Combating Ultra-Cheap Alcoholic Drinks in the U.K: An Update

Last fall I wrote in some detail about “minimum unit pricing” of alcohol, an innovative approach to reducing high-risk drinking. At the time, minimum pricing was attracting support from a number of public health and public safety experts in the U.K. To recapitulate the key points, very heavy drinkers shop around for cheap booze, and as a result pay substantially less for each unit of alcohol consumed than does the rest of the drinking population. In the U.K., this typically involves going to a supermarket and buying high alcohol content drinks at very low prices. Indeed sometimes the alcohol is sold below cost as a loss leader for the store. Whereas an excise tax falls to varying degrees on all drinkers, minimum pricing concentrates its effect entirely on the high-volume alcohol consumers who experience and cause the most damage. A further advantage of minimum pricing is political: Because it isn’t a tax, it draws less opposition from many retailers and members of the public.

That said, minimum pricing lost by a single vote in the Scottish Parliament last fall and never garnered strong, widespread support from any of England’s political parties. Lobbying by the supermarket industry contributed to this situation, as did widespread misunderstanding of how minimum pricing works. Jamie Bartlett of the leftish Demos Institute made the same complaint as did many conservatives, namely that moderate, responsible pub goers shouldn’t be punished economically for the heavy drinking of a yobbish minority of lager louts. But this is wrong-headed: Moderate drinkers already pay well more than even the highest proposed minimum price for those fine pints of Guinness and IPA the publican pulls for them (I felt obligated, as a scientist, to research this personally and therefore speak with authority). That’s why wise pub owners support minimum pricing; it doesn’t hurt their customers one whit and it protects the pubs from being put out of business by Tesco.

Although minimum price has yet to catch fire with much of the English public or their elected leaders, the UK coalition government has committed to a more modest variant, namely banning below cost sales of alcohol. Even though this policy affects only the very cheapest drinks, RAND Europe forecasts that the below-cost ban may nonetheless lead to modest decreases in high-risk drinking. In contrast, with the stunning electoral success of the Scottish National Party, which supports a much higher minimum price (e.g., 30-50p per unit) Scotland may chart a different course, as it is empowered to do because of the peculiar way that alcohol policy is devolved within the U.K.

Some elements of the Scottish drinks industry are already rattling their saber and the SNP will feel that pressure. There is also a chance for some public health opposition as well, as some advocates resent the fact that the alcohol retailer gets to keep the money from a minimum priced sale, which they would not do under a new excise tax on alcohol that is earmarked to support prevention or treatment programs. Hold your nerve, SNP!

I hope both England/Wales and Scotland go forward with the pricing policies they have proposed. The fundamental reason of course is that it might reduce the appalling amount of damage heavy drinking is doing to the public health and public safety of the U.K. But from a wonky perspective, further excitement comes because if two geographically adjacent heavy drinking societies initiate different pricing policies targeting high-risk drinking, it would be as good a natural experiment as we are likely to get in the alcohol policy field. The lessons learned could be quite valuable not only for the U.K. but for other societies as well.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College London. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over thirteen thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

14 thoughts on “Combating Ultra-Cheap Alcoholic Drinks in the U.K: An Update”

  1. Minimum pricing has also been proposed in New Zealand recently, but here the proposal was to set the price at NZD1.50 (about 75p) per unit, which seems a bit high to me.

  2. Minimum pricing should actually benefit the better quality products, if it is done correctly. Below-cost ban, on the other hand, does not do so automatically. The point is that lost-leader sales could include pretty much any product that the dealer wants to sell below cost–those who buy the product regularly, generally know the prices and will shop the store for that particular product, which is what lost-leader sales are supposed to do. But minimum pricing affects only the cheap-ass booze that no one would drink for any purpose other than getting drunk. “Pleasure” drinks would not be affected at all. As an example, consider what would happen if minimum pricing was put in effect in a US college town. Let’s say the minimum was set at $4. The “better”, more expensive drinks are normally priced above that line, the cheaper booze and low-end mass-produced beer is below that line. So if the above-minimum prices are kept the same, this only affects the bottom line for binge drinkers and those who generally prefer low-end domestic beer. So college crowd that lives on $2 Old Milwaukee or Stroh’s or some other swill will be forced to pay double for the same product. When they look at the list and see that they can get something else for the same price, many will. Others will find other ways to get loaded. This would directly benefit the “other” products, while significantly harming the low-end mass production. There may be an economic benefit to the state, as the total spending on alcohol would likely stay the same or go up moderately. The economic benefits to bars is less clear. Some of the college area bars may earn a high margin even on the cheapest beer they sell, as they get a lot of mileage from it–some “cheap” beer I’ve tasted in college bars around the country was essentially rancid. Although they would get even higher margins on the “cheap” products because of the minimum pricing, the volume of those products would go down significantly. And the margin on other products may well be less, although it is often a percentage of the cost rather than an absolute number. Overall consumption, on the other hand, is guaranteed to go down even if individual consumption for some will remain unchanged. So you’ll still have drunks and binge-drinkers, but significantly fewer of them. At the same time, the more responsible drinkers are likely to migrate to a greater diversity of products. So, overall, everyone wins except the producers of low-end products who depend on addicts to maintain volume sales and some bar owners who would lose volume–and the corresponding margin–as well. There is potential loss to consumers if manufacturers, distributors or proprietors decide to rebalance the trade by charging more for all products (eventual quality/price creep). But this is a small risk compared to the potential benefit.

