Heavy Duty

Although high taxes in the UK will not solve binge drinking, they do cause many other problems

YOU MAY have read that Professor Room from Stockholm University has stated that alcohol is a worldwide epidemic and that the UK government is not tackling it properly because it is in thrall to the drinks industry.

He calls for higher alcohol taxes and restricted access to alcohol (as happens in Sweden). I disagree profoundly, especially with the idea that we control the UK government!

The problems of young people in the UK drinking too much are well known and we are cooperating with the government in its National Strategy to Combat Alcohol Harm (through selfregulation and education).

But these problems will not be tackled effectively by higher taxes, nor, for that matter, by restricting access.  In the UK, the vast majority of people drink sensibly, and moderate drinking has been shown to improve health as well as giving pleasure.

To raise taxes is unfair because it penalises the majority for the sins of the noisy minority who abuse alcohol.  Moreover, it is ineffective – studies have shown that binge drinkers are less priceelastic than ordinary drinkers.

Excessive drinkers are unlikely to be put off by a price increase – they will simply switch to cheaper products.  The main effect of a price increase is to deter sensible drinkers rather than to stop bingeing.

Suspicions might be aroused by the fact that high taxes do not seem to work internationally. The high-tax countries are precisely those which have the biggest social problems – the UK, Ireland and Scandinavia – while in the Southern European countries, where binge drinking hardly occurs, duty is generally low or (in the case of wine) zero.

The UK and Italy have similar average consumption levels, yet the UK has a serious drinking problem, while in low-tax Italy binge drinking is hardly known. By contrast, high-tax Sweden has consumption about half that of the UK, yet the problems of excessive drinking are comparable to ours.

However, the high taxes in Sweden mean that a great many do not drink anything at all, while those who do drink tend to drink to excess.  The problem is not the quantity of drink consumed as a whole, but the way in which a minority consume too much.

Although high taxes in the UK will not solve binge drinking, they do cause many other problems. For beer, the white van smuggling trade has been a scourge, harming local retailers, creating supplies for underage drinkers and generally reducing respect for the law.

Spirits have suffered over the years from major frauds which at one time affected one in six bottles being sold.  For wine, a similar proportion was coming in from Calais through cross- order shopping.

While there has been a reduction over the past year, the harm has been immense.  Other high-tax countries have been reducing their rates.  Apart from Ireland, the UK now has the highest rate of wine duty in the EU and, although Sweden is also higher than us for spirits, the gap will be virtually eliminated once they implement their promised reduction.

The UK and Ireland stand out as the only high-tax countries not to have reduced duty rates in recent years.  The cost of this is not only to the consumer.  The Single Market is a tremendous boon to all industry.

Producers can plan on a continental scale while consumers can compare prices across the EU; open shopping increases competition and drives prices down and quality up.  However, in the drinks market, uneven duty rates prevent these benefits from happening.

As duty rates converge, it will be possible to gain from increased competition.  Indeed, the fact that the UK is moving away from the rest is harming the prospects for the whole of the EU.  Yet the government would lose little if it were to reduce taxes.

Its own calculations show that spirits are almost at the point where the reduction in revenue from a duty cut is matched by increased volume.  The UK wine market is so dominated by the supermarkets with their price points that duty increases are often not passed through (in fact average prices have fallen in the past two years while duty has gone up).

However, the squeeze on margins has cut brand investment, resulting in a market standstill – and less revenue than would have been the case had duty been frozen.  I hope that the chancellor will not be seduced by the arguments of those who believe that taxes must rise to curb excess.

The real danger is that the clamour in the press will make it politically impossible for him to do what is really needed at the moment – to bring our duty rates nearer to those of our neighbours on the continent. 

Quentin Rappoport is director of the Wine & Spirit Association