Minimum unit pricing of alcohol : final business and regulatory impact assessment
Underlines the rationale for minimum unit pricing from health and economic perspectives, setting out anticipated costs and benefits for all parties affected by a minimum price of 50 pence per unit.
8. Costs and benefits
8.1. The Scottish Government is pursuing the introduction of a minimum price per unit of alcohol. The proposed level of minimum price is 50p per unit. Following careful consideration of the available evidence on the continued scale of alcohol-related harms, the price distribution of alcohol sold in Scotland, the potential benefits accrued from different minimum unit prices and the judgment from the UK Supreme Court, the Scottish Government considers a 50p per unit minimum price provides a proportionate response to tackling alcohol misuse in Scotland. It strikes a reasonable balance between public health and social benefits and intervention in the market. This section examines the costs and benefits of this option.
8.2. In developing an understanding of how the implementation of a minimum price set out in the Act might impact on the various sectors affected, the Scottish Government found that the information which might have assisted this process is often not in the public domain because it is commercially sensitive information held by individual companies.
8.3. In the costs section (paragraphs 5.52 to 6.24) of the 2012 BRIA, the Scottish Government reflected the views of the alcohol industry which had been asked to provide information on what they considered the likely impact of minimum pricing would be on the market. The Scottish Government received a breadth of responses from the alcohol industry setting out a range of views. These indicated that there was no consensus on how the market would respond to the introduction of a minimum price. The views expressed included:
- All products in the market would be affected, i.e. both those priced below and those priced above the minimum unit price;
- Only prices below the minimum unit price would be affected;
- There would be a mixture of an impact on prices; unable to be precise;
- The introduction of a price floor would distort the market;
- The value attached to premium brands over value brands would reduce and consumers might switch to other drinks categories;
- Consumers likely to switch to premium brands if the differential between premium and value was reduced;
- The own/ private label [193] market would be decimated and likely de-listed; or
- Supermarkets could maximise profits by continuing to stock own/ private label at the expense of brands.
8.4. The unpredictability of the market response is recognised in the UK Supreme Court judgment, where Lord Mance concludes:
That minimum pricing will involve a market distortion, including of EU trade and competition, is accepted. However, I find it impossible, even if it is appropriate to undertake the exercise at all in this context, to conclude that this can or should be regarded as outweighing the health benefits which are intended by minimum pricing. In the overall context of the Scottish or, on the face of it, any other market, it appears that it will be minor, though it will hit some producers and exporters to the Scottish market more than others. Beyond that, the position is essentially unpredictable. Submissions that the Scottish Government should have gone further to predict the unpredictable are not realistic. The system will be experimental, but that is a factor catered for by its provisions for review and “sunset” clause. It is a significant factor in favour of upholding the proposed minimum pricing régime.
Estimating the impact of minimum unit pricing: the Sheffield Model
8.5. As this form of minimum unit pricing is untested, it is necessary to rely on modelling to estimate the potential impact of the policy (as is often done with new initiatives, e.g. the statutory minimum wage). Starting in 2010, the Scottish Government commissioned the School of Health and Related Research ( ScHARR) at the University of Sheffield to undertake analyses using Scottish data, wherever possible, to model the impact of minimum unit pricing using the Sheffield Alcohol Policy Model (hereafter referred to as the Sheffield Model). To date, the University of Sheffield academics have published four reports for the Scottish Government, two of which post-date the passing of the legislation [194] . These were carried out during the period when implementation of the policy had been delayed, utilised new data that had become available and were used to provide the court with contemporary analysis of potential impact.
8.6. The Sheffield Model is a complex two-stage econometric and epidemiological model linking changes in price to changes in consumption and subsequent harms. The first report using this methodology was commissioned by the UK Government, based on data relating to alcohol consumption in England, and was published in December 2008 [195] . It followed a UK Government commissioned systematic review of the evidence, an Independent Review of the Effects of Alcohol Pricing and Promotion, part A [196] . The review found strong and consistent evidence to suggest that pricing policies can have a significant effect in reducing demand for alcohol.
8.7. The model has consistently found that:
- There is a strong and consistent link between the price of alcohol and the demand for alcohol. Increasing the price of alcohol is estimated to reduce consumption and alcohol-related harm.
- There is a link between price increases, reduced consumption and subsequent reductions in chronic and acute health harms.
- Minimum unit pricing targets price increases at alcohol that is sold cheaply. Cheaper alcohol tends to be bought more by harmful drinkers than moderate drinkers.
8.8. A minimum pricing policy might, therefore, be seen as beneficial in that it targets the drinkers causing most harm to themselves and society. Studies also show that cheaper alcohol is attractive to young people [197] . ‘Moderate drinkers’ (defined by the University of Sheffield report as those who drink within the lower risk drinking guidelines in place in April 2016 [198] ) are estimated to be only marginally affected, simply because they consume only a small amount of alcohol and also because they do not tend to buy as much of the cheap, strong alcohol that would be most affected by minimum pricing.
