The Institute of Alcohol Studies (IAS) have released a new report examining key issues related to alcohol and the economy, a central topic for alcohol policy debates relating to consumption and pricing measures.
The report states that reducing population alcohol consumption does not necessarily mean a negative impact on the UK economy, but could in fact potentially boost it owing to effects such as increased productivity.
Download: Splitting the bill: Alcohol's impact on the economy [pdf] or the see the summary report here [pdf].
The report assesses the various impacts of alcohol on the UK economy, in total worth around £46 billion per year to the national income including spending, exports, imports and investments. This equates to around 2.5% of GDP, with £11 billion accrued directly from alcohol taxation. The total economic contribution is almost evenly generated between producers and retailers, though each represents a wide and varied range products and sectors.
Alcohol policy debates though tend to focus on the costs resulting from alcohol harms, where a crucial distinction exists between direct costs to the economy - such as lost working days due to alcohol - and wider societal costs. According to the report, direct costs are likely in the range of £8-11 billion whereas total societal costs, for example, the impacts of alcohol-related violence and distress, have been estimated at between £21-50 billion; itself an area of contention.
Although the report's focus is to examine key economic questions about the role of alcohol, the IAS states policy decisions should undoudtedly account for societal level problems and are calling for the Chancellor to address cheap cider in the forthcoming spring budget. It suggests falls in consumption, whether from MUP, tax increases or otherwise, have the potential to bring economic as well as social benefits by reducing the negative impact of alcohol-related premature death, sickness, unemployment and presenteeism.
The report’s author, Aveek Bhattacharya, Policy Analyst at the Institute of Alcohol Studies said:
“Economic arguments are regularly used to resist policies that tackle excessive alcohol consumption, such as raising duty. Yet raising the price of alcohol is more likely to benefit the economy than harm it, by reducing the productivity costs associated with workers’ harmful alcohol consumption.
Cuts to alcohol duty impose a heavy toll on our health service and our public finances, with no clear corresponding benefit to the economy. The Government should reverse course, and undo the damage of four successive years of falling tax on alcohol duty”
Policy observers will of course note the timing of the report, as opposing calls to cut duty rates are also ramping up ahead of the budget. The Morning Advertiser has reported over 70 MPs have signed up to support a campaign to cut beer tax, whilst the Wine and Spirit Trade Association (WSTA) and other MPs are also urging the Chancellor to make duty cuts in other catergories. The report however challenges many of the arguments behind such calls.
Drinking less doesn't mean spending less?
The report's author also wrote a blog 'why we don't need the alcohol industry for a strong economy' for the LSE. Fundamentally, decreases in spending on items such as alcohol do not mean money won't be spent elsewhere, or alternatively, a fall in consumption does not automatically mean a fall in spending. This has been the case with 'premiumisation' of products, a strategy which many large producers have actively perused. In fact the IAS analysis suggests that premiumisation and more general price increases actually outstripped revenue losses causes by the fall in consumption since 2004. However the continued shift to off-trade purchasing resulted in the value of the UK alcohol market shrinking by 5% between 2004 and 2014 - a fall that would not have happened had the market share of on and off-trade not changed.
The report therefore emphasises that the continued shift towards off-trade sales - essentially a continuing shift towards 'home drinking' - undermines the economic contribution, with a loss of £6 billion from 2004-2014 versus no change. Indeed many health groups wish to see further policy action taken to halt the continued decline of pubs, directly linked to a long term widening gap between on and off trade prices. Minimum Unit Pricing (MUP) is of course seen as a key policy which would uniquely target cheaper off-sales units whilst leaving the on-trade almost entirely unaffected.
Jobs in the alcohol sector: what are they worth?
The economic contributions of the different sectors though are complicated. The report suggests the alcohol industry supports around 770,000 jobs, equating to 2.5% of UK employment. Over 500,000 of these though are typically low paid part time jobs in pubs, bars and clubs. The median wage of £6.82 is the second lowest of all occupations according to the ONS. In contrast, jobs for alcohol producers are paid at typically over £16 per hour, but thought to total under 30,000.
A significant question for most employment in the alcohol sector though relates to the introduction of the National Living Wage (NLW) in April 2016. The NLW raised the hourly minimum wage for over-25s from £6.70 to £7.20, with a target of exceeding £9 by 2020. Around half of workers in the industry are under 25, so using conservative assumptions, the reports estimates the cost to pubs, clubs and bars of implementing the full living wage to over 25s at £125m. In response, the industry has reportedly responded by hiring fewer over 25s, cutting employment costs and passing price increases onto customers. Figures suggest that 24% had reduced staffing hours, and 21% staffing levels, and 56% intend to cut more jobs in the future, whilst around 4 in 10 have raised prices to compensate. However the off-trade is less affected, and thus the NLW is likely to further exacerbate the gap between on and off-trade prices.
Brexit and the future for alcohol policy?
Sales to the EU accounted for 35% of British alcohol exports in 2014, hence 90% of WTSA members had reportedly favoured remaining in the EU. To date, the prospect of Brexit 'has led to significant uncertainty over the terms on which British alcohol producers will be able to sell their products in the EU', although a shorter term weakening of the pound will have helped boost exports.
Owing to the significant number of EU nationals employed in the on-trade sectors, future restrictions on the workforce could further push up costs and increase the price gap between the off-trade. Regarding changes to regulation, again what level of control over alcohol markets will arise and the subsequent impacts can in no way be reliably predicted. EU legislation has been used in efforts to challenge or at least delay Scotland's MUP efforts and if EU Directives on tax no longer apply, the UK will be able to tax wine and cider proportionate to their strength. How other countries will react, for instance in imposing taxes on UK products or rules on marketing, are again unknowns.
The report however states there are significant gaps in the evidence for the various economic contributions and factors, and calls for a specific UK based 'econometric' analysis to assess the likely impacts of consumption and spend changes on the economy. A US analysis suggested that a 10% increase in per capita consumption was associated with a decrease of 0.4% in per capita income growth may show that the principle argument made is sound, but certainly applying it in a UK context will be seen of greater value to convince policy makers.
Ultimately the IAS report argues that although the alcohol industry provides a small but significant contribution to the UK economy, this contribution is replaceable by other sectors, thus challenging arguments that rises to duty will harm the economy. However it acknowledges that national policy decisions are not made simply on the basis of balancing the costs of alcohol harms versus the economic benefits associated with the sector. Yet the IAS will hope to alert policy makers and others that there is scope to reduce alcohol harms via consumption models without necessarily harming the economy, but in fact potentially benefiting it.