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Cheap Alcohol Ban: Good news for drinkers and most businesses?

About The Author

Holly Abel (Former Writer)

Holly is currently in her third year at the University of Birmingham, studying Law with Business. All being well, she starts her training contract with a magic circle firm in 2015. Holly's interests lie in Land, Human Rights, Tort and Company Law. Outside of her studies, Holly enjoys writing and participating in Bro Bono work.

The Home Office has announced that from the 6th April this year, the government is to ban the sale of alcohol, including beer, wines and spirits, at what they believe are ‘ultra cheap’ prices. The ban does not include low alcohol beers and duty free sales. It is to be imposed by a mandatory licensing condition on all those who sell alcohol including small off-licenses. The licence is to reduce sales on alcohol below cost (defined as duty +VAT) and therefore will mean an ordinary 440ml can of beer cannot be sold below 50p, a bottle of wine not below £2.24, and vodka and other spirits not below £10.16.

Clearly, any recognition of the health impacts on excessive alcohol consumption is a positive, and as the government have been deliberating how exactly to tackle the problems of extreme drinking for at least 3 years now, it is a relief that a policy has been firmly put into action. However, this article will discuss how well this minimum pricing policy will work in practice.

There are many reasons for the ban on selling below-cost alcohol. A can of lager should never be sold more cheaply than water. The government suggest social and commercial reasons for this policy. Firstly it is to try and stop ‘pre-loading’, where young people become ‘tanked up’ with cheap supermarket booze before going out. The policy is aimed at reducing the cost of alcohol fuelled crime and accidents on national resources. Secondly to try and stop ‘loss leader’ deals where alcohol is cheaply flogged in supermarkets to undermine competitors. Can these aims be achieved? The Home Office impact assessment estimates the move will lead to savings of £5.3m a year in health benefits and £3.6m in crime savings. Annual costs of alcohol involved incidents are put at £5.3m including lost duty and VAT revenue and enforcement costs. In theory there is hope for the policy yet.

However, practically it is not as black and white. I do not believe it will stop the culture of ‘pre-drinking’ in young people as the minimum price is still extraordinarily low across all categories. A cheap deal on fosters or similar is typically 24 cans for around £16, which will be unaffected by the 50 pence per can. Cheap spirits, such as Glens will barely rise in price at all and therefore will still attract students to buy and drink in excess before heading to the more expensive bars. The Alcohol Health Alliance says the policy will not substantially impact ultra cheap alcohol sales. The Home Offices impact assessment only hit 1.3% alcohol sales, although in reality this is around 220m litres a year. Alcohol Concern chief executive Eric Appleby has stated publically that the policy will be close to impossible to implement. Furthermore it is confusing and leaves untouched most drinks drank by young people. This is a credible argument. If the government aims to reduce drinking in young people, a majority of 15-18 year old drinkers consume beverages such as Alco pops, which have not been mentioned. Some University of Sheffield research estimated a minimal impact of a below cost ban ‘approximately 40 to 50 times smaller than the estimated impact of a 45p MUP. Finally the Eric Appleby suggests that international evidence shows that minimum unit pricing is what we need to save lives and cut crime, although he does not state what evidence he is referring to.

If there are so many criticisms of this policy, are there any others which could be superior? Last July the minimum unit price for alcohol and a ban on multi-buy promotions were rejected as viable solutions for impacting on the level of alcohol consumption. The reasons are not clear as to why this was the ultimate conclusion however it has been argued that these suggestions unfairly penalised the majority of responsible consumers while doing little to tackle the root causes of alcohol misuse. There are other options which could go some way towards achieving the government aims, for example improving education to promote safer drinking, reducing the availability of high strength products that cause the most harm for problem drinkers and responsible market and product placement. It is true that a ban on multi-buy promotions may truly not be effective as there is not enough evidence this would work at a time when responsible families are trying to balance their household budgets. Finally, action could and perhaps should be taken against irresponsible promotions in pubs and clubs for example 5 doubles for £10, however this would possibly encourage ‘pre-loading’ and so be counter intuitive.

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Figure 1- http://www.alcoholpolicy.net/alcohol-pricing/ 

I have so far looked at the effectiveness of the policy and its impact on the individual. Looking at the policy from a businesses perspective for example retailers and producers of alcohol, there is little evidence on how they will be affected and even less evidence on the way wholesalers could be affected. There may be some short-term costs for retailers in implementing the pricing policies, but implementation costs to producers appear to be limited. It is probable that large retailers may be in a better position to negotiate prices and volumes in their favour and therefore be affected less, than smaller retailers for example independent local convenience stores.

From an independent trader’s point of view the policy will be hard to enforce and regulate and so there may be little economic impact on them. If the raised prices are tightly enforced, it could limit the possibility of a customer ‘popping in’ for a four pack of Fosters and therefore discourage buyers from frequenting local stores, preferring larger retailers where they can buy everything at once and stock up. In reality, for the proposed target group of ‘pre-loaders’ convenience is a predominant concern and so I do not think local convenience stores will be too severely affected, bar some minor administrative issues. Furthermore the policy may limit offers, but only if this is enforceable.

Chain supermarkets and chain off licences (e.g. Bargain Booze), may experience a higher impact due to enforceability of the policy and their strategies of bulk buying to sell low to attract consumers into their stores to buy other products will be curbed. This effect is just, as supermarkets are the more powerful party and should be capable of finding cost advantages elsewhere. The question is whether these chains will significantly notice these relatively minor changes to their pricing structures and whether their consumers will notice the differences, which I believe they will not.

In regards to speciality off licences, their consumers are often more affluent purchasers who are willing to pay more for a special product or service. In this way I do not believe the impact of the policy will be felt as severely as their prices are often substantially above these cost thresholds. These businesses’ target market is not primarily students or buyers searching for cheap alcohol in the first place.

Finally the impact of student bars will be felt the hardest as their main strategy is selling through deals, a low cost high quantity strategy. If their prices are not as low, the demand will likely reduce and it could be that their profits drop. However, this impact would be felt across similar bars and therefore may not have this impact if one assumes students will go out with the aim of getting drunk whatever the cost. Many bars would be able to adapt to this policy and change their strategy to reflect minimum prices; however, some will possibly go out of business. In reality, if these bars offering huge deals cannot stay in business with these stricter regulations they should not be in business at all. Other industries face heavy regulation due to the dangers their products can present, an example being the pharmaceutical industry. The cost of testing a drug cannot be avoided simply because it would be too expensive. Pharmaceutical companies owe a duty to the public to keep them safe, and profitability is no excuse for avoidance of this duty. Likewise, businesses that serve alcohol owe a duty to keep their patrons safe, and this should not be trumped by arguments of profitability.

Overall it seems unfair to criticise a policy with clear social aims at its heart. The impact on businesses is somewhat speculative, dependant on their strategies. Although a clear social aim, the aims and the means to achieving those aims are not sufficiently aligned. As has been suggested, the minimum price policy may work combined with other strategies such as improving education, preventing irresponsible advertising and possible returning to considerations of minimum unit pricing and ban on multi-buy promotions. These suggestions all have their own disadvantages, however as a combination may mitigate the failings of individuals.

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Tagged: Commercial Law, Retail

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