Alcohol price and duty

Evidence shows that managing the price of alcohol is an effective way to reduce avoidable alcohol harm; find out more about alcohol duty and minimum unit pricing.

Why is price important?

Despite alcohol consumption in the UK declining overall since the mid-2000s, rates of alcohol-related illness, injury and death remain stubbornly high. More can be done to reduce the avoidable harms resulting from alcohol misuse, and managing the price of alcohol is an important component of that work.

International research evidence shows that the consumption of alcohol is sensitive to changes in affordability. The relationship between price and consumption is complex and subject to a range of varying ‘elasticities’ and switching behaviours. [1] However, in broad terms, when alcohol is more affordable, more is consumed; when alcohol becomes less affordable, less is consumed. [2] The World Health Organization includes raising the price of alcohol in its three ‘best buy’ policies: the most cost-effective, well-evidenced solutions to alcohol harm. [3]

Alcohol is now 74% more affordable than it was in 1987 when compared with average household income. [4] Most alcohol is purchased from supermarkets and off-licences, where the affordability of beer rose by 188%, and wine and spirits by 131%, between 1987 and 2018. [5] High strength white ciders and spirits are especially cheap, with such drinks recently found on sale for as little as 19p per unit – meaning that 14 units (the maximum amount the UK’s Chief Medical Officers recommend any of us drink in a week) are available for just £2.68. [6]

There are two main ways that the UK could raise the price of alcohol: alcohol duty (taxation) and minimum unit pricing (MUP).

The World Health Organization includes raising the price of alcohol in its three ‘best buy’ policies: the most cost-effective, well-evidenced solutions to alcohol harm.

Alcohol duty

The context

Historically, UK alcohol taxation, usually referred to as ‘duty’, has been used to adjust the price of alcohol, although its purpose has more often been to generate revenue for the government rather than to reduce alcohol harm.

The current duty system for alcohol in the UK is loaded with historical anomalies, and the rules vary depending on the alcohol type. For example, wine and cider are taxed per litre of product within particular strength bands but not according to the amount of alcohol, whereas beer and spirits are taxed by their alcohol content. Cider duties are historically far lower than duties for beer, which is one reason why very strong ‘white ciders’ are able to be sold so cheaply.

In 2008, the Government introduced a ‘duty escalator’, which increased the duties on alcohol by 2% above inflation every year. It was abolished in 2013 for beer and 2014 for wine. The Treasury estimates that ending the escalator cost public finances around £4 billion in the five years that followed. [7]

Alcohol duty contributes around £12 billion per year to the public purse - less than half the £27 billion estimated annual cost of alcohol harm.

Our call for change

Following a 2019 manifesto commitment to review alcohol duty, in October 2020 the government opened a call for evidence, partially focused on the public health impact of alcohol harm. This is an important opportunity for the government to rationalise an outdated and unfair system and to put harm reduction at the heart of alcohol tax policy.

We, along with other organisations working to reduce the harm caused by alcohol, are calling for several changes to be made to the way alcohol is taxed.

  • Alcohol duty to at least cover the costs of alcohol to society

Alcohol must be taxed in proportion with the harm it causes. Alcohol duty currently contributes around £12bn a year in revenue [8], while alcohol harm is estimated to cost between £27bn and £52bn a year – more than double, and possibly up to four times as much. [9]

  • Alcohol to be taxed according to strength

To have the greatest impact on health, the duty system should recognise that stronger drinks create more harm and should be taxed at a higher rate per unit than lower-strength drinks. This scaled approach would encourage producers to reformulate their drinks and create better quality drinks at lower strengths.

  • Alcohol duty to be consistent across drink types

The current system creates a market for cheap, high-strength products, which do most damage to health. The system should be consistent across drink types, rather than giving preferential tax rates to some and not others.

  • Alcohol duty to automatically increase in line with inflation or earnings

To ensure it always performs a harm reduction role, duty can’t be indefinitely frozen or allowed to stagnate. This would make sure progress is made towards reducing harm and improving health, year-on-year.

Minimum unit pricing

A minimum unit price (MUP) is the lowest price for which a single unit of alcohol may be sold. Research from Sheffield University has indicated that introducing the measure across the UK would significantly cut alcohol-related deaths and illnesses. [10] They found this using economic and epidemiological models to predict the effects of the measure on spending, consumption and health.

In the UK, both Scotland and Wales have an MUP, but England and Northern Ireland do not. In both Scotland and Wales, the MUP is 50 pence, meaning a single measure of spirits cannot be sold for less than 50p, a pint of regular strength beer or cider for less than £1, and most bottles of wine £5.

Setting an MUP has no impact on the price of drinks that are already sold for more than that amount, which includes most, if not all, drinks sold in pubs, clubs and restaurants. Instead, it mostly affects the very cheap strong ciders which cause severe harm to the heaviest drinkers, and drinks sold by supermarkets at multi-purchase discounts.

What's next in the UK?

In Wales an MUP was introduced in March 2020. In October 2020 Alcohol Change UK polled 1,000 adults in Wales and found that three-quarters of them knew about MUP. Of these, 10% said they were drinking less alcohol because of it. [11]

Emerging evaluation findings from Scotland show that MUP is effectively targeting the heaviest drinkers.

