A recent article from the Guardian reports that campaigners have called for a minimum unit price (MUP) for alcohol in England after research has been released regarding the scheme’s effectiveness in reducing alcohol consumption within families in Scotland and Wales.
The effectiveness of the 50p per unit price in Scotland and the minimum price scheme in Wales was evaluated upon in a survey containing 35,000 British households which once complete, ruled that these schemes were an effective way of decreasing alcohol consumption.
A minimum price scheme involves setting a price floor for a good or service that is above the equilibrium price, this price floor is designed to decrease demand by increasing the price of the good.
However, such schemes cause disequilibrium as the higher price decreases the quantity demanded but increases the quantity supplied thus yielding excess supply in a market where minimum price schemes are introduced.
This makes minimum price schemes a somewhat effective measure in reducing consumption of goods such as alcohol, which, if are consumed in large amounts, have negative externalities associated with them as binge drinking increases anti-social behaviour as well as potential litter.
Negative externalities refer to goods and services which once consumed, have a negative effect on a third party, a third party being individuals which have not participated in the activity.
As previously illustrated, binge drinking negatively affects the third party as anti-social behaviour may place additional strain on the police force as crime can potentially increase which will have a negative impact on those not participating in the activity.
This high crime rate is especially evident in cities like Glasgow which suffer from high alcoholism as in Glasgow there are 451 recorded crimes per 10,000 population, a crime rate which places Scotland at the highest homicide rate of any of the four UK nations.
High crime rate results in increased police spending, regrettable spending, as well as increased strain on public health services such as the NHS as victims of crime may require psychological support.
So, reducing binge drinking and anti-social behaviour in cities is essential to ensure that happiness and living standards rise, however, is a minimum price scheme the best way to do it?
A minimum price scheme is mainly levied on cheap and strong booze which is found in supermarkets, stuff which is designed to make an individual drunk fast, so, if a minimum price scheme targets drinks which are great for binge drinking, why could it actually be ineffective.
Well, it all comes down to the price elasticity of demand for alcohol.
Price elasticity of demand (PED) is a measure of how responsive demand is to changes in price.
Price inelastic goods are goods where an increase in price yields a small reduction in demand, these types of goods include cigarettes, which, due to their addictive nature, make it so that despite tax hikes, consumption still remains constant as smokers keep their habit as they are addicted.
This is similar to alcohol as for lower-income families, where stress is high due to financial issues, alcohol may also share some form of addictive property as individuals turn to it as a way to escape.
Alternatively, because cheap booze is cheap, the percentage of income spent on the good is low, thus meaning that any increase in price is unrecognisable making the price inelastic.
Because of this, a minimum price scheme hurts those on lower incomes the most as the policy can be seen as regressionary as families on lower incomes will continue consuming alcohol but at a higher price.
the IFS said that those with lower incomes would be hit hardest as households with annual incomes of less than £10,000 tend to consume between 21 and 35 units of alcohol per week, which is equivalent to two or three bottles of wine.
This means that a minimum price scheme would increase the price of these households grocery spending by 3.05% whilst those who consume over 35 units will have to spend an additional 5.87%.
This makes the minimum price scheme much more unattractive as, despite the price increase, demand will still stay somewhat constant and more households will be pushed into deeper poverty, perhaps a different type of government intervention, such as information provision, is a better idea to reduce binge drinking.
If you enjoyed this article and love what we are doing please consider showing us further support by following our social media accounts, we also appreciate any feedback as we aim to improve our work.
Written by Hubert Kucharski