Scotland has become one of the first countries in the world to introduce a minimum unit price (MUP) for alcohol, with a levy of 50p per unit of alcohol from 1st May 2018. The new pricing scheme is designed to deter super-cheap alcohol such as strong cider and cheap own-brand spirits. The Scottish Government led by its First Minister, Nicola Sturgeon, passed the legislation back in 2012 to set a floor price for drinks depending on how many units of alcohol they contain, but has faced legal challenges and only now was able to implement it.
You can work out how many units there are in any drink by multiplying the total volume of a drink (in ml) by its ABV (Alcohol by volume – measured as a percentage) and dividing the result by 1,000. For example:
- A bottle of 70cl (700ml) whisky at 40 abv is 28 units. At 50p per unit of alcohol that means a minimum price of £14.
- Vodka, which is not quite as strong (37.5 abv) would be 26.25 units and £13.13.
- A 440 ml can of lager (4% abv) would be a minimum of 88p.
The Scottish Grocer’s Federation provides a handy and easy calculator for MUP – just click here.
The Scottish Government also provides guidance on MUP to customers and retailers – click here.
There will be no ‘period of grace’ allowed for retailers to carry out minimum unit pricing. Licensing standards officers will ensure that the MUP is implemented across licensed premises. Note that breaching licensing conditions can be a criminal offence and could lead to serious consequences with substantial fines and potentially imprisonment of up to six months.
“This policy is geared towards making sure that by increasing the price – particularly of those products that do the most harm – that we will reduce consumption.” Scotland’s Health Secretary Shona Robison
It is fair to say that the legislation on MUP has generated a fair amount of debate north of the UK border.
The Institute for Fiscal Studies (IFS) has found that heavy drinkers do buy cheaper alcohol, but they also respond less strongly to price increases. The impact of the policy, and its success or failure, is directly related to the price sensitivity of different types of drinkers. For more information – click here.
The Adam Smith Institute has also looked at the impact of price and quoted a research by Dr Robert Pryce and his PhD thesis on The Economics of Alcohol, which found that heavy drinkers’ price elasticity of demand was only barely distinguishable from zero, and concluded that:
“the quantity results show that price-based measures will have little effect in reducing heavy consumption because of their small absolute price elasticity, whilst simultaneously having a large negative effect on consumer surplus for the light drinking majority, because of their large absolute price elasticity”
The views from the think tank Adam Smith Institute can be found by clicking here.
However, whether or not you agree with the intention behind the legislation, there is still some disagreement amongst many people in relation to the mechanism used by the Scottish Government. The new law is not a tax and thus it does not generate income for the government. Instead, its aim is simply to reduce the availability of cheap alcohol by setting a floor price. It does not seem to generate the revenues to help tackle the underlying problem at hand.
The Economist magazine has also written on this topic, quoting research conducted by the IFS, whereby it found that the MUP policy would generate substantial savings due to reduced social costs related to excessive drinking (at around £830m per year). However the IFS also demonstrates that the better option would have been for an overhaul of alcohol duties, which would have increased social welfare by £1.36bn. The IFS’ proposed tax system impact can be seen on the table graphic above.
“Raising taxes, rather than hiking prices, has the added benefit of directing the extra revenue to public finances which can be invested in healthcare.” The Economist
As The Economist points out, the Scottish government, unfortunately, has no power to do so and the British government is reluctant to upset voters by making their favourite vice more expensive.
Another potential issue is the precedent it sets – once the MUP mechanism is in place and the legislation implemented as planned from the 1st May, who is to say that the minimum unit pricing of 50p per unit of alcohol will not be raised further in future?
Looking much further into the future, do we really want our choices to be restricted, whether by pricing mechanisms or otherwise? An interesting blog on this topic comes from the Trunblocked blog: ‘Our Freedom is Under Attack’