Flawed arguments against minimum alcohol pricing in Scotland - blog by lifelinking

 




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Flawed arguments against minimum alcohol pricing in Scotland
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Posted 12-Sep-2010 at 02:19 AM (02:19) by lifelinking
Updated 12-Sep-2010 at 08:05 PM (20:05) by lifelinking

You may remember that the Scottish Government has introduced an amendment to the new alcohol bill proposing a minimum price of 45p per unit of alcohol. I was listening to Alexander Johnstone, Conservative MSP for North East of Scotland speaking in the Scottish Parliament this afternoon. In his speech he stated that his party accepts the connection between raising the cost of alcohol and reducing harm. Good for them.

He claimed however, that minimum pricing is a ‘regressive’ move that places more money in to the hands of drinks companies, rather than raising revenue for the public bodies that have to deal with alcohol related harm. The problem is however, as I highlighted in my previous blog Playing party politics with lives is shameful, that taxation based interventions still allow retailers to sell products at ridiculously low prices. This practice, of using alcohol as a ‘loss leader’, has become all too common. A loss leading product is defined in an Institute of Alcohol Studies briefing paper as:

Quote:
“A good which is priced low, possibly even below cost, to attract customers who are expected to buy other goods which yield a profit. The use of loss leaders can be profitable only if consumers are more conscious of the relative prices of some goods than of others. This may be so, if goods differ in how easily their quality is checked, and how frequently they are bought. Selling cheap goods about which customers are well informed may be used to attract custom for other goods on which they are less well informed, and can therefore be exploited.”
There is a friendly grocery store near to where I work, where you can buy milk cheaper than other shops on the high street. When I go there to buy milk to bring in to the office, I often pick up a few other items for myself. I know this shop is a bit more expensive for these items, but I am prepared to pay a little extra for the convenience of getting everything in one shop. Loss leaders work. But alcohol is not the same as milk. Alcohol is no ordinary commodity.


Treating this powerful central nervous system depressant drug as just another commodity to utilise as a loss leading product is massively irresponsible. And a revenue based system is simply not an effective way to deal with this practice. As I pointed out in my previous blog, this very issue was addressed in the briefing paper produced by the British Medical Association in Scotland, SHAAP (Scottish Health Action on Alcohol Problems) and Alcohol focus Scotland. As it states in that paper:

Quote:
An increase in alcohol taxation is not guaranteed to lead to an increase in alcohol prices as major alcohol retailers can and do absorb tax increases and even advertise the fact. Minimum pricing by contrast is a fixed floor that cannot be undercut by loss leading and below cost selling.
This, Mr Johnstone, is why your proposal is not as effective as minimum pricing. And if you really are concerned with loss of revenue, a practical measure would be to introduce minimum pricing and a levy on companies who profit by the measure, with the money raised being directed to front line services that have to deal with alcohol related harm.

A Labour Party Alcohol Commission report on this issue has been published and is mentioned in the online Holyrood magazine and in this articlefrom the BBC. I will seek out a copy of this report and comment in detail when I have read it in full. In the meantime I read in the Holyrood piece that the report calls for a:

Quote:
UK-wide approach to alcohol pricing, arguing that increases in duty should be the main lever for achieving price levels that will reduce consumption and misuse.
I have already outlined why a duty based system would be less effective than minimum pricing. But I must wonder in any case what chance we have of getting this proposed UK legislation passed with the Tory / Lib Dem coalition in Power? How long it will take, and how many Scots will be harmed while we are waiting? Mostly though, I wonder why Scottish Labour have taken this stance against a minimum pricing policy for Scotland, when it has been supported and recommended by bodies such as the British Medical Association and Alcohol Focus Scotland? I have suggested that this is because they are so attached to petty party politics, although of course there are other possibilities, such as having to kowtow to the United Kingdom Labour Party line, or bending to intense lobbying from the drinks industry. Maybe it is a combination of them all. With this in mind I will now look more closely at the report from the Centre for Economics and Business Research (CEBR), that was commissioned by SABMiller plc, as mentioned in my previous blog. In the executive summary from the CEBR report we find the following paragraph:

