In new IFS research – funded by the European Research Council and
the Economic and Social Research Council and published today - we
show that minimum unit prices for alcohol are reasonably well
targeted at heavy drinkers, but come at the cost of hindering
competition and reducing tax revenues. A minimum unit price,
combined with a more coherent set of taxes on alcohol, would be
just as well targeted at heavy drinkers and would limit the fall
in revenue for the exchequer.
As of May 2018, Scotland became the first nation in the world to
introduce a minimum unit price for alcohol, making it illegal to
sell alcohol for less than 50p per unit. This policy was
motivated as a way to deal with the social costs of heavy
drinking.
Using data on millions of alcohol purchases made by Scottish and
English households, the analysis shows that:
-
Prior to the introduction of the minimum unit price,
half of all transactions for alcohol bought in shops in
Scotland were below 50p per unit. The minimum unit
price led to a 5% increase in the average price per unit, but
some very cheap products saw their prices double, while more
expensive products were unaffected.
-
This led to an 11% fall in units purchased per adult
per week, with larger falls for more heavily drinking
households.
Although well targeted at heavier drinkers, the minimum unit
price reduces competition in the alcohol market, reducing tax
revenue and creating windfall revenues for the alcohol industry.
The analysis finds that if the 50p minimum unit price
were extended to the whole of the UK under the existing system of
alcohol taxes, then tax revenue would fall by around £390 million
per year.
However, the UK government is currently gathering evidence on
possible reforms to the system of alcohol duties. Now that the UK
has left the European Union, there is scope to improve the way
that alcohol is taxed. The research compares the impacts of tax
reform and minimum unit pricing to find that:
- Not having a minimum unit price, but instead replacing the
current system of duties with a two-rate structure that taxes
alcohol in proportion to its alcohol content, with a higher rate
on strong spirits, would be almost as well targeted at heavy
drinkers as a minimum unit price and would lead to an increase in
tax revenue of over £70 million.
- Combining this two-rate tax structure with a 50p minimum unit
price would be as well targeted as the same minimum unit price
applied on top of the current system of taxation, but would lead
to much smaller falls in tax revenue.
, Associate Director at IFS and an author of the
research, said:
‘The current system of alcohol duties is incoherent – for
example, if you prefer a pint of beer to cider, you may currently
pay more than twice as much tax for a drink with the same alcohol
content. Brexit offers a valuable opportunity to improve the way
we tax alcohol. A simple reform that taxes drinks in proportion
to their alcohol content, with a higher rate on strong spirits,
targets the purchases of heavy drinkers while raising tax
revenue.’
Martin O’Connell, Deputy Research Director at IFS and an
author of the research, said:
‘The Scottish minimum unit price reduced alcohol purchases of the
heaviest drinkers – those whose drinking likely creates the
largest costs to society and themselves – but this comes at a
cost of reducing tax revenue. Reforming the way that alcohol is
taxed can limit the reduction in tax revenue caused by minimum
pricing.’
