Trade-offs in the off trade

Proposals to tackle alcohol-fuelled violence and health related problems in Scotland were announced yesterday. This is government intervention to tackle the market failures that result from alcohol, which has been a regular issue discussed in England and Wales as well. Some of the statistics given in this video report spell out the reasons for the concern north of the border; there has been a 20% increase in the number of people being discharged from hospital following alcohol-related treatment, Scots drink the equivalent of two litres more pure alcohol each per year than the English, and alcohol-related liver disease has overtaken heart disease as one of the top three killers there.

One measure proposed involves a “social responsibility fee” on some alcohol retailers to help deal with the costs of the adverse consequences of alcohol – an attempt to place a value on the negative externality and raise the price to a figure which covers the marginal social cost of the demerit good. There is also a suggestion of price fixing and regulation with a minimum price per unit of alcohol – opponents suggest the risk of government failure here include unfairly penalising moderate drinkers with a regressive tax and the possibility that it flouts EU law on competition as an unfair restriction on trade. There are other unintended consequences which may result – Scottish brewers and drink manufacturers provide a great deal of sponsorship for sports and music events as well as ‘Homecoming Scotland’, an events programme in the 250th anniversary of Robert Burns’ birth – the main event for May is Whisky Month – and those manufacturers may no longer afford their sponsorship if their sales are hit by new regulations.

In Finland there is stricter regulation. All beer wine and spirits which are more than 4.7% alcohol content are sold by a monopoly store called, appropriately, Alko. They are not allowed to discount prices, and any increase or decrease in government tax is directly passed on to consumers via prices, unlike the UK where retailers often absorb any extra duty imposed by the Treasury. In 2004 tax on alcohol in Finland was dramatically reduced, leading to price reductions of up to a third, depending on the type of alcohol. According to official statistics the retail consumption of alcohol increased by 9.1% in that year. Professor Hannu Alho has first hand experience of the cost of cheaper alcohol through his clinical work with patients in hospital. He says after the tax reduction in 2004 alcohol related hospital admissions increased by around 10%, and the number of deaths connected to drinking also went up. He said: “The trend is very very clear, you can see the increase in males and females, especially in young adults. That’s very worrying”. The Scottish authorities have used evidence from international studies such as this to formulate their proposals, but have to look at the trade-off between limiting damage to health from cheap alcohol, and threatening jobs and sponsorship of merit goods which depend on that trade.

Scottish alcohol plan at-a-glance