  3. You state “…the fact that the alcohol retailer gets to keep the money from a minimum priced sale…”, but isnt’ the retailer selling at the lower price because doing so maximizes his revenue? Setting a minimum price wouldn’t, it seems to me, leave the retailer with any extra money. That’s fine. It just seems that this complaint about the policy doesn’t make much sense.

  4. ShadowFox: You should comment more often, incisive analysis.
    Michael: I am explaining a view I do not hold myself, but the argument would be that none of the money from the sale goes to public health programs which it would if an excise tax were attached to raise the price and was earmarked for public health initiatives.

  5. See link for particularly shocking stats on alcohol related liver disease in Scotland and explanation for why we have to do this.

    This is a no brainer for Scotland and the UK …….pity politicians of any hue cant see it and choose to score points, confuse and conflate or posture to the detriment of the Scottish people.

  6. @ Shadowfox —
    I think the target of a minimal pricing law in a US college town would be aimed at the 25 cent draft nights of horrendous light beer to get people in the place to buy overpriced wings, and not the $2.00 pint of Bud/Coors swill. I agree with the thrust of your distributional analysis, but I think the target would be sub-dollar per ounce of alcohol and not just at the low-end macro-brews.

  7. Because I’m not a scholar of this subject at all–how much is a unit? Is it the US-standard 0.6 oz (about 20 ml) of alcohol?

  8. KH: “..the peculiar way that alcohol policy is devolved within the U.K.” What’s peculiar about including public health in the devolution of competences to Scotland and Wales? Strikes me as a sensible choice, as the SNP policy here bears out.
    I’ll grant you that the whole devolution concept is a bit peculiar. But then British history is a speculiar as that of any other country. The Prince of Wales has an official harpist. Chosen entirely for her musical ability of course.

  9. Thank you for the link.

    The SNP minimums seem very high (if I’m calculating correctly, around $1.50 for a standard-sized (12 oz) beer, around $20 a bottle for spirits)–for perspective, that’s almost twice what decent bourbon costs at a state store here in VA.

  10. Given competition, it might be profit (or revenue) maximizing for a store to use cheap drinks as a loss-leader. But a minimum price indicates that no competitor will be allowed to undercut the minimum. This situation could easily increase revenues or profits for individual stores, relative to the pre-control situation. It isn’t just that they can’t employ low-priced alcohol as a loss leader, but no one can.

  11. @Keith–thanks
    @DaveAnderson–I focused on beer just because it was a convenient unit of analysis, but the analysis for cheap booze is similar. I did not want to get into the whole discussion of how drinks are priced to sucker students in. There are variations in quality and quantity, so it’s not as simple as just price ratio per drink (e.g., in Madison, the nightly specials are smaller and are served in plastic cups instead of glasses, while in Columbus, OH, the specials are almost exclusively beer by the bucket). Whatever the case, even moving to “Bud/Coors swill” would be progress in most of these situations. Not much, mind you, but progress nonetheless.

    Some states/towns dealt with the problem by 1) prohibiting pitcher sales or 2) banning some or all versions of “Happy Hour”. These have been boons for the respective businesses, but not universally–some were losing sales to retail. Given that the markup on pitchers is 100% or under and markup on individual drinks is closer to 300%, this is not surprising. So it does not prevent binge drinking–but it does reduce it in public. Banning “Happy Hour” is not at all likely to make alcoholics quit and may reduce binge drinking only slightly, but it does affect the habits of social drinkers when it comes to patronizing the establishments (e.g., visiting them once a week instead of three or four), and it may serve to prevent a small number of them from becoming alcoholics.

  12. “the target of a minimal pricing law in a US college town would be aimed at the 25 cent draft nights of horrendous light beer to get people in the place to buy overpriced wings”

    I was just struck by how things have changed during the past 100 years. In the late 19th and early 20th centuries it was common for bars to offer cheap/free meals so that they could get people to buy their liquor.

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