Imagine a world where, like eating food in pill form, we consumed alcohol in 10ml shots of pure ethanol. Taxing that consumption would be simple: 50p per unit would keep the basic price high enough to discourage excessive consumption. And people sensible enough to dilute each shot with 90mls of water would pay 50p per 100mls of liquid consumed, compared to £5 for those drinking it neat. This is essentially the argument for a Minimum Unit Price, delivered through excise duty: every unit is taxed the same and high-strength drinks are automatically taxed more.
In the real world, we choose to drink alcohol in a range of forms dictated by taste and fashion, rather than the need to ingest alcohol as purely and simply as possible. Brewers use huge amounts of water and grain to produce each pint of beer or lager: a 560ml product with only around 25ml of pure alcohol. Compared to a double measure of spirits, the ratio of production costs to pure alcohol delivered in a pint of beer or lager is exceptionally high. Wine falls somewhere in between.
Historically, the excise duty system has tried to recognise that variation in production costs. Beer is lower taxed than wine, and both are lower taxed than spirits – although gradually less so over the last decade. Once that principle of taxing each type of drink separately was accepted, other oddities crept in. Champagne has historically been low-taxed, as have fortified wines like port and sherry, again a recognition of higher production costs. Cider and Perry are lowest-taxed of all (a bit of favouritism to home-grown products), while - since 2002 - beer produced by small brewers has been taxed at half the rate of other beer, a reform so far-sighted and successful that it surely merits an MBE - or at least a CAMRA award - for the official who designed it.
This alcohol duty system is far from perfect and the popularity of some cheap high-strength alcohol (Buckfast in Scotland – one of those low-taxed ‘fortified wines’ – and high-strength cider) can undoubtedly be laid at its door. The question is what is the alternative? The IPPR’s Matt Cavanagh has proposed using the excise duty system to create a Minimum Unit Price. While Matt debates where to set the rate, we can be absolutely clear about one thing: no government is going to reduce tax on spirits, so the assumption must be that the current rate of duty on a unit of spirits would form the basis of a Minimum Unit Price for all alcohol.
So – compared to where we are now – the price of beer would have to rise sharply, ditto wine, and the price hikes for cider and fortified wines would be so steep, there would be a real threat to those industries. But on top of all that, we would be handing a massive ongoing competitive advantage to the spirits industry over their brewing counterparts by taking the recognition of their different production costs out of the system. For a company like Diageo, which sells both types of product, the natural temptation would be to put their marketing resources into persuading consumers to switch from beer to spirits – something the anti-drinking lobby surely do not want to see.
The clamour for action on alcohol abuse is so loud at present, and the case for solutions like a Minimum Unit Price put so persuasively by Matt and others, that there is a danger of the government rushing into legislation before thinking through the consequences. Pricing Buckfast off the streets of Glasgow is one thing, but surely not at the price of crippling the brewing sector, destroying the cider industry, and in the process hastening the decline of the traditional pub.
The author was responsible for alcohol duty in the Treasury between 1999-2002.