Quote:
The key rationale put forward by proponents of minimum pricing is that it would target heavier drinkers and younger drinkers, as these drinkers tend to consume stronger and cheaper products. The evidence presented in the University of Sheffield report suggests that heavier drinkers do tend to pay less per unit of alcohol than moderate drinkers, but it also actually suggests that younger drinkers spend more per unit of alcohol than the average moderate drinker.
Closer examination of the Sheffield research reports (which can be accessed in full from this page) shows that the rationale behind minimum pricing is wider and more carefully considered; and findings relating to younger drinkers are more nuanced, and go in to much greater depth, than the highly selective CEBR comment suggests. Thus for example in the ‘Independent Review of the Effects of Alcohol Pricing and Promotion: Part B - Modelling the Potential Impact of Pricing and Promotion Policies for Alcohol in England: Results from the Sheffield Alcohol Policy Model Version 2008(1-1)’ (Page 2) we read:

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The aim was to model the potential implications of changes to current policies, especially the population-based impact on health, crime, and wider economy, again for the population as a whole and also with a focus on:

• young people under 18 who drink alcohol
• 18-24 year old binge drinkers
• harmful drinkers whose patterns of drinking damage their physical / mental health or causes substantial harm to others.
The authors of the Sheffield report make a clear distinction between quite different groupings of young people that they wish to focus on. Groupings that we know have distinctive and quite different patterns of drinking behaviour. A harmful drinker is not always a heavy drinker. Further on in the same Sheffield report (Pages 6-7) one finds:

Quote:
Lower minimum prices affect beers and spirits more than wine. Higher minimum prices reduce switching effects. Minimum prices targeted at particular beverages are less effective than all-product minimum prices, and only minimum prices for beer show noticeable effects. Differential minimum pricing for on-trade and off-trade leads to more substantial reductions in consumption (30p off-trade together with an 80p on-trade minimum price -2.1% versus -0.6% for 30p only; 40p together with 100p -5.4% compared to -2.6% for 40p only). This is firstly because much of the consumption by younger and hazardous drinking groups (including those at increased risk of criminal offending due to high intake on a particular day) occurs in the on-trade. It is also because increasing prices of cheaper alcohol in the on-trade dampens down the behaviour switching effects when off-trade prices are increased.
Again the authors take care to point out the interplay between different types of pricing policy and differences between the ‘on-trade’ (pubs and clubs) and the ‘off trade’ (alcohol sold for consumption off the premises from retail outlets). The under 18 drinker is far less likely to be a consumer of the ‘on trade’, and more likely to be sourcing the cheaper alcohol from off sales retail outlets, often obtained through agent purchase. It is the older, 18 to 24 ‘binge’ drinkers who will be the ones paying the higher prices involved in drinking in pubs and clubs (where of course one finds drink promotions targeted specifically at attracting their custom). Moving on in the CEBR report executive summary, we find reference to the situation in Canada where minimum alcohol pricing has been operating in a number of provinces.

Quote:
Despite the fact that minimum alcohol pricing has operated in eight out of the ten Canadian provinces since the 1990s, and that proponents of minimum pricing often cite it as an example of the success of the policy, surprisingly little academic research has been undertaken which measures the effectiveness of the minimum pricing policy in Canada. We have attempted to source data which would enable us to undertake such analysis, but unfortunately have not be {sic} able to locate publicly available data on alcohol pricing levels over time in the different Canadian provinces.

We have instead undertaken some graphical analysis of Canadian alcohol consumption, crime and health data. This analysis shows that there has been a marked response in consumption patterns, with provinces that have introduced minimum pricing seeing below trend growth in consumption levels, whilst provinces which have not seeing above trend alcohol consumption growth levels. The data on crime and health is largely inconclusive, but may merit further research.
Later on in the report (P23) this situation is described rather more clearly:

Quote:
The data shows that alcohol consumption in provinces that have instituted minimum pricing has fallen relative to those that do not have a minimum pricing regime. Figure 3.1 shows that there is a clear break through the 1990s where the pre-minimum pricing position of higher consumption in the eight minimum pricing provinces is reversed. After 1998, consumption growth in non-minimum pricing provinces increases significantly above minimum pricing provinces.
There is no disagreement here that minimum pricing leads to lower consumption. The report goes on however, to question how great this effect is and what the wider costs and benefits are. Returning to the executive summary:

