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

"The Money Masters" & Positive Money

"Alarmist and naive, but a useful stimulus to thought"

"The Money Masters" is a 3.5 hour long documentary film made in 1996, narrated and largely written by William Still. It can be viewed online. It is alarmist and naive, but a useful stimulus to thought It exudes an aura of paranoid conspiracy theory, arguing that the money masters of the title, by the trick of 'fractional reserve banking', have won for themselves an unshakable grip on the entire power structure of the USA, from the banks and the money supply to the press; a power so great that Congress simply eats out of their hands. It is well researched and highly informative; I tend not to doubt the purely factual material it presents, but I do question the interpretation, the slant, the innuendo, the guesswork.

Major targets of the argument are: 'fractional reserve banking', our debt-based money-supply, and the business cycle (which is seen as a cynical device of the bankers to strip assets off the indebted). It is argued that the bankers' practice of lending out 10 (or 30) times as much money as is deposited with them allows them to charge interest on money that does not exist, except as debt. Their profit is seen as 10 (or 30) times as big as it should be. Admittedly, you and I could also operate this system, so interest rates should be fairly competitive. And people deposit money with banks as well as borrow from them, so it is the difference between borrowing and lending rates that provides the bank's profit. But there may be a point here to which I shall return.

The argument that Still has with a debt-based money supply is that if the banks wish to call in their debts (which they can do when these fall due for repayment) the economy finds itself in a recession simply because there is not enough cash in the system. By why would they do that if lending is where they get their profit? If they are really devious (it is argued), they might want to beggar some clients into forfeiting their collateral — so called 'predatory lending'. The 'Colonial Scrip' system of pre-revolutionary USA is held up as superior and quasi-ideal; a paper money system where 'fiat' money issued by the government can be used to pay for all goods and services in the absence of gold. A foolish government could (of course) issue too much 'Scrip', which would cause inflation, just as too little would cause deflation. Before the revolutionary war, Benjamin Franklin believed the amount of 'Colonial Scrip' was appropriate to the population. Or the needs of the population, for, as the population got wealthier, and bought carriages as well as bread, there would need to be more Scrip in circulation. William Still believes that this superior system was anathema to the Bank of England, and that the Bank had enough power in England to ban the printing of Colonial Scrip in the colonies.

However, it seems more likely it was the British merchants who did not want to be paid in a devaluing paper currency. The Currency Act of 1764 banning Scrip certainly produced tight money, economic depression, and enormous indignation; a major cause of the revolution. There seems no reason why our present government should not snap its fingers at the banking lobby and issue 'government scrip', if it wants; except that governments fear inflation. That is almost exactly the position we are in today. The Government wants banks to lend, so they give them cash; but the banks still do not lend, because we (the public) do not want to borrow. So our Government is teetering on the brink of issuing 'helicopter money' to all citizens so they can start buying things and re-launching industry. The hitch (presumably) is a doubt as to what would be purchased — our produce, or that of foreigners. There seems today to be a general consensus that the present system, whereby the money supply adjusts itself, is preferable to the Scrip system. Cash is added to the system in the weeks before Christmas and withdrawn again in February.

Alexander Hamilton (the force behind the creation of  America's first central bank of 1791, modeled on the Bank of England) is seen (by Still) as a "tool of the international bankers" (e.g. Rothschild); which seems hardly fair. I do not know why President Andrew Jackson was determined to abolish the second US central bank, perhaps because it operated an inflexible money supply, but bank-president Biddle reacted most unwisely. He seems deliberately to have induced a national depression by withdrawing money in an attempt to coerce President Jackson. The furious nation supported Jackson, and the bank was abolished. The United States had no central bank between 1836 and 1913. The present 'Fed' is a cumbersome, complex, subtle and typically American device, incorporating the sort of checks and balances (e.g. between private and state, banker and politician) seen in other US institutions. It seems to work well for the most part, and shows an ability to change in response to financial and political demands. Fed profits are paid to the Government.

Positive Money is a British pressure group that has worked very hard over the last 3 years to bring us to an understanding of how the evils of fractional-reserve banking and debt-based money supply have contributed to the financial instability of the last 5 years. Does that sound familiar? Its thrust seems like an updated British version of the same general argument as "The Money Masters". Once again I am sincerely grateful for the research, well-meaning effort, and clarity with which Positive Money has stimulated my own thinking (See Blog). Together with Richard Werner and The New Economics Foundation, Positive Money has made a submission to the Independent Commission on Banking, advocating not just a ring-fence but a complete separation into two types of bank; type [a] with full-reserve banking, no interest, but fees, and used for paying and receiving money; type [b] for receiving deposits and making loans.

