Minimum Unit Price

A study by researchers at the University of Southampton has come up with the dramatic result that the median heavy drinker is paying 33p a unit for alcoholic drinks, whereas the median low-risk drinker is paying £1.10, so that almost all the effect of a Minimum Unit Price of say 50p would fall on the heavy drinkers.  That's encouraging for proponents of minimum pricing, but it doesn't address the question of whether heavy drinkers would respond to a price increase by cutting down how much they drink or by saving money on less important things such as food, clothes and lodging.

I ask myself what they're actually drinking for 33p a unit or less.  Since I last wrote about this, the government has abandoned its plans for a minimum alcohol price (in England and Wales), but banned via the licensing laws the sale of alcoholic drinks below the level of duty+VAT.

Duty on alcoholic drinks is not simple.  EU rules insist that whereas duty on beer and spirits should be proportional to alcohol content (or degrees plato), duty on wine and cider should be proportional to the volume of drink (with provision for different levels of duty for various bands of alcohol levels, and for sparkling drinks).  I don't know why this inconsistency has arisen, but I guess it's because they did what the Germans wanted for beer and what the French wanted for wine.

Following these rules, the UK's current levels of duty per unit of alcohol are:
- beer up to 7.5% ABV:    18.74 p
- spirits:                             28.22 p
- cider 7.5% ABV:              5.288 p
- cider 8.5% ABV:              7 p      
- wine 15% ABV:              18.22 p
- fortified wine 22% ABV:  16.56 p

For cider and wine, the duty per unit is higher if the strength is lower than what I've specified, because the duty is charged per volume of drink not per volume of alcohol.

Adding in VAT at 20% gives the minimum permitted price per unit.  I've compared these prices with the cheapest I could find in a few minutes' searching the internet:

	Lager	7.5 cider	13% wine	Whisky	Vodka
Duty+VAT per unit	£0.225	£0.064	£0.252	£0.339	£0.339
Cheapest price per unit	£0.325	£0.20	£0.307	£0.375	£0.381
Margin	£0.10	£0.136	£0.054	£0.036	£0.042

It's remarkable how cheaply it's possibly to make alcoholic drinks and bring them to market, so long as you spend no money on advertizing (the cheap drinks are all brands I'd never heard of), take the cheapest legal options in making them, and use the lowest cost retailers (Aldi, Iceland...).  Cider seems to be the most expensive of these cheap drinks to make - the regulations (since 2010) require at least 35% apple juice, and apple juice - even if it's imported pomace from eastern europe - is not very cheap.  However the duty on cider is so low that it's still easily the cheapest way to buy alcohol to drink.

If the government wants to make very cheap drink more expensive, I have a simple suggestion for it: increase the minimum apple juice content of cider.  Comparing the margins, I guess that at about 80% apple juice content cheap cider would cost as much as cheap lager (the experts can work out the exact level to achieve this).  Manufacturers would then have a choice of making cider in the way television adverts imply it's made - out of apples - and getting the low rate of duty which, I suppose, was intended to support that traditional process, or making it, as they mostly do now, with less apple and plenty of added sugar, and have it taxed as "made wine" - at wine rates.

Incidentally, the Scottish parliament passed a law imposing a minimum price of 50p a unit in May 2012.  Following legal challenges by the Scotch Whisky Association the law has been referred to the EU Court of Justice, so it's still not been implemented, and isn't likely to be in the next year or so.