Quote:
One of the key factors that will influence the effectiveness of minimum pricing as a policy is the extent to which drinkers, and particularly heavier drinkers, are influenced by changes in the price of alcohol in their consumption decisions.
I observe that the authors of the CEBR report again oversimplify the situation. Would a minimum pricing policy stand or fall on the extent of its influence on heavier drinkers alone? I suggest that the influence on those who are not necessarily drinking so heavily overall, but whose patterns of drinking are still harmful, would be just as important. See for example evidence statement 13 on Page 226 of the University of Sheffield Report for the Department of Health September 2008: Alcohol pricing and promotion effects on consumption and harm The Independent Review of the Effects of Alcohol Pricing and Promotion, Part A: Systematic Review Project.'

Quote:
There is consistent evidence to suggest that alcohol consumption is associated with substantially increased risks of all-cause mortality even in people drinking lower than recommended limits, and especially among younger people.
Returning to the CEBR executive summary, the focus on heavier drinkers continues.

Quote:

• Overall, consumption of alcohol products appears to be price inelastic – this means that a 10 per cent increase in price will typically lead to a less than 10 per cent reduction in consumption
• Heavier drinkers appear to be more responsive to price changes of individual alcohol products than moderate drinkers, as they are more likely to switch between different types of alcohol product to maintain alcohol consumption levels
• However, when overall alcohol consumption levels and prices are taken into account, heavier drinkers are less responsive to price changes than moderate drinkers. The University of Sheffield study estimates that hazardous and harmful drinkers have a price elasticity of -0.21 across all alcohol products – this implies that a 10 per cent increase in price would only lead to a 2.1 per cent reduction in consumption amongst heavier drinkers
• This means that pricing legislation is unlikely to have a significant impact on overall consumption levels of those drinkers that it is intended to target, unless price increases are set at very high levels, which would place an unfair burden on moderate drinkers
These points are worth addressing in detail. To begin with the fact that consumption is price inelastic, does not mean that any actual reduction in consumption will be ineffective in achieving benefits such as health gains. Alcohol switching is of course, something that we see regularly. I would observe however that with the minimum price per unit changes proposed for Scotland, the user would never be able to switch to something offered below that price, unlike the situation just now where the heavy drinker may seek out whichever ‘special deal’ offers the highest amount of units for their money, often at prices where the trader is actually making a loss as I described earlier. The points regarding a 10 percent increase achieving only a 2.1 percent reduction in consumption is disingenuous in the sense that the proposed minimum price of 45 pence per unit would achieve a considerably higher percentage increase in price for those products that are currently the cheapest. The idea of this being an ‘unfair burden’ on moderate drinkers is of course, a moot point.

The CEBR executive summary (P5) then focuses on the Sheffield study, asserting that the findings with regards to reductions in consumption for ‘harmful and hazardous’ drinkers may be out by a factor of two, and the:

Quote:
“resultant modelled estimates of reductions in health, crime and workplace harms – the benefits of increased alcohol prices – are also over-estimated by a similar order of magnitude”.
For hazardous drinkers the figures that the CEBR refer to here are differences in estimates of price elasticity between -0.47 and -0.21 to -0.28 (P38). In other words between a 4.7 percent reduction in consumption and a reduction of between 2.1 and 2.8 percent, that may apply. Note the assumption that there is a simple linear relationship between consumption and harms. When one is considering the many different types of harm that may arise from intoxication, regular use or dependency such a simple relationship is by no means a given.

On Page 5, the CEBR Executive Summary sets out an economic case against minimum pricing as follows.