Whatever the merits of the Positive Money submission, I do not see it getting anywhere as it is too radical; it will not appeal to the bankers, and the politicians will not sufficiently understand its merits. But what are its merits? At present, most of us keep only enough money in a 'current account' to defray expenses till the next income cheque. We are happy to rely on the Government guarantee that we shall not loose our money in the event of a bank crash. There seems to me no pressure to move to an [a]-type bank except to deny the bankers the privilege of using our money while it is in their hands. We enjoy 'free banking' because the banks make sufficient profit from lending out our money. By contrast, we would have to pay for the [a]-type bank. If the [b]-type bank deposits were not underwritten by the Government's £80,000 guarantee there would still be much grief in the event of bank failure, and the Government would probably have to step in after all. So no change. Banks would still lend happily against the collateral of a house, so favouring non-productive loans, as at present. So, I doubt there will be much serious discussion of the Positive Money submission.

I see one issue to be 'fractional reserve banking', and a second to be 'asymmetric risk'. The pressure on bankers to over-lend is what brought about the recent sub-prime mortgage debacle. So we must reduce the temptation to make risky loans. And increase the penalties for bad loans. There seems to me to be no reason why banks should keep the interest when they lend money they do not own. So my first simple suggestion is that the tax rate on profits from lending should be related to the capitalization of the bank. When a bank lends 10 times its capital, 90% of the interest it receives should be taxed away, leaving it only 10%. If it lends twice its capital, it retains half the profit. Simple!

It may be objected that when a bank lends out money, albeit money that it does not own, it runs the risk of not getting it back, and the interest is the compensation for that risk. That argument fails if the banks are bailed out by the state.

Banks operate to match loans to clients. If a loan defaults, the bank must certainly loose its share of the loan (10% or 50% in the above examples), but maybe should bear a stiffer penalty. The 19^th century mechanism was to let the over-extended banks fail, and then to lock up the board of directors for debt. That worked well enough to inculcate 4 generations of prudent banking and 130 years without a serious bank run; but the hardship to thousands of innocent depositors is now regarded as intolerable, and governments tend (it seems) to step in to supply the missing money. Fine, but I see no reason why the insolvent/imprudent bankers should escape, as they seem to be doing. Have any gone to prison? Has anyone drawn up a list of directors who would now be bankrupt were it not for the state's intervention? Or a balance sheet of the money that must be repaid to the public by the banking sector, bank by bank? This failure is not only unjust, the risk-asymmetry is very dangerous. Gambling for the bank is (currently) a case of "heads I win, tails you lose". An idiotic situation. The money must be recovered, however long that takes.

So my second simple suggestion is like the first: "tax or fine the banks".

L. Cawstein
cawstein@gmail.com

Centrica's Profit

"Too much mucking around will raise the spectre of ENERGY NATIONALIZATION. Or so it jolly well should."

We heard today (27^th Feb 2013) that Centrica (the giant energy company) has shown a healthy profit in preliminary results for the year 2012. Profits are up 11% on the previous year. Centrica's share price has risen over the last 12 month by a similar 11% (trading today at £3.50). So it would seem that shareholders are expecting to see a similar rise in their dividends. But should they?

Customers were asked to pay an extra 6% for their fuel in 2012 (c.f. 2011) in the face of flat or falling cost of energy feedstocks (gas, coal and oil). Admittedly, at the beginning of 2012 the management of Centrica may not have known that feedstocks would come down, for they rose the previous year. But feedstock prices did fall. So what do we do now; pay back the excess profit to the customers? Ha! Is that likely, when all those 5.2 billion shares each carry one vote, unless some wiser heads are heeded?

Part of the argument for the 6% price hike to the customer was the need to invest (in the near future). So we should see NO INCREASE in dividend (beyond 2% inflation), and all that profit kept in the company. Ha!  That also is most unlikely in the face of those 5 billion voting shares, unless wiser heads prevail.

For your benefit I have dug out the price of crude oil and natural gas over the last few years.

Table 1

All prices in US$. Germany Natural Gas Border Price (GNGBP). (http://ycharts.com/indicators/germany_natural_gas_border_price)

Oil prices quoted for Brent Crude (BC), and West Texas Intermediate (WTI)

http://oil-price.net/dashboard.php?lang=en#brent_crude_price_large

Year	GNGBP	BC	WTI
Feb 2013	410	113	93
Feb 2012	440	115	105
Feb 2011	329	110	100
Feb 2010		85	90

  

L. Cawstein
cawstein@gmail.com

NHS Mission Creep

MISSION CREEP IN THE NHS

Where does one draw the line?

