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What do we know about setting a floor price for alcohol?

Whether we should have a floor price for alcohol is in the news.

According to the analysis below, republished from the Parliamentary Library’s FlagPost blog, the evidence strongly suggests that this would save lives and reduce health care costs, but there would be many political and logistical challenges involved.

Meanwhile, let’s not forget longstanding recommendations from a variety of groups to introduce a rational, consistent basis to alcohol taxation, via a volumetric system of alcohol taxation (ie to tax according to alcohol content).

***

Reducing deaths and harm from alcohol

Matthew Thomas writes:

There are indications that the Government is considering introducing a nationwide floor price (or, minimum unit price) for alcohol.

Such a mechanism would make it illegal for a retailer to sell alcohol below a certain price per standard drink. The move appears to be primarily in response to the problem of cheap cask wine and its contribution to alcohol-related harm in Indigenous town camps in the Alice Springs region.

Minimum unit pricing has not yet been implemented anywhere in the world, despite the Scottish Government’s recent attempts to introduce such a scheme. In 2008, in response to evidence of significant and increasing alcohol-related harm in Scotland, the Scottish Government set about developing a comprehensive framework for tackling alcohol misuse.

As part of a package of measures, the government introduced a proposal for a minimum price on alcohol. On 25 November 2009, following extensive consultation, Scotland’s Health Minister, Nicola Sturgeon introduced a Bill that would have ensured that alcohol could not be sold below a minimum price per unit to be specified by Scottish Ministers and subject to the control of the Scottish Parliament.

Despite strong support for minimum pricing from a range of health organisations and campaigners, the proposal was rejected by Scottish Labour, the Liberal Democrats and the Tories. When the Bill was ultimately passed on 15 December 2010, the minimum unit pricing measure was not included.

There is well regarded research evidence to suggest that minimum unit pricing could prove successful in reducing alcohol consumption and harm. In 2007, Sheffield University researchers were commissioned by the UK Government to conduct an independent national review of evidence on the relationship between alcohol price, promotion and harm.

The alcohol pricing and promotion policy options appraised included across-the-board price increases, policies setting a minimum price per unit of alcohol (floor prices) and policies restricting price-based promotions in the off-trade sector (such as banning ‘buy one, get one free’ offers).

In keeping with existing international research findings, the study found that general price increases were effective in reducing alcohol consumption, health-care costs, and health-related quality-of-life losses in all population subgroups.

Benefits in terms of reduced deaths and illnesses and subsequent gains in quality-adjusted life years were found to be roughly proportional to the magnitude of consumption reduction. Were a ten per cent general price increase to be implemented in the UK, then it was calculated that this could reduce alcohol consumption by 4.4 per cent and deaths by 1460 per year ten years after policy implementation.

However, it was found that the introduction of a floor price of £0.45 per unit of alcohol would result in a similar reduction in consumption of 4.5 per cent with the added advantage of an increased number of deaths avoided (1970 per year). Further, it was determined that minimum unit pricing would target harmful drinkers, while not having a significant impact on consumer spending for moderate drinkers.

Some critics have questioned this last finding, suggesting that because of dependency issues and social factors, hazardous and harmful drinkers are less likely to be responsive to price changes than moderate drinkers.

Nevertheless, much of the existing evidence supports the contention of the Sheffield University researchers. While it is difficult to establish a causal relationship between alcohol price and consumption, and there is no direct evidence of the effect of a minimum unit pricing mechanism, the available evidence suggests that price changes generally do lead to changes in consumption habits. That is, even if hazardous and harmful drinkers are less responsive to price increases than other drinkers, the research evidence indicates that their alcohol consumption would still decline.

Although there is evidence to suggest that the imposition of a national floor price on alcohol could help to achieve the Australian Government’s goals, the mechanism raises a number of issues.

First, the licensing of alcohol retailers in Australia is the responsibility of the states and territories. Hence, the Government would require their cooperation to introduce a uniform alcohol floor price. Alternatively, the Commonwealth would have to legislate to override state and territory regimes. An appropriate Commonwealth head of power would need to be found for the latter approach.

Second, from a legal perspective it could be argued that imposing a floor price would limit the free movement of alcohol products between other countries and Australia.

Third, it would need to be determined how a minimum price on alcohol products should be set and subsequently varied; would this be by the Parliament (as per the Scottish Government’s proposal) or by an independent authority?

Fourth, the introduction of minimum unit pricing would probably need to be accompanied by measures that restrict various forms of alcohol discounting. In response to minimum unit pricing, retailers could introduce or increase promotional activities, such as ‘three drinks for the price of two’ offers, that do not breach the minimum unit pricing requirements. This would, of course, undermine the intent of the minimum unit pricing scheme by making alcohol available at significantly reduced prices through other means. This leads onto another, related issue, that is, the need to closely police any minimum unit pricing scheme and the licensed premises responsible for its enactment.

Fifth, measures would need to be taken to counter the potential for drink substitution in Indigenous communities (and elsewhere). In the face of increased cask wine prices, problem drinkers could turn to cheaper alternatives, such as methylated spirits, or distil their own alcohol.

Generally speaking, it should be noted that discussion of an alcohol floor price in Australia tends to cloud the underlying issue of how alcohol is taxed. The current taxation arrangements are inconsistent and result in low rates of taxation on certain beverages.

A feature of alcohol taxation in Australia is that the amount of tax, per litre of alcohol, varies greatly. Further, as discussed in this Parliamentary Library paper, apart from the tax incentive favouring low alcohol beer—whereby via a threshold, the amount of tax per litre of alcohol increases with the alcohol content of beer—there is little or no rationale for the differences in rates.

The Library paper advocates a single rate of tax per unit of alcohol, as does the final report on Australia’s future tax system (the Henry Review) and the National Preventative Health Taskforce.

Arguably, then, the best possible single option for reducing alcohol related harm among all Australians would be the introduction of a volumetric system of alcohol taxation.

***

PS from Croakey: Below is another take on the The Australian’s headline this morning, Alcohol floor ‘a hit on elderly and poor’...