A minimum price for alcohol

The current UK government is toying with the idea of introducing a minimum price for alcohol in England and Wales of around 45p per unit. However, just this week it was revealed that some senior cabinet members opposed the policy; putting it in jeopardy.

As with any policy there is a burden of evidence. The impact of such a policy should be established as best as possible. Basic economic arguments and the current evidence about alcohol may or may not lead us to expect that the policy would: i) reduce overall consumption (income effect), ii) increase consumption of other drugs (substitution effect), iii) not affect consumption of alcohol among alcoholics (inelastic demand among addicts), and iv) reduce the welfare of the poorest households (tighter budget constraint).

As was discussed in a previous post, based on arguments presented by David Nutt, the primary policy goal should be a reduction in the harm caused by alcohol; not a reduction in the prevalence of alcohol consumption. Of the above effects, presumably only the first is what the government desires; and, since it is a minimum price increase, only those who purchase the cheapest alcohol would see an income effect. The understanding is that alcoholics are the ones who would thusly be affected. But this leads to point iv); poor households who are not problematic drinkers would see an increase to the price of alcohol, while wealthier households who purchase more expensive alcohol (fine wine is a luxury good, cheap cider an inferior good), wouldn’t be affected. Yet there is certainly evidence (e.g. here and here) to suggest that alcohol consumption among the middle classes is problematic.

A precursory glance at the literature reveals the evidence of the effect of a minimum price of alcohol is fairly limited. It does reveal that, in Canada, it was found that a 10% increase in the minimum price of alcohol led to both a reduction in alcohol consumption and a 31.7% reduction in alcohol-attributable deaths. Epidemiological models set in the UK estimate the same effect.

The purpose of this policy does seem to be prevention of alcohol-related disease. But changing the minimum price of alcohol doesn’t address many of the issues surrounding the causes and effects of alcohol addiction; in particular, the effect of socioeconomic status. Higher socioeconomic status individuals are at least as likely to consume risky amounts of alcohol but appear to be less at risk of the adverse consequences. Indeed, one way of abrogating these effects would be to reduce consumption among the lower status individuals, but this would certainly be inequitable. It is widely accepted that there is a relationship between low socioeconomic status and alcohol addiction due to adverse social factors and poor life circumstances with the arrow of causality pointing in both directions. Perhaps addressing socioeconomic problems could be a more effective solution.

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One thought on “A minimum price for alcohol

  1. I agree with your approach. I also think if raising the price of alcohol were judged beneficial overall it would be better to do this by increasing duties rather than setting a mandatory minimum. A minimum price reduces price competition between alcohol sellers, which should increase their profits. Increased duty has the advantage of providing government revenue, which could be used to ameliorate the regressive effects of taxing alcohol.

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