Osborne must tackle our drinking problem

Nobody who watched Louis Theroux’s extraordinary Drinking to Oblivion on BBC2 this week could have failed to be moved by the plight of the characters portrayed. Stuart already had cirrhosis, and quite probably not long to live, as a result of years of excess drinking. Peter and Joe binged on enormous quantities of alcohol but redemption seemed possible. They were dry at the end. For Aurelie, though, it seemed as if the monotonous daily diet of alcohol would eventually be the death of her.

Aurelie was drinking several cans of cider every day. At over 8 per cent ABV this was seriously strong stuff.

As an economist I’m afraid that as well as feeling the same emotions as anyone else watching this documentary (yes, economists really are capable of emotion too), I was thinking about tax. I do that rather more than is good for me. There was a good reason in this instance, though. You see, tax is a big reason that strong cider is the tipple of choice for Aurelie and others like her. Per unit of alcohol, we tax strong cider much less than any other alcoholic drink.

Each unit of alcohol in strong cider will attract an excise tax of around 7p. That compares with a tax of about 24p per unit for similar strength beer, 18p for normal strength beer and around 20p for most wine. Alcohol might fuddle the brain but not by enough to stop Aurelie responding to some pretty clear economic incentives. There can be £1 less tax on a litre of strong cider than on a litre of similar strength beer.

Joe, the binge drinker, on the other hand, seemed to favour drinking spirits and appeared capable of consuming astonishing quantities of vodka. Indeed those who consume the most alcohol get the highest proportion of it from spirits: around 40 per cent for those consuming more than 35 units a week. Spirits aren’t exactly lightly taxed — in fact they’re taxed rather more harshly than wine and beer — but they can still be a relatively cheap route to oblivion.

So should government be doing anything about this? One policy that has gained a lot of favour in recent years is the idea of imposing a minimum unit price for alcohol. The idea is appealing. Government would simply legislate to ban the sale of alcoholic drinks for less than a set price per unit of alcohol. Indeed, the government has already legislated to make it illegal to sell drinks for less than the total tax levied. But since less than 1 per cent of alcohol is bought at prices below this floor the effect is not likely to have been great.

In an earlier consultation, it looked as if ministers might take much more radical action and implement a 45p minimum unit price for alcohol in England and Wales. This would have affected more than half of alcohol units purchased in off licences and supermarkets. The Scottish government has legislated for, but not implemented, a 50p minimum unit price.

Cider is taxed at 7p a unit while beer that’s just as strong is taxed at 24p

Why not just implement this higher minimum price and make drinking more expensive? Well, one reason is that European Court of Justice has questioned the legality of the Scottish legislation, ruling that its effect would be “to restrict the market, and this might be avoided by the introduction of a tax measure designed to increase the price of alcohol instead of a measure imposing a minimum price per unit of alcohol”.

That’s the legal situation. But the more obvious answer to the question “why not implement a higher minimum price?” is that we already have a better instrument — tax. You can adjust the tax system to have just as much effect on the behaviour of heavy drinkers as you would have by introducing a minimum price per unit of alcohol.

What happens when you implement a higher minimum price? The consumer pays more and the retailers and drinks companies earn more. It provides a windfall profit. What happens if you raise taxes? The consumer pays more and the exchequer gets more revenue to spend on schools and hospitals and things, or to use to finance other tax cuts. I know where I’d rather the additional money went.

That’s a simplistic way of putting the argument, but no less valid for that. Now, there is a fair riposte which is that a minimum price might be better targeted. It wouldn’t affect my bottle of malt whisky in the way that a tax hike might, while it would increase the price faced by the heaviest drinkers. And the heaviest drinkers do seek out the cheapest alcohol. There is a trade-off there.

The cheapest alcohol that Aurelie and others consume, though, is often cheap because the tax system makes it so. Given that the heaviest drinkers are likely to seek out strong cider precisely because the low tax leads to it being cheap, we could start by raising that tax from 7p per unit to something closer to the 24p per unit charged on similar strength beer. We could also increase the tax on spirits since they are also disproportionately consumed by heavy drinkers. A tax that rises in line with the strength of the spirit would make sense.

Yet if you look at policy change in recent years it has, if anything, been in the opposite direction. Chancellors have wanted to say how much they are supporting Scottish whisky producers and West Country cider makers by holding down the taxes on precisely these drinks. Future policy might want to give more weight to the effects on Joe and Aurelie and the thousands like them.

This comment piece was first published by The Times and is published here with persmission.