Boozy thinking
Alcohol minimum pricing, then. It seems dreadfully Hogarthian. Whether or not it's good politics (e.g. in England & Wales, to distract from a budget cut to pensioners, which itself is a distraction from flatlining growth; very interesting to have policy forged in Scotland by the SNP finding its way South like this), it looks like stupid economics to me.
Let's spot the Chancellor the idea that we want to make it more expensive to buy alcohol for people who purchase as much alcohol as cheaply as possible. It's not actually that bad an argument, since AIUI there is reasonable evidence that problem street drinkers and other chronic alcoholics are surprisingly price-sensitive. There's a not-entirely-illegitimate social policy reason for focusing on White Lightning rather than Cloudy Bay, although it is likely to be spectacularly regressive in effect.
But if you're set on doing it, setting a minimum price is a silly way of going about it. Much, much better to do it with a tax.
(A per-unit tax would be the simplest, whether introduced as a top-up to existing alcohol excise duty (a percentage of retail price, which varies depending on what sort of booze it is) or a complete replacement. But this would also raise significant revenue from those who buy booze well above the proposed minimum prices. If you don't want to shape the tax that way, you could say that the excise duty due on alcohol is either the current percentage of retail price, or a per-unit minimum, whichever is the larger - which would have exactly the same profile as a minimum unit price. You can also legislate against discounting - which in fact the Scottish Government have done already, with the result that drinking has fallen (a bit) and the sky has not fallen (a bit).)
Whichever way you do it - minimum price or tax - will look the same to the punter: the Special Brew costs more (and the Chablis and decent claret is unchanged). Basic economics says that will mean people buy less (depending on the elasticity of demand), which is the stated aim of the policy. So far so good.
But what happens to the extra money the punters shell out? Tennant's Super isn't costing any more to produce and distribute, so this is free wonga for someone.
With minimum pricing, it goes to the retailer. Depending on their market strength their supply chain will capture none or a lot of it. If the same amount of booze is produced, and less is consumed, some will go unsold, so someone will take a hit, and the producers are in the front line there. My guess is that very large, very powerful retailers with otherwise-thin margins and low prices will be likely to capture most of the extra cash. A bottle of Mad Dog 20/20 currently costs more in the corner shop than in Tesco: with a minimum price, they'll both cost the same. The corner shop gets less extra free cash than Tesco per bottle. And Tesco sells a lot more bottles.
With a tax, the extra cost finds its way back to HM Treasury. This has to be a better plan. I suppose some right-wingers or libertarians might instinctively dislike this, but bear in mind that the economic harm (and deadweight loss) comes from regulatory interference in requiring a price above the market clearing price, regardless of how that is achieved. Only the nuttiest starve-the-beast types should have a problem here. Almost everyone is agreed that it would be a Very Good Thing to reduce the deficit at the moment.
Whether or not you think Tesco is a good thing or not, it doesn't really seem justifiable to gift them the lion's share of the proceeds of minimum alcohol pricing rather than, say, pensioners, people on disability benefits, and their otherwise debt-bondaged great-great-grandchildren.
[As a final aside, the other famous example of Governments setting minimum prices is the minimum wage. There, too, a Government could achieve the same market effect through a tax, rather than by legislating a minimum price. But in that case, the aim of the policy isn't to reduce consumption - quite the contrary. The extra money paid for the product (labour) goes straight in to the pocket of the sellers (people in the lowest-paid jobs). That, in fact, is the whole point of a minimum wage in the first place.]
This entry crossposted to http://doug.dreamwidth.org/237092.html, where there are
comment(s) not shown here.
Let's spot the Chancellor the idea that we want to make it more expensive to buy alcohol for people who purchase as much alcohol as cheaply as possible. It's not actually that bad an argument, since AIUI there is reasonable evidence that problem street drinkers and other chronic alcoholics are surprisingly price-sensitive. There's a not-entirely-illegitimate social policy reason for focusing on White Lightning rather than Cloudy Bay, although it is likely to be spectacularly regressive in effect.
But if you're set on doing it, setting a minimum price is a silly way of going about it. Much, much better to do it with a tax.
(A per-unit tax would be the simplest, whether introduced as a top-up to existing alcohol excise duty (a percentage of retail price, which varies depending on what sort of booze it is) or a complete replacement. But this would also raise significant revenue from those who buy booze well above the proposed minimum prices. If you don't want to shape the tax that way, you could say that the excise duty due on alcohol is either the current percentage of retail price, or a per-unit minimum, whichever is the larger - which would have exactly the same profile as a minimum unit price. You can also legislate against discounting - which in fact the Scottish Government have done already, with the result that drinking has fallen (a bit) and the sky has not fallen (a bit).)
Whichever way you do it - minimum price or tax - will look the same to the punter: the Special Brew costs more (and the Chablis and decent claret is unchanged). Basic economics says that will mean people buy less (depending on the elasticity of demand), which is the stated aim of the policy. So far so good.
But what happens to the extra money the punters shell out? Tennant's Super isn't costing any more to produce and distribute, so this is free wonga for someone.
With minimum pricing, it goes to the retailer. Depending on their market strength their supply chain will capture none or a lot of it. If the same amount of booze is produced, and less is consumed, some will go unsold, so someone will take a hit, and the producers are in the front line there. My guess is that very large, very powerful retailers with otherwise-thin margins and low prices will be likely to capture most of the extra cash. A bottle of Mad Dog 20/20 currently costs more in the corner shop than in Tesco: with a minimum price, they'll both cost the same. The corner shop gets less extra free cash than Tesco per bottle. And Tesco sells a lot more bottles.
With a tax, the extra cost finds its way back to HM Treasury. This has to be a better plan. I suppose some right-wingers or libertarians might instinctively dislike this, but bear in mind that the economic harm (and deadweight loss) comes from regulatory interference in requiring a price above the market clearing price, regardless of how that is achieved. Only the nuttiest starve-the-beast types should have a problem here. Almost everyone is agreed that it would be a Very Good Thing to reduce the deficit at the moment.
Whether or not you think Tesco is a good thing or not, it doesn't really seem justifiable to gift them the lion's share of the proceeds of minimum alcohol pricing rather than, say, pensioners, people on disability benefits, and their otherwise debt-bondaged great-great-grandchildren.
[As a final aside, the other famous example of Governments setting minimum prices is the minimum wage. There, too, a Government could achieve the same market effect through a tax, rather than by legislating a minimum price. But in that case, the aim of the policy isn't to reduce consumption - quite the contrary. The extra money paid for the product (labour) goes straight in to the pocket of the sellers (people in the lowest-paid jobs). That, in fact, is the whole point of a minimum wage in the first place.]
This entry crossposted to http://doug.dreamwidth.org/237092.html, where there are
comment(s) not shown here.