I was dismayed at the news this morning that there is a recommendation form the National Institute for Clinical Excellence (NICE) that the age range for IVF treatment for infertile women free on the NHS be extended upward from 39 to 42.  Is this justified, at a time when we are trying unsuccessfully to contain the demands on the public purse? Our precious NHS is being dismantled by realists simply because it has failed to find a way of curbing the ever-upward growth in overall cost. Perhaps these revised recommendation are ill-timed; perhaps even ill-considered.

For that was not the only change, as I read in the Independent; NICE also recommend that IVF treatment be offered free to women in same-sex marriages, and after 2 years (instead of 3 years) of 'trying' for a child by other means ('normal' or intrauterine). These changes will surely increase the cost to the NHS if adopted. One other recommendation reported in the Independent seems fiscally neutral and based entirely on medical considerations; namely it is suggested that the practice of inserting multiple embryos is dropped, as there are increased risks to mothers carrying twins.

This brings sharply into focus the question of the role of NICE — is this body concerned entirely with the question of "best clinical practice", or does it have a role in determining "value for money"? Is it telling us that a 41 year old woman can carry an embryo essentially as well as a 39 year old — a clinical question? Or is it trying to tell us what we can afford, or what we should afford if we can afford other treatments. I can see that a bunch of clinicians can (and perhaps should) tell us that there is as much human distress at childlessness as there is at dying aged 70 from a preventable cancer. But is that what they are saying?

Then there is the data to consider. Currently it is recommended that the prospective mother be offered 3 cycles of IVF treatment, each costing £3,000, though not every health authority can afford that. If success rates are rising, perhaps 2 cycles would sufficiently test the ability of the parent to carry to term.  I.e., is the 3^rd cycle success rate the same as those of the 1^st and 2^nd cycles? If its success is lower, it is a waste of money.

If a couple desperately want a child, perhaps they should go about it in the proper way; i.e. 'try' for two years before the age of 35. If that does not work, we could perhaps offer free IVF for 1 year. After that they can continue IVF but should perhaps pay. If they postpone 'trying' till 36 or 40, they should be deemed not that serious, and expect to pay. But that would be unfair unless made clear to couples in good time.

(See also https://ianwest2.wordpress.com/2013/02/15/the-trap-whither-our-freedom-and-values/)

L. Cawstein
cawstein@gmail.com

Programme Notes Sterndale Bennett

This programme, which provided an opportunity to hear some less frequently played works of the 19© piano repertoire, contains a linking theme: Mendelssohn complimented, and received a tribute from the young Englishman William Sterndale Bennett, who himself received a tribute from Robert Schumann. Another Englishman (Sydney Smith) also paid homage to Mendelssohn a generation later.

Rondo Capriccioso in E major, Op. 14  —  Felix Mendelssohn (1809 – 1847)

Mendelssohn was remarkable for the excellence of his teenage compositions, such as the miraculous octet (1825), the opus 13 quartet (1827) and this popular Rondo (written between 1824 and 1829). It is almost as though his more structured, intellectual, and aesthetically perfect work came to him when he was learning his craft, and before the full flowering of the romantic vein with which his name is inextricably linked. The rondo itself (Presto) seems to have been completed around 1828, but in 1830 it was published in its present form with the introductory Andante. In 1835 Mendelssohn moved to Leipzig to conduct the Gewandhaus Orchestra. There he founded the Conservatoire that became (perhaps) the most famous in Germany. He himself rarely took pupils and only when he saw genius or potential; among these were the composer William Sterndale Bennett, and the pianist Camille Stamaty.

Piano Sonata in F minor, op. 13  — William Sterndale Bennett (1816 - 1875)

i. Moderato Espressivo,  ii. Allegro Agitato,  iii. Moderato Grazioso, iv. Presto Agitato

In 1833 the 17 year old Bennett played his first piano concerto to the King in Windsor castle and again in London. Mendelssohn was in the audience. He befriended the youth, and invited him to come to Germany to study and develop his talent, first in Düsseldorf and later in Leipzig. At one point Mendelssohn said of Bennett: "I think him the most promising young musician I know…". Bennett made several trips and spent many months at a time in Germany, meeting among others Robert Schumann, with whom he spent much of his free time in terms of easy familiarity. This opus 13 sonata was completed at the end of such a visit in 1837 and was offered to Mendelssohn as a wedding present on his marriage to Cécile Jeanrenaud. Not surprisingly the work shows traces of  both Mendelssohn and Schumann. Back in England, marriage (1844), teaching (London and Cambridge universities) and administration (Royal Academy) took up much of the rest of his life.

