Wednesday, 13 March 2013

Alcohol Duty and Minimum Price

Alcohol Duty and Unit Price
The plan to introduce a minimum unit price for alcohol in England seems to be faltering. And I understand that in Scotland, though the law has been passed that declares 50p to be the minimum price for a unit of alcohol, it has not yet been possible to implement it. I also understand that in Scandinavia they have opted to raise the price per unit by taxation, rather than by declaring a minimum price per unit. Let us look at both ideas.

If the law insisted that the minimum price per unit of alcohol were 45p it is assumed that the price of some cheap alcohol would have to rise. Note that a unit of alcohol is defined as 10 mL (or 8g) of pure alcohol. This is equivalent to a 25 mL measure of whisky (ABV 40%), or 250 mL of 4% beer, or 77mL of red wine (of 13% ABV). (Density of alcohol = 1.2674 mL/g, or 0.789 g/mL.)  So a litre of beer would then cost a minimum of £1.80 (in England, £2.00 in Scotland). But I have never seen beer at anything under £2.18 per litre, and never drink anything that costs less than £3 per litre.  The minimum price for a bottle of red wine would be £0.45 x 75 x 0.13 = £4.39 (for a wine of 13% ABV). While a bottle of whisky of 0.75 litres and 40% ABV would have a minimum price of £13.50. I am not a great buyer of whisky, but I believe this is close to the price I see in the supermarkets.

So the only effect of the minimum price of a unit being set at 45 pence would be that cheap red wine, which I can currently buy at £3.50 - £3.99 if I shop around, would rise to £4.39; with essentially no change in the price of beer or spirits. This innovation would affect me, and other drinkers of cheap red wine; and possibly some drinkers of very cheap larger if bought in a shop I have not yet discovered. (The effect in Scotland is considerably more marked, which may be why it is proving difficult to implement there.)  Another effect of the minimum price per unit of alcohol might be a small rise in the profits of the supermarkets.

Why have the Scandinavians opted for higher alcohol duty?  You might wonder what tax or 'duty' is levied on a unit of alcohol in England. That is not quite straightforward, for different beverages attract different rates of duty. I found the following data (Table 1) on the HMRC website for the rates of duty introduced at the March 2012 budget. Working on the understanding that 1£ per hectolitre is equivalent to 1p per litre; and that 1 litre of wine at 10% alcohol by volume (ABV) contains 100 mL of alcohol (i.e. 10  units), I calculate that the duty (in pence per unit of alcohol) varies from 9.78p  for very weak beer (strength < 2.9% ABV), to 19.51 p for normal beer (2.8% to 7.5%), to 24.39p per unit of strong beer (>7.5%ABV), to 25.33p for wine, to 26.81p per unit for spirits. Cider is still anomalous in that duty is only 10p per unit for most ciders. I expect that these difference for different beverages have origins in history; they do not make much sense. It seems to me that a small increase in alcohol duty might be just as good a way of achieving the health benefits, and at the same time increase tax revenue.

Table1 — Alcohol duty (http://www.hmrc.gov.uk/budget2012/ootlar-main.pdf)
Duty rate from 26 March 2012
Rate (£) per litre of pure alcohol
(i.e. 100 units); so p/unit
Rate (£) per hectolitre of product
or (p) per litre
Spirits
26.81

Spirits-based RTDs
26.81

Wine and made-wine: exceeding 22% alcohol by volume (abv)
26.81

Beer - lower strength: exceeding 1.2% - not exceeding 2.8% abv.
9.76
9.76 x strength (%)
11.7 – 27.3
Beer - General Beer Duty: Exceeding 2.8% - not exceeding 7.5% abv.
19.51
19.51 x strength (%)
Beer - High strength: Exceeding 7.5% - in addition to the General Beer Duty
24.39
(4.88+19.51) x strength (%)
Still cider and perry: exceeding 1.2% - not exceeding 7.5% abv
10.0 (if 3.768% abv)
37.68
Still cider and perry: exceeding 7.5% - less than 8.5% abv.
10.0 (if 5.655% abv)
56.55
Sparkling cider and perry: exceeding 1.2% - less than 5.5%abv.
10.0 (if 3.768% abv)
37.68
Sparkling cider and perry: exceeding 5.5%abv- less than 8.5% abv.
24.532 (if 10%)
30.66 (if 8%)
245.32
Still wine and made-wine: exceeding 5.5% - not exceeding 15% abv.
25.339 (if 10%)
19.5 (if 13%)
253.39
Wine and made-wine: exceeding 15% - not exceeding 22% abv.
22.5 (if 15%)
16.89 (if 20%)
337.82
Sparkling wine and made-wine: exceeding 5.5% - less than 8.5% abv.
24.532 (if 10%)
30.66 (if 8%)
245.32
Sparkling wine and made-wine: exceeding 8.5% - not exceeding 15% abv.
32.456 (if 10%)
25 (if 13%)
324.56

L. Cawstein
cawstein@gmail.com

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