Monday, 22 October 2012

Less is more ...

No chance of that with the current administration ... minimum pricing, late night levies, duty escalator, business rates revaluation freeze ... and a Chancellor that does not appear to understand the basic economic principles of 'inelastic demand' and the law of diminishing returns as demonstrated in The Laffer Curve.

Apart from fascinating research by those interested in the societal impact of alcohol consumption, such as the University of Sheffield, little seems to have influenced the political debate, however, a new report by the Institute of Economic Affairs, Drinking in the Shadow Economy, may change that. 

Perhaps a helpful civil servant will slip it into Georgie Porgie's red box ... and maybe he will then take notice of what many of us in the hospitality and brewing industries have been saying for sometime. That the third highest rate of duty (let alone other direct, indirect, and pseudo-taxation) is counter-productive:
"How do we explain the apparent lack of association between affordability and consumption? Demand for alcohol is relatively inelastic and drinkers have a series of options in front of them when real prices increase. They can do as the government hopes and drink less, but they can also do any of the following: (1) make savings elsewhere in the household budget, (2) switch from the on-trade to the off-trade, (3) downshift to cheaper drinks, (4) shop abroad, (5) brew or distil their own alcohol, (6) buy counterfeit or smuggled alcohol, and finally (7) buy surrogate alcohol (e.g. methanol, antifreeze, aftershave). The extent to which consumption patterns change depends on personal income and the price of drink. There is little doubt that financial considerations have helped shift drinking from the pub to the home in countries such as Britain,"
(above from the IAE's report)

 ... in short we Brits like a tipple and 'nudge economics' or crippling taxation won't curb that desire.

How much will the cost be of this country's punitive alcohol taxation regime?
"Contrary to temperance rhetoric, high alcohol taxes are not necessarily good for public health
because, although excessive alcohol consumption undoubtedly carries risks to health, so too
does moonshine. Counterfeit spirits and surrogate alcohol frequently contain dangerous levels of
methanol, isopropanol and other chemicals which cause toxic hepatitis, blindness and death. These are the unintended consequences one associates with prohibition, albeit at a less intense level than was seen in America in the 1920s.
It scarcely matters to the politician whether unrecorded alcohol comes from legal or illegal sources.In either case, the treasury loses out on revenue. In Britain, HMRC estimates that the alcohol tax gapcould be as much as £1.2 billion per annum, plus the costs of enforcement, and that this is largely because ‘duty rates on alcohol are far higher in the UK than in mainland Europe’ (National Audit Office, 2012: 2, 10). This is the price the state must pay for excessive taxation, but the politician is also aware that these high alcohol taxes raise £9 billion a year (Collis, 2010: 3). Being in possession of these facts he may conclude that reducing the illicit alcohol supply through tax cuts will probably reduce net alcohol tax revenues.
We argue that such a focus on maximising tax revenues is short-sighted and carries significant risks. Failing to deal with alcohol’s shadow economy threatens not only the public finances, but also public health and public order. Unrecorded alcohol has, as( Nordlund and Österberg note, ‘the potential to lead to political, social and economic problems’ (Nordlund, 2000: S562). In addition to the health hazards presented by unregulated spirits, alcohol fraud in the UK is, according to the HMRC, ‘perpetrated by organised criminal gangs smuggling alcohol into the UK in large commercial quantities’ (HMRC, 2012: 8). Alcohol smuggling and counterfeiting is linked to other illegal activities, including drug smuggling, prostitution, violence, money-laundering and - in a few instances -terrorism."
(ibid - my highlights)

How about that then? Is this litany of criminality a "price worth paying"? The IEA certainly don't think so ...
 "It is too early to say whether the recent well-publicised cases of large-scale illegal alcohol production in the UK represent a lasting shift towards a Moonshine Britain, but it may not be a coincidence that they have come to light at a time when regulated alcohol has become less affordable as a result of successive tax rises and a major recession. Policy-makers should take the threat of illicit production seriously when considering alcohol pricing in the future."
 (ibid - my highlights)

But then again when has reason & research ever been so outweighed by rhetoric and dogma than with the current government?  Perhaps a little less demonisation of the ordinary drinker might lead to more positive results than a temporarily bulging Treasury ... it would appear (from this, albeit somewhat subjective discussion document) that more taxation will lead to more unintended consequences both in terms of public health and public order. I know which I would prefer ...

No comments: