Alcohol Floor Price Scheme Announced for England & Wales

This will be an excellent case study to use when you're discussing the issues around minimum prices to solve the problem of externalities.

Hat tip to @keysonomics for spotting this one!

So, England & Wales are going to follow Scotland's lead & seek to reduce demand for alcohol through minimum pricing- well sort-of. The UK is using a complicated formula aimed to prevent alcohol being sold as a 'loss-leader', primarily by the major supermarkets.

However, this formula sets minimum prices incredibly low- so a can of 5% beer cannot be sold for less than 50p whilst a bottle of wine cannot go for less than £2.24. I don't know about you, but I don't think I've ever bought drink anywhere near these prices- not even on a booze cruise to Calais! And the government's own analysis estimates these new rules will only affect 1.3% of sales and will reduce consumption by 0.04%.

Looking at the economics behind this, there's an excellent case to be made when evaluating any minimum price scheme that the level at which you place your minimum price is crucial in determining the likely success of your proposals. In this case, if the aim was to reduce alcohol consumption due to the negative externalities associated with it (cost to police & NHS, loss of productivity, etc.) then I would argues that this aim is unlikely to be achieved. Unless the government are saying that these external costs are incredibly low, and therefore we only need a slight rise in prices in order to internalise those external costs.

This excellent BBC News article does a really good of explaining the facts and issues around this topic, and would make a great piece for generating lots of classroom discussion.