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OFT warns UK minimum pricing could backfire
The UK’s competition watchdog, the Office of Fair Trading, has warned the government that plans for a minimum price for alcohol could backfire badly.
The Office of Fair Trading believes a minimum unit price could encourage retailers to sell more, rather than less, alcohol. In written evidence to the Health Select Committee, the OFT says that because retailers would keep the extra revenue from minimum priced drinks, there’s an incentive to promote their cheapest brands more heavily.
“At worst”, said the OFT, “such an incentive could dull the effectiveness of the minimum price in reducing alcohol sales.”
The OFT suggests that changes in the way alcohol is taxed would be more effective than a minimum pricing regime in achieving the UK government’s aims of reducing alcohol abuse.
The Scottish government is already close to imposing a 50p minimum price per unit, but faces an ongoing legal challenge from the Scotch Whisky Association over the policy.
[The full text of the OFT’s submission to the Health Committee can be read HERE.]
So, if the price is higher, we’ll sell more because that way we’ll make more! Astonishing, then, isn’t it, that so many multiples don’t sell above cost? How did they miss such an obvious solution? In fact, why not price a can of beer at £1,000 instead of £1? That way, they’ll make an even bigger profit!
My biggest problem with DB articles such as this is that you pull out a stupid headline and never let us see the full report. So we don’t really know if OFT is full of idiots who can’t think logically. But, assuming they did come up with some notion barely resembling your headline why not ask the following question: if I buy a can of beer, wholesale, for £0.8 and sell it for £1, what is the net VAT to the exchequer – is it positive or negative? Positive, obviously. OTH, if I buy the same can for £0.8 and sell it for £0.7 what happens? The net VAT is negative, that is, the Government pays the retailer for making a loss! I wonder, do the people at OFT not understand VAT?
Minimum pricing has been shown to work (there is a huge amount of research on this, world-wide) as it reduces the amount of alcohol purchased and consumed by at-risk groups and brings a net inflow to the Government. All in all, a net social gain.
Dermot,
We’ve now added a link to the full submission by the OFT to the Health Committee – now available in the final paragraph of the original story.
Hope that helps.
Hi Richard, thanks for posting the link – sad that yours is the only other comment. The OFT report uses, as part of its evidence, a report from the Competition Authority in Ireland relating to the Groceries Order. While that report is correct in relation to many aspects of retailing it is completely wrong in relation to alcohol. At one point, it states that “Two major sectors of the indigenous enterprise base – ‘Food, drink and tobacco’ and ‘All other manufacturing’ – which together account for 68% of sales by indigenous companies, recorded little
or no sales growth in real terms over the past decade.” – but this is plain wrong as the wine trade saw a 400 – 500% increase in sales. By conflating very different industries (growing alcohol, declining tobacco and non-existent manufacturing) it’s very easy to get a false average figure showing decline. In relation to alcohol, the rescinding of the GO led to vast amounts of very cheap alcohol becoming available at a time when wages were very high, resulting in the cheapest alcohol availability in the EU!
OFT’s basic point, that retailers will make more money doesn’t fully stand up as they would sell at a higher price right now, if that’s all that mattered. But it isn’t – alcohol is used as a loss-leader to draw people in and this simply is not good for society. They fail to mention below-cost selling and the VAT loss, so, all in all, I don’t consider it a good enough reason not to adopt minimum pricing.
Thanks for posting the link and it would be nice if this became standard practice.
All the best,
Dermot Nolan MW