Chris Mercer

Comment - Picking through the NICE report

By Chris Mercer | 2 June 2010

Meddling with the price of alcohol is going to be tricky for a Government that instinctively recoils from policies which might jeopardise free market competition.

The Conservative Party, which forms the bulk of the UK's new Coalition Government, does not believe in minimum pricing, whether for alcohol or for chocolate biscuits.

While in opposition, the Conservatives publicly rejected a base price for drinks and there has been nothing to suggest that the party's position has changed. The country's main competition body, the Office of Fair Trading, believes a minimum price would harm competition.

On this basis, we do not think minimum pricing is likely to feature in the Government's new alcohol strategy, despite the National Institute for Health and Clinical Excellence (NICE) throwing its weight behind the policy today (2 June).

However, by publishing its recommendations so soon after the General Election, NICE has undoubtedly upped the pressure on the Government to act swiftly and determinedly on alcohol-related harm.

An overhaul of the Licensing Act, which could well include stricter rules on the number of licences handed out and also on opening hours, is one thing that both NICE and the Government appear to agree on. This could rise up the legislation agenda.

The issue of pricing, which the Government has said it will address, is a lot less clear.

Chancellor George Osborne could attempt a smash 'n' grab in the 22 June Budget by slapping more duty onto drinks. As it is, value added tax is expected to increase to a rate of 20% from 17.5%.

But, it is hard to escape the fact that duty tax has risen by 25% on beer and wine and around 20% on spirits in the last two years with little effect on the price promotions offered on drinks at retail.

If the plan is to curb drinking by forcing up prices, duty tax has not done the job in the off-trade and, because of this, has unfairly penalised the on-trade.

Ministers have said they intend to ban 'below cost' sales of alcoholic drinks and this move is being supported by most of the drinks trade bodies, including the Wine & Spirit Trade Association, the Scotch Whisky Association and the Beer and Pub Association.

The first problem with this is that it won't be easy to nail down a definition of 'below cost' that meets the Government's objective and that everyone can agree on.

The second is that, if this definition is too restrictive, a by-product of making alcohol more expensive may be to hamstring competition between retailers.    

"The enforcement of a below-cost retail price floor has eliminated competition between retailers and increased profits for producers and retailers at consumers’ expense," said a study in 2008 on France's Loi Galland, which restricts below cost sales on all products by the country's retailers.

The report was published by France's National Institute of Statistics and Economics, a Government-funded body.

The third problem is that, while the availability of alcohol is likely a factor in excess drinking, the pricing issue will do nothing to change public attitudes.

Granted, the Government needs some quick points on the board on alcohol harm, but there is no escaping the fact that alcohol's place in society is the biggest challenge.

Sectors: Beer & cider, Legislation, Spirits, The off-trade, The on-trade, Wine

Companies: Scotch Whisky Association

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