  • In 2018, Scotland experienced its lowest alcohol consumption rate in 25 years. [12]
  • There has been a 7.6% reduction in weekly alcohol purchases by households, mostly from heavier drinking households. [13]
  • There has been a 7% reduction in hospitalisations for alcoholic liver disease, with the greatest reduction in lower income groups. [14]

As Scotland and Wales start to feel the benefit of MUP and Northern Ireland seeks to introduce it alongside the Republic of Ireland [15], England is lagging behind. The UK government has no plans to introduce an MUP for England but reports that it will continue to monitor the impact of MUP in Scotland. [16]

It’s time for the government to bring MUP back onto the table, ensuring consistent alcohol pricing - and health protection - across the UK nations.

It’s time for the government to bring MUP back onto the table, ensuring consistent alcohol pricing - and health protection - across the UK nations.

Duty and MUP work best when used together

Duty reform and MUP each have distinct advantages and impacts and work best to reduce alcohol harm when implemented together.

  • Reducing harm. Duty reform alone cannot guarantee the price of alcohol will increase enough to decrease consumption and prevent harm, as manufacturers and retailers can choose to absorb some of the cost of alcohol duty rather than passing it on to consumers. It is not enough to protect the heaviest, most harmful drinkers either, as they are more likely to switch to cheaper alternatives than to reduce consumption when price rises. [17] For this reason MUP complements duty by preventing the sale of extremely cheap, high strength products, even if manufacturers absorb the duty.
  • Public revenue. MUP alone does not create any additional public revenue – and may risk lowering duty revenue. November 2020 research from the Institute for Fiscal Studies shows that implementing both MUP and a strength-based duty system can achieve the desired impact of reducing harm without the potential drop in revenue that results from MUP alone. [18] Strength-based, scaled increases to duty would complement MUP by decreasing consumption across the population, preventing ill health and death, and generating revenue to offset the cost of alcohol harm and fund public services.
  • Changing the landscape. A reformed duty system could incentivise reformulation of drinks, and both duty and MUP can encourage smaller container sizes, so these policies in conjunction can have an important impact across a whole population, including risky drinkers. Both policies could push alcohol producers to create, manufacture, package, market and sell less harmful products.

The greatest impact on alcohol harm would come from the combination of both MUP and strength-based, inflation-linked duty.

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The Government has the chance to overhaul our outdated and unfair alcohol duty system to protect health

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Alcohol Change UK is calling for a fairer system of tax that protects health, reduces harm, and covers the enormous cost of alcohol to our NHS and public services.

The Government has the chance to overhaul our outdated and unfair alcohol duty system to protect health

Alcohol Change UK is calling for a fairer system of tax that protects health, reduces harm, and covers the enormous cost of alcohol to our NHS and public services.
From our blog

References

[1] See, for example, Gallet, C.A.: The demand for alcohol: a meta-analysis of elasticities. Aust. J. Agric. Resour. Econ. 51(2), 121–135 (2007) doi 10.1111/j.1467-8489.2007.00365.x and Wagenaar, A.C., Salois, M.J., Komro, K.A.: Effect of beverage alcohol price and tax levels on drinking: a meta-analysis of 1003 estimates from 112 studies. Addiction 104(2), 179–190 (2009) doi 10.1111/j.1360-0443.2008.02438.x

[2] Public Health England (2016) The public health burden of alcohol and the effectiveness and cost-effectiveness of alcohol control policies

[3] World Health Organization (2017) Tackling NCDs: “best buys” and other recommended interventions for the prevention and control of noncommunicable diseases

[4] NHS Digital (2020) Statistics on Alcohol, England 2020, Part 7: Expenditure and affordability

[5] Institute of Alcohol Studies (2018) The rising affordability of alcohol

[6] Alcohol Health Alliance (2020) Small change: alcohol at pocket money prices, AHA pricing survey 2020

[7] UK Parliament (2018) Alcohol Drinks: Excise Duties written answer 161163

[8] HM Revenue and Customs and HM Treasury (2020) Alcohol duty review: call for evidence.

[9] Burton, R. et al. (2016). A rapid evidence review of the effectiveness and cost-effectiveness of alcohol control policies: an English perspective. The Lancet VOLUME 389, ISSUE 10078, P1558-1580, APRIL 15, 2017 DOI 10.1016/S0140-6736(16)32420-5

[10] University of Sheffield, School of Health and Related Research, Alcohol Policy research

[11] Alcohol Change UK (2020) Press release: One in ten Welsh drinkers report drinking less because of minimum pricing

[12] Giles, L., & Robinson, M. (2019) Monitoring and Evaluating Scotland’s Alcohol Strategy: Monitoring Report 2019 Edinburgh: NHS Health Scotland.

[13] Alcohol Focus Scotland (2020) Evaluation and other evidence on the impact of Minimum Unit Pricing

[14] Alcohol Focus Scotland (2020) Evaluation and other evidence on the impact of Minimum Unit Pricing

[15] Northern Ireland Department of Health (2020) Press release: Minister Swann committed to full consultation on alcohol pricing

[16] Woodhouse, J. (2020) Research briefing: Alcohol: minimum pricing. House of Commons Library.

[17] Pryce, R., Hollingsworth, B. & Walker, I. Alcohol quantity and quality price elasticities: quantile regression estimates. Eur J Health Econ 20, 439–454 (2019). https://doi.org/10.1007/s10198-018-1009-8

[18] Institute for Fiscal Studies (2020) Tackling heavy drinking through tax reform and minimum unit pricing