Pricing clampdown falls short

After much-trumpeted promises in the run up to last year’s election about tackling binge drinking, the politicians have bottled it.

Even the SNP in Scotland (which wants minimum unit pricing) has refused to match the strictures introduced this week because they believe the (half) measures imposing minimum pricing at the level of excise duty and VAT will do nothing positive…or will they?

The new rules ban retailers – effectively supermarkets – from making alcohol a loss leader, assuming that manufacturers and importers provide the product free and that shops do not have to account for their own costs such as distribution, staffing and, not least, promotion (although some demand “contributions” to feature products in their own advertising).

Prime Minister David Cameron can say that he has achieved his ambition “to stop supermarkets selling 20 tins of Stella for a fiver” because a 440ml can at 4.2% abv will now cost 38p (£7.60 for 20). The minimum price for a litre of vodka at 37.5% abv will be £10.71.

The trade is right to be cynical, but put that in perspective. While all involved in the drinks sector want to curb the curse of binge drinking, at least the vast majority of sensible, law-abiding customers will be unaffected by the latest measures.

The tail is not wagging the dog and we are left with the least bad option from a government wanting to be seen to “do something”. The new rules might only deter a few people, but even one binge drinker less is a start.

Nor has the industry become needlessly embroiled in expensive and legally tortuous calculations about the “cost” of alcohol. And cleverly, the government has avoided wrangles in the European courts about restrictions on trade and illegal minimum pricing that could have dragged on for years and been surrounded by unnecessary uncertainty.

The taxpayer should be grateful for that, because even the most slippery lawyer will find it difficult to argue that the government’s own taxes on a product need not be paid.

As drinks companies and representatives have pointed out consistently and eloquently, minimum pricing is unlikely to bear down significantly on binge drinking; there is no evidence in support of the theory.

Some local authorities are considering imposing their own minimum price per unit – a measure that would cause chaos as customers walk a few yards down the road to cross boundaries and save a few pence. That is just exporting the problem, not addressing it.

Local authorities have the power to restrict or remove licences from irresponsible retailers, but how many have done so? The onus is on them to act against problem outlets and leave the vast majority to engage in fair and responsible competition. Meanwhile, Westminster has to recognise the wider roots of the problem.

A final thought: has the new minimum price regime invoked the Law of Unintended Consequences?

The provisions confirm officially to the public that VAT on excise duty is a tax on a tax. Consumers now know that vodka is taxed at £10.71 a litre and a can of lager at 38p. Retailers could highlight those facts in the campaign to stop the Treasury regarding the drinks industry as a cash cow. That would be a benefit.

Finance on Friday, 21.01.2011