IFS: MUP would impact ‘many moderate drinkers’

15th December, 2017 by Amy Hopkins

A minimum unit price of 50 pence will significantly increase the cost of around 70% of off-trade alcohol purchases in Britain, the Institute for Fiscal Studies (IFS) has said.

The IFS has said “it may be better to reform duties and not have a minimum price at all”

The IFS’s research comes after the Supreme Court ruled that MUP could be legally implemented in Scotland following a challenge from drinks trade groups. The legislation is set to come into effect in Scotland on 1 May and the government’s favoured minimum unit price is 50p.

The Welsh National Assembly also recently unveiled a bill that included plans for MUP. Politicians say MUP could contribute £882m to the Welsh economy over a 20-year period thanks to an anticipated reduction in alcohol-related illness, crime and workplace absence.

In a briefing note published today, the IFS said that almost 70% of off-trade alcohol purchases in Britain between October 2015 and September 2016 were priced below 50p per unit.

MUP would therefore have a “big impact” on the prices of these products, which would increase by “at least 35% on average”.

Larger and cider would be the most affected categories, the IFS said, while “the majority of wine, fortified wine and spirits are also currently priced at less than 50 pence per unit of alcohol”.

“The costs of anti-social drinking are high and concentrated among heavy drinkers,” said Martin O’Connell, associate director of the IFS and co-author of the briefing note.

“Heavy drinkers, when buying alcohol in supermarkets and off-licences, tend to choose products that are cheaper per unit than more moderate drinkers. A minimum unit price would therefore target a higher share of the units that heavy drinkers buy.

“However, the policy will lead to substantial increases in alcohol prices that will also impact on many moderate drinkers.”

‘Chaotic’ duty system

The briefing note also called the UK alcohol duty system “chaotic” since according to EU law wine and cider must be taxed per litre. Higher abv products are therefore taxed less per unit of alcohol than lower abv products.

An overhaul of alcohol duties is therefore “overdue” and could “target more systematically the high-strength products most popular with heavy drinkers”, said the IFS.

The IFS further suggested that “it may be better to reform duties and not have a minimum price at all”, since such a policy could “dampen competition in the retail market” and result in increased profits for the alcohol industry as opposed to raising tax revenue.

“The current system is not well targeted at heavy drinkers and has indefensible anomalies, such as very low rates on cider compared with beer,” said Kate Smith, senior research economist at IFS and co-author of the briefing note.

“Regardless of whether minimum pricing is introduced, the UK Government should consider redesigning alcohol taxes.”

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