Vary VAT on alcohol: a more palatable way to achieve minimum pricing?BMJ 2010; 341 doi: https://doi.org/10.1136/bmj.c6573 (Published 17 November 2010) Cite this as: BMJ 2010;341:c6573
- Nick Sheron, head of clinical hepatology, University of Southampton
The House of Commons Health Select Committee report early this year placed the overall cost of alcohol to the UK in the region of £20bn-£55bn (€24bn-€65bn, $32bn-$88bn), with perhaps 30 000 to 40 000 deaths and 863 300 admissions to hospital each year (www.publications.parliament.uk/pa/cm200910/cmselect/cmhealth/151/15102.htm). The report recommended that the government set a minimum price for alcohol of about 40-50 pence a unit, following a lead set by the independent Scottish Health Action on Alcohol Problems (SHAAP). SHAAP developed the policy in response to spiralling death rates as a clever workaround to the fact that the Scottish government did not have powers to increase duty on alcohol. The Scottish government then put forward legislation to introduce a minimum price per unit, but this proposal received a setback when the Scottish Parliamentary Health Committee split along party political lines to reject it.
In June of this year the National Institute for Health and Clinical Excellence published its long awaited guidance on the prevention of alcohol use disorders and again recommended the introduction of a minimum price per unit (http://guidance.nice.org.uk/PH24). It used evidence from a modelling study commissioned by the Department of Health that showed that a minimum price of 30 pence per unit would prevent 300 deaths a year, 40 pence about 1000, and 50 pence more than 2000 (www.dh.gov.uk/en/Publichealth/Healthimprovement/Alcoholmisuse/DH_4001740). Tackling the cheapest alcohol is an effective public health policy because people who drink very large amounts of alcohol tend to drink the cheapest possible. For someone consuming 15 units a week, the difference between 30 and 40 pence a unit is £1.50, whereas my patients with alcohol related cirrhosis consume a mean of 100 units, and in some cases up to 400 units a week—a difference of £10 and £40. This would have a substantial impact.
So minimum pricing works, but the UK government is not keen on the concept. It is sometimes difficult to decipher the reasons why governments don’t like certain policies, but civil servants have suggested that it may be related to a misunderstanding by the media and public that a minimum price would be a new tax on alcohol. In fact the increased revenue goes not to the Treasury but to the big supermarkets; not surprisingly Tesco is in favour of a minimum price. From the Treasury’s point of view it would get the blame but no financial gain. A view highlighted in a recent report by the think tank the Institute for Fiscal Studies, which accepted that the policy effectively targeted households that consume the most alcohol, but it also made the point that a minimum price of 45 pence could redistribute £700m from consumers to the drinks and retail industries (www.ifs.org.uk/publications/5286).
The UK coalition government’s proposals on alcohol include a ban on the selling of alcohol “below cost,” but it is not clear what “below cost” would mean in terms of price per unit. The drinks industry suggests that it means no selling below the cost of duty plus value added tax (VAT), which would give a minimum price for industrial white cider of 5.4 pence a unit. This beverage can be made from fermented corn syrup and the residue left over from pressing apple juice; the current mark-up is about 15-30 pence a unit and presumably includes a profit. No form of “below cost” ban can deliver a price of 40 pence a unit without swingeing increases in duty on alcohol.
The government in Westminster, unlike in Scotland, has the power to increase duty on alcohol and could deliver a price above the public health threshold. But this would increase the price of a pint in struggling country pubs. The ingenuous benefit of minimum pricing is that it would not affect prices in pubs; the average unit of alcohol in a pub already costs more than £1 and much more in many cases. Pubs are expensive to run and have to charge more for alcohol. As a result they pay more VAT, which puts the price of drinks up even further, but this also suggests a novel solution. There is a policy that would increase the minimum price of alcohol above the public health threshold; deliver all the increased revenue to the Treasury, where it can be used to help towards the £20bn-55bn annual cost of alcohol to UK plc; and would not increase prices in pubs.
VAT is already levied differentially on food and drink; more VAT is charged to drink coffee on the premises than to take it away. If this policy was applied to alcohol but was reversed—say, for example, reducing the VAT for on-sales from 20% to 12%—it would be possible to increase the rate of duty to compensate for this without increasing the price of alcohol in pubs. The figure⇓ shows the effect of such a change on typical pub and supermarket prices. When this proposal was suggested to the Treasury at a recent meeting they were not immediately keen on the concept of changing VAT but produced no concrete reason why it could not work.
Cite this as: BMJ 2010;341:c6573
Competing interests: The author is member of executive of the Alcohol Health Alliance UK and adviser to the House of Commons select committee report on alcohol earlier this year.
Provenance and peer review: Not commissioned; not externally peer reviewed.
From the bmj.com archive: News: Plan for a minimum price for alcohol in Scotland heads for defeat (BMJ 2010;341:c5267, doi:10.1136/bmj.c5267); Lobby Watch: The Portman Group (BMJ 2010;340:b5659 doi:10.1136/bmj.b5659); and Analysis: Failure of self regulation of UK alcohol advertising (BMJ 2010; 340:b5650, doi:10.1136/bmj.b5650).