Price of Intoxication: The Case for a Minimum Price for Alcohol

by Lila Rabinovich

October 30, 2009

History is full of attempts to curb the scourge of drunkenness, some more successful than others. But if ever there was a scheme that might reduce excessive alcohol consumption while causing minimal social and economic disruption, a minimum price on alcohol may be it.

Both the English and Scottish governments have expressed interest in introducing laws setting a minimum price—perhaps 40 pence per unit of alcohol—for all alcoholic beverages. Compelling research from the University of Sheffield has found that setting a minimum price could save the taxpayer millions of pounds every year in health, criminal, and other costs, and prevent thousands of premature deaths.

While a policy that holds such promise seems very sensible, foes have attacked it from many angles. Their arguments, however, are weak and ignore the accumulating evidence.

Among the more spurious objections is that high prices haven't reduced alcohol consumption in other countries, such as Sweden. Yes, alcohol prices and taxes are high in such heavy-drinking countries as Finland, Sweden, Ireland, and even the UK—but incomes are even higher. What matters is the affordability of alcohol—and across Europe, drink is far more affordable now than it was 15 years ago, research by the public policy research institution RAND Europe has found. Incomes have shot up about 50% in the UK, but alcohol prices have fallen 10% relative to other goods. The result: If you could afford 10 pints a week in 1996, today you could guzzle 16.

Some say this problem is better dealt with by increasing alcohol taxes rather than setting a minimum price on a drink. The problem is that alcohol retailers do not necessarily pass the taxes on to consumers. If tax increases are not passed on, the price of alcohol doesn't go up and consumers—including problem drinkers—keep drinking the same amount as always. Also, alcohol taxes may hit moderate and problem drinkers equally.

Minimum pricing, however, guarantees increases in prices. It also makes cheaper drinks—the kind favored by problem drinkers—more expensive, without penalizing others.

Contrary to some of the clamor, decreased consumption wouldn't actually hurt alcohol retailers. That's because consumer spending would actually increase. If the minimum price were 40p, consumption is estimated to drop by 2.7% while overall spending would increase by 3% to 4%. Retailers get to pocket the difference— an estimated £90 million a year.

Other critics complain that making alcohol more expensive won't do anything to cure the culture of drinking, or the poverty and deprivation that underlies much alcohol abuse. They are right. The only thing that will alleviate poverty is programs that target poverty. But in the meanwhile, setting a minimum alcohol price will reduce the harm that is done to the poor—and to the rest of society—by excessive drinking.

Finally, a few naysayers have branded the bill anticompetitive, and suggested that the European Court of Justice may strike it down. We cannot know for sure. However, within the country implementing minimum pricing, all alcoholic beverages would be treated equally, regardless of whether they are domestic or imported, sold by the gallon in a discount supermarket or sipped in a pricey pub. Retailers can price their product as competitively as they like— just not below the minimum price.

A minimum price on alcohol will not be a panacea. But the evidence suggests it is likely to significantly improve public health and social welfare. For that reason, the Scottish government plans to introduce a minimum pricing law this year. The experiment is well worth trying. Governments across Europe will be watching to see if its results live up to its promise.

Lila Rabinovich is a researcher at RAND Europe, a nonprofit institution that helps improve policy and decisionmaking through research and analysis.

This commentary originally appeared on on October 30, 2009. Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.