cider units are directly affected. By contrast, alcopops and sparkling wine would be relatively unaffected.
Table 1: Average retail price per unit and proportion cheaper than 40p, by alcohol type
Source: calculated using data from Kantar Worldpanel, 2010. Note: prices uprated to February 2012 values using the all-items Retail Prices Index from the Office for National Statistics.
Off-licence purchase prices vary by household income and by overall alcohol consumption level. The average price for those with incomes below £10,000 per year is around 42p per unit, compared to 51p for those above £60,000. Households consuming fewer than 7 units of alcohol per adult per week pay almost 49p per unit, compared to 41p for those consuming more than 35 units. The policy would therefore affect low income and heavy drinkers more directly. Moderate consumers, though, are quite substantially affected as well: 37% of units purchased by those drinking fewer than 7 units per week cost less than 40p, compared to 59% for those drinking more than 35 units.
Table 2 estimates the average increase in total food and drink expenditure by income and consumption group following a 40p minimum price. It assumes that there is no change in consumer or retailer behaviour other than an increase in the price of alcohol below the threshold. The average cost is about 0.6% of grocery budgets, or £21 per year in cash terms. The largest impact is felt by low income, heavy drinkers who lose 5.9% of their grocery budget on average. The measure is slightly regressive overall, though the differences across income groups are not particularly large and it would not seem sensible to judge the policy simply on its distributional effect.
Table 2: Increase in food and drink grocery budget following 40p minimum price, by income group and average weekly off-licence consumption level
Source: calculated using data from Kantar Worldpanel, 2010. Note:<7 units column excludes households who do not buy off-licence alcohol at all, but they are included in the ALL column (assumed to have no direct impact on their budget).
This analysis does not attempt to model the behavioural response to minimum pricing. However, many of the potential effects are hard to predict. In particular, how would retailers and manufacturers change the price of more expensive alcohol? What would happen to the range of products on the market? What would happen to non-alcohol prices? These indirect effects could be very significant. The coalition may benefit from a Scottish laboratory if the policy is implemented by Holyrood first. The impact of minimum pricing in Scotland should therefore be robustly evaluated with the policy in England and Wales being responsive to any lessons learned.
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Cutting the deficit: three years down, five to go?
The UK is in the fourth year of a planned eight-year fiscal tightening. Following further announcements made in Budget 2013, this fiscal consolidation is now forecast to total £143 billion by 2017–18. The UK is intending the fourth largest fiscal consolidation among the 29 advanced economies for which comparable data are available. By the end of this financial year, half of the total consolidation is expected to have been implemented. However, within this tax increases and cuts to investment spending have been relatively front-loaded, while cuts to welfare spending and other non-investment spending have been relatively back-loaded.
The March Budget forecast that borrowing would fall by £0.1 billion from £121.0 billion in 2011–12 to £120.9 billion in 2012–13. On Tuesday, the Office for National Statistics is due to release its first estimate of public sector net borrowing in March 2013 and, therefore, for the whole of 2012–13. Borrowing could easily end up being higher or lower than it was in the previous year, either due to backwards revisions, the uncertainty inherent in forecasting borrowing even a month in advance, or both. However, whether borrowing is slightly up or down in cash terms is economically irrelevant. Either way, the bigger picture is that having fallen by roughly a quarter between 2009–10 and 2011–12, borrowing is forecast to be broadly constant through to 2013–14.
Women working in their sixties: why have employment rates been rising?
Employment rates through the recession have been remarkably robust, with today’s ONS figures showing employment remaining close to 30 million. The young have experienced historically low employment rates and high unemployment rates but the employment rate of women aged 60 to 64 has increased as fast since 2010 as it did during the 2000s. An important explanation is the gradual increase in the state pension age for women since 2010, which has led to more older women being in paid work. Without this policy change, the employment rate for 60 to 64 year women would have been broadly flat since 2010.