(by Bruce Lyons) In a post last May, I discussed the dangers of using minimum prices to reduce binge drinking. I suggested that any minimum price set greater than cost (inclusive of tax) could be highly damaging to competition and actually promote alcohol consumption by incentivising marketing activities. Today, the government announced its proposal to prevent retailers from selling at less than the tax element of cost. This clearly meets the cost criterion and should not be anti-competitive. It limits cross-subsidisation and can be viewed as a way to ensure an efficient tax system justified by the negative externalities of binge drinking. So far so good, but there is a serious danger. Many will see this proposal as a toehold to establish the mechanism for enforcing a minimum price which can be ratcheted up in the future (other than by raising taxes). This would be a bad idea but it will take strong political leadership to keep to the cost rule.
P.S. This measure confirms cider as the cheapest form of alcohol because it is lightly taxed – the legacy of an earlier government’s pledge to support apple growers. This may be an unusually British way in which agricultural policy might indirectly lead to chaos on the High Street – not from protesting farmers but from young consumers of their product!