What does minimum unit pricing mean for the UK drinks trade?

A Supreme Court ruling on the introduction of minimum unit pricing for alcohol sold in Scotland recently hit the headlines. So what was it all about? asks James Daglish, head of licensing at a London law firm.

In a bid to tackle problem drinking, in 2012 the Scottish Government passed legislation introducing a policy of a minimum price of 50p per unit of alcohol. This was challenged by the Scotch Whisky Association who argued, in short, that the policy hindered trade and was therefore anti competitive, in breach of EU law. In other words they contended that it hindered and interfered with those who were able to operate on slimmer margins and therefore produce at a more competitive price.

The initial case went all the way to the European Court of Justice. It concluded that if minimum unit pricing could be shown to be more effective at tackling the problem than using taxation, then minimum pricing would not be contrary to EU law. The matter was therefore reverted to the UK courts, and eventually the Supreme Court, to rule on the argument about taxation versus minimum price.

The Scotch Whisky Association’s position is that the root causes of problem drinking is wider than price, and that tackling those wider points, notably poverty, is more pertinent than raising the cost. They further contended that the use of duty or tax would be an equally effective way of achieving the Government’s aims.

Earlier this month, the Supreme Court disagreed, unanimously. In particular, it ruled that any tax would have to apply across the board, rather than just to the cheap and strong alcohol, which the legislation was specifically targeting. Minimum pricing would be more effective.

So the legal challenges are over and the experiment will finally be in Scotland on 1 May next year. The law itself will only initially last for six years, and would then need to be renewed. Wales is set to follow suit, with legislation to implement minimum pricing under active consideration. The UK Government will also be watching closely.
Canada already has a form of minimum unit pricing, and although straight comparisons are too simplistic, there does seem to be a correlation between the increase in price and decrease in consumption. Many eyes will no doubt be on Scotland to see how they fair.

Why was the issued raised in Scotland?

Essentially because Scots buy more alcohol on average than people in England & Wales. By one measure, 20% more alcohol on average. The corollary to that is a high incidence of alcohol related health issues.

How will it work?

By way of illustration, the BBC worked out that a 70cl bottle of whisky at 40% ABV would now have a minimum price of £14. A 1 litre bottle of 5% ABV cider would be at least £2.50. A can of lager at 4% ABV would be at least £1.

What does it mean for the drinks industry in Scotland?

If you are in the on-trade then almost certainly it will make no difference. Prices in the on-trade are almost exclusively above the minimum unit price.

What about the off-trade?

The increased price is money that goes into the pockets of the retailers rather than the Government. They should therefore see an increase in profit margins at the lower end. For some this may however mean having to fight harder for the same custom, as the use of loss leading, very cheap, deals will cease. Will the wholesalers in those cheaper price brackets look to increase their margins? That seems likely.

Reaction

As for those in the industry, the responses have been mixed. The likes of Greene King and The Scottish Licensed Trade Association have welcomed the decision. Drinker’s associations, such as the Campaign for Real Ale, have criticised it, saying that it penalises moderate and responsible drinkers.

The Future

Ultimately, it will be at least a couple of years before any useful data starts to merge. In the interim, the trade has arguably bigger challenges facing it, from inflationary headwinds and squeezed consumer spending to increased fixed costs.

James Daglish is a partner and the head of licensing at Goodman Derrick LLP, the London law firm.