Quote:

Specifically, we have found that if minimum pricing at 50 pence per unit was introduced:

• Consumers would end up paying almost £1.8 billion per year more for alcohol products – the equivalent of £68 per household per year
• Consumers would also lose out by the equivalent of an additional £1.2 billion per year in lost ‘consumer welfare’ (satisfaction from drinking)
• The value of benefits of improved health and job prospects for individuals would be less than £0.8 billion per year
• The savings to wider society including NHS and policing costs and costs to victims of crime would only be around £200 million per year
• Therefore the net economic cost of minimum pricing (excluding impact on firms) would be around £2 billion per annum
• The only significant beneficiaries from minimum pricing would those involved in the distribution or production of alcohol - suppliers, retailers or producers. Our initial estimates suggest that overall supplier, retailer or producer profitability would increase by between £1.8 – 2.2 billion per year if minimum pricing at 50 pence per unit was introduced in Great Britain. A proportion of these profits would go to overseas agents.
Even if one accepts the figures presented here in the CEBR report (and without examining detailed information about how they derived these figures I reserve judgement on this), there is a most glaring omission in the case they have presented. If in setting out the costs and benefits of minimum pricing it is admissible to include an economic cost for lost ‘consumer welfare’, then it logically must be admissible to include the economic benefit of gains in ‘social and personal welfare’ for individuals.

We have become used to economists placing a monetary value on all sorts of things. So it is not an entirely alien concept to us that we might well ask people who enjoy drinking to place a monetary value on the financial worth to them of the satisfaction they derive from it, and make a generalised economic estimate of equivalence based on this. But on this premise, if it is valid to set out an equivalent value for lost consumer welfare it must surely be valid to set out equivalent value for improved social and personal welfare.

We might ask people to place a financial worth on not being bereaved by the loss of a loved one who dies from an alcohol related disease or getting knocked down while walking home drunk. We may ask how much it is worth to save a relationship, or not to see a friend or relative suffering from alcohol related brain damage. Questionnaire questions could include how much is the feeling worth of being able to buy a birthday present for your daughter because you have not spent the money on drink? What value would you place on not getting a smack in the face from a drunken partner? What would you pay to have had a great time with friends instead of spewing down the toilet all evening, or even just remember what you did last night? What would it be worth to you not to have had unprotected sex, not to have caught a sexually transmitted disease, not to have to deal with an unwanted pregnancy? How much would you pay to not have drunk youngsters running around outside in the street, or to be able to enter your block of flats without smelling stale urine?

These things would all have an equivalent cash value for the people concerned, if you were to ask them. The list is by no means exhaustive, but I am sure you get the idea. The authors of the CEBR report must realise that unless they include the equivalent value for the benefits of improved social and personal welfare, their sums simply do not add up. But of course, their sums don’t really have to add up.

As their disclaimer says:

Quote:
Whilst every effort has been made to ensure the accuracy of the material in this document, neither centre {sic} for economics and business research ltd nor the report’s authors will be liable for any loss or damages incurred through the use of the report.
My constituency MSP and Shadow Cabinet Secretary for Health & Wellbeing Jackie Baillie has still not afforded me the courtesy of a reply regarding this matter. I have emailed her again.
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  1. Old Comment
    Gurdur's Avatar
    Great post, going to tweet this on Monday.
    Posted 12-Sep-2010 at 04:42 PM (16:42) by Gurdur Gurdur is offline
  2. Old Comment
    A very good post, and I believe this is an important topic and campaign.
    Posted 12-Sep-2010 at 06:30 PM (18:30) by Revsimmy
  3. Old Comment
    lifelinking's Avatar
    Thank you for the supportive comment Revsimmy. I believe this is important too.
    Posted 12-Sep-2010 at 06:56 PM (18:56) by lifelinking lifelinking is offline
  4. Old Comment
    Gurdur's Avatar
    Scheduled as tweet to go out in a couple of hours.
    _____

    Flawed argument against minimum alcohol pricing in #Scotland, by Lifelinking http://bit.ly/bvn5Rm #ukpolitics #alcohol #SHAAP #CEBR #pricing
    Posted 13-Sep-2010 at 12:48 PM (12:48) by Gurdur Gurdur is offline
  5. Old Comment

    .....

    just wanted to say rubbish!!! jk!!!
    V.good answerd most of my questions
    Posted 17-Mar-2011 at 07:06 PM (19:06) by Unregistered
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