++++++++     Interval of 20 minutes     ++++++++

Etudes Symphoniques, op. 13     —————    Robert Schumann (1810 – 1856)

In 1837 Schumann dedicated this work to Sterndale Bennett (who replied with his opus 16 Fantasy, dedicated to Schumann). The work stems from 1834 when Schumann was living in the Wieck household and secretly engaged to Ernestine von Fricken, a fellow pupil under Friedrich Wieck (whose daughter Clara eventually became Robert's wife). Ernestine's guardian, Baron von Fricken, had composed a theme and variations for flute and piano. Schumann wrote 16 variations on the Fricken theme, though before its publication as opus 13 in 1837 these were trimmed to 9 variations on the Fricken theme, two new studies and a brilliant finale based on a theme from a Marschner opera itself based on Scott's 'Ivanhoe'. This represented (in Schumann's mind) a compliment to his young Yorkshire friend W. Sterndale Bennett. Why 'Studies'? Because they each tackle an issue of technique. Why 'Symphonic'? Perhaps because of the greatness and orchestral nature of the conception.

Theme - Andante	Etude 7 (Variation 6) - Allegro molto
Etude 1 (Variation 1) - Un poco più vivo	Etude 8 (Variation 7) - Sempre marcatissimo
Etude 2 (Variation 2) - Andante	Etude 9 - Presto possibile
Etude 3 - Vivace	Etude 10 (Variation 8) - Allegro con energia
Etude 4 (Variation 3) - Allegro marcato	Etude 11 (Variation 9) - Andante espressivo
Etude 5 (Variation 4) - Scherzando	Etude 12 (Finale) - Allegro brillante on
Etude 6 (Variation 5) - Agitato	Marschner's  " Du stolzes England freue dich"

 

Reminiscences of Mendelssohn's Piano Concerto in G minor —  Sydney Smith (1839 - 1889)

This once popular but now forgotten piece reminds us that in 1873 there were no gramophone records, few orchestras, but a great many pianos; most people would only encounter Beethoven symphonies, Verdi operas and Mendelssohn concertos, in the form of piano transcriptions. Sydney Smith, born in Dorchester as the grandson of a professor of piano, and the son of a noted violinist, was (like Arthur Sullivan) sent at the age of 16 to study for 3 years at the famous Leipzig Conservatoire, where he studied piano, cello (and no doubt composition). On returning to England he set up in London as a piano teacher giving regular concerts with his pupils. His transcriptions and original compositions (over 400 in all) became enormously popular throughout the English-speaking world, being effective without being enormously difficult. (The present work is by no means easy, combining as it does the solo piano and the orchestral material.)  Incapacitated by illness, he died in poverty.

L. Cawstein
cawstein@gmail.com

Altruism

How rare is the inclination to help others at expense to oneself?

I had an interesting exchange recently with a prominent scientific journalist. I raised the possibility that our western neo-liberal capitalist society might be deteriorating in one particular regard, namely in what I called 'Altruism'. I meant more or less what David Hume refers to as 'Beneficence'; acting to the benefit of others than oneself. (Benevolence is the emotion that leads to beneficence.)  I was corrected. 'Altruism' (in the evolutionary context of the present discussion) refers to a behaviour that is to the benefit of another, but to the detriment of the doer. It can evolve by Darwinian selection under certain conditions, essentially if the benefited others are kin.

I therefore suggested that paying taxes could be described as altruistic in that narrow sense. But, replied my correspondent, we only pay taxes because of the force of the law; altruism, he suggested, is very rare.

Not so, I countered; except possibly in the present century, for it was not rare in the 19^th and 20^th centuries. In Britain in 1834, did we not pass The Poor Law Amendment Act through both Houses of Parliament? Can I not claim therefore that approximately half of the voting public voted up their own taxes because they could not bear the sight of people starving in the streets. Likewise, between 1870 and 1893 the Houses of Parliament passed the Elementary Education Acts because they saw the benefit of educating not only their own, but also their neighbour's children. And the National Health Service Act 1946 (1947 in Scotland) was surely another great testament to the power of benevolence to move the majority of the elected House of Commons to an act of charity that harmed the middle class to the benefit of the less well off.

The motives behind beneficence are complex, and no doubt include coercion, self-love, fear of contempt, as well as the sympathetic ability to feel the pain of other people. But to yield voluntarily to these promptings is beneficence, and if at a personal cost it is altruistic.

I was left wondering if something had changed in the last 30 – 40 years that had modified those subtle conditions that allowed the evolution of altruism. Perhaps greater all-round wealth and the general absence of hardship, have allowed us to forget the benefits of co-operation. Perhaps harsh climates foster egalitarian socialism, while global-warming and Mediterranean holidays nourish selfishness.

(See also https://ianwest2.wordpress.com/2013/02/15/the-trap-whither-our-freedom-and-values/)

L. Cawstein
cawstein@gmail.com