Could minimum pricing "backfire" as claimed?

Earlier this year a new Government Alcohol Strategy won praise from health groups for its intention to introduce minimum pricing, now planned for 2014. However the strategy received mixed reviews overall, with concerns extensively explored in a recent Health Select Committee report. Critics said the strategy was too focused on the crime and disorder aspects of alcohol misuse, neglecting the importance of health and treatment issues. 

A month or so later, The Telegraph ran a story headlined 'Plans to outlaw cheap alcohol will backfire, says watchdog', suggesting minimum pricing will lead to supermarkets selling "more, not less" cheap alcohol. The story, based on written evidence from the Office of Fair Trading (OFT), also appeared in the Daily Mail and the Financial Times.

Does the claim the minimum pricing could "backfire" stack up? Certainly the true impact - and indeed its questioned legal status - will be unknown until it is implemented. However, whether resulting supermarket actions could actually result in more, not less cheap alcohol being sold seems a somewhat mis-leading conclusion to draw from the OFT submission. If this did happen, the public health community would surely regard its campaigning for minimum pricing as the biggest own goal in it's history.

The basis for the argument is that minimum pricing will generate increased profits to retailers which could in turn incentivise supermarkets to sell more, for example via increased promotional activity on those products. Whilst this may be feasible there are many complex factors to consider, and no evidence as yet to suggest increased promotional activity will be applied. The OFT clearly states "At worst, such an incentive [to sell more] could dull the effectiveness of the minimum price in reducing alcohol sales."

Nonetheless, the assumption that minimum pricing would increase revenue to retailers is a logical argument, and one that the Institute of Fiscal Studies (IFS) has previously warned of. It is estimated that a 10% price rise results in an average 4.4% reduction in consumption - so although sales are reduced it is not proportionate to the price rise, leaving retailers with extra profit. It is worth noting that in the background, alcohol duty changes have been continued as part of the Treasury's role in the alcohol strategy to 'tackle problem drinking'.

There are of course multiple factors at play, and it could be argued that if raising alcohol prices were to bring such net benefits to retailers there is nothing to stop them having done so already. The perceived success of the responsibility deal - which committs to "foster a culture of responsible drinking" and take further action on marketing - has already caused contention. However we know little about strategies such as "loss leading" - heavily discounted products designed to bring people in store, but with losses reportedly made up on other items.

It may be worth considering at this point the way that minimum pricing would be expected to work. It will not suddenly stop specific individuals from problematic drinking, as much of the public seem to misunderstand it. Although minimum pricing will disproportionately effect heavier drinkers, it is a small reduction across this significant minority that would collectively result in overall benefits to crime and public health. If each heavy drinker drank one or two percent less as a result, the combined impact could be significant - as modelling has estimated.

The OFT in fact state they have less issue about the impact of minimum pricing itself, but are more concerned about the longer term implications of "legitimising intervention to control prices in a competitive market". Of course it is the OFT's role to protect and promote an open and competitive consumer market.

The legality is also commonly raised. The OFT states that although minimum pricing could inadvertently lead to retailers holding discussions that could breach competition law, their view is that "UK competition law does not prevent legislation to set a statutory minimum price for alcohol." The Scotch Whisky Association (SWA) are hoping it will prove otherwise.

Whilst no one can be sure how retailers or consumers will respond to minimum pricing, it seems unlikely to result in activity that would overall counteract the expected small reductions in consumption brought about by a raised floor price. Minimum pricing alone won't solve the UK's current culture of alcohol misuse, but amongst many academics and health bodies, it is both hoped and expected to play a significant role.

Comments

[Sara]

I haven't seen any evidence yet that minimum pricing will reduce the consumption of heavier drinkers - can you point me in the direction of this please?

[James Morris]

Sara - this is mainly based on the University of Sheffield modelling.

There are other studies also showing that recession impacts on heavier drinkers harder too, as they spend greater proportions of their income on alcohol.

http://www.alcoholpolicy.net/2011/11/recession-and-the-impact-on-alcohol-consumption-explored-recent-ddn-alcohol-features.html