8.9. Although the driver for minimum pricing is the protection and improvement of public health, we note that the effects of price increases may not be disadvantageous to the alcohol industry as a whole, because the estimated decrease in sales volume may be more than offset by the unit price increase, leading to overall increases in revenue.
8.10. The economy is likely to benefit through a reduction in sick days per year for all categories of drinker (moderate, hazardous and harmful) and less unemployment among harmful drinkers.
8.11. The Sheffield Model has been further developed and refined since the initial publications. The latest version, version 3, has been used to model the effectiveness of alcohol pricing policies and of screening and brief intervention policies. The impacts of pricing interventions are the outputs of interest to the Scottish Government in relation to this legislation.
8.12. The model is complex and comprises two main elements. The first element uses an econometric approach to model consumer responses to changes in the prices of alcoholic beverages. This allows appraisal of how consumers change consumption levels, drink in alternative settings or switch to alternative beverages following a pricing policy change. It does so using own price elasticities (a measure of responsiveness to price changes) and cross-price elasticities (a measure of switching behaviour in response to price change).
8.13. The second element uses epidemiological data [199] on the relationship between alcohol consumption and various harms to model how those changes in consumption change the consumers’ risk of harm. This allows for estimates of the change in incidence of alcohol-related harms and the costs associated with those harms to be calculated.
8.14. In the first three reports prepared for the Scottish Government, impacts on alcohol-related harm related to health, crime and employment were reported. In the most recent (2016) [200] , the focus was on alcohol-related health harms [201] .
8.15. Analyses are carried out on population subgroups defined by age, sex, consumption level and income or socio-economic status. This means the model is able to present results describing the impact of alcohol policies on particular subgroups of interest [202] .
8.16. The model and its methodology has had support from leading academics in the field and articles based on it have been published in peer reviewed journals [203] . such as the Lancet, whose editorial commented that the Sheffield Model provides “evidence on which to base fair and effective pricing” and it was “imperative” that it should be used [204] .
8.17. At the time of the first three University of Sheffield reports to the Scottish Government (2009, 2010, 2012) the model was able to compare the impacts of a general increase in price with the introduction of a minimum unit price, but it was not able to calculate the tax required to simulate the impact of minimum unit pricing. Neither was the original modelling able to disaggregate the impact by income groups. In the intervening years, the methodology was refined and became more sophisticated. The model retains its two-stage structure (econometric and epidemiological) but, by 2015, when the last report for the Scottish Government was commissioned, it was possible to disaggregate the impact by income group (in poverty vs. not in poverty [205] ) and to use the model to produce the level of tax rise required to achieve a similar impact on health harms as the introduction of a minimum price (equivalisation).
8.18. The commissioning of the model to produce this particular output was mainly driven by the continuing need to demonstrate to the court the differential impact of minimum pricing and taxation. The model was also used to update the impact of a range of values of minimum unit price using the most contemporary data available.
8.19. ScHARR specialises in health services and public health research and the application of health economics and decision science to the development of health services and the improvement of public health. In addition to producing reports for Scotland, their academics have completed work for both the Department of Health in England and Public Health England; and for the jurisdictions of Sweden, Wales, Northern Ireland and British Columbia. The results of the 2014 Research Excellence Framework confirmed that ScHARR is ranked in the top four in the UK [206] for the volume of world leading health research being conducted there. It was also noted that their research demonstrated outstanding impact in terms of reach and significance.
8.20. Both the most recent University of Sheffield report commissioned by the Scottish Government [207] , and that from 2012 [208] , form part of this impact assessment. It should be noted that, while this is a model (with both an econometric and epidemiological component), it is based on strong empirical evidence on the relationship between price, consumption and harm. Estimates of the harm reduction estimated to result from a 50p minimum unit price are provided throughout the following section.
Benefits
Benefits to consumers
Health
8.21. In terms of health, the evidence shows that increasing the price of alcohol (thereby reducing affordability) leads to a reduction in consumption and a subsequent reduction in harm [209] . The Sheffield Model estimates that there will be a reduction in both death and illness, and consequently hospital admissions, for a range of minimum prices from 30p to 70p per unit (see Table 1, paragraph 7.19). For a 50p per unit minimum price, the model estimates that deaths will reduce by 121 per annum at full effect (20 years) [210] and hospital admissions will reduce by 2,042 per annum at full effect, as shown in Table 4.
Table 4: Estimated impacts of a 50p per unit minimum price on health outcomes at full effect [211]
| Policy impact of MUP 50p on hospital admissions per year (full effect) | Policy impact of MUP 50p on hospital admissions per year (full effect) | |||||
|---|---|---|---|---|---|---|
| Acute | Chronic | Total | Acute | Chronic | Total | |
| Baseline level of alcohol-attributable harm per year | 743 | 883 | 1,626 | 25,631 | 4,236 | 29,867 |
| absolute change | -28 | -93 | -121 | -779 | -1,263 | -2,042 |
| relative change | -3.8% | -10.5% | -7.4% | -3.0% | -29.8% | -6.8% |
8.22. Table 5 again shows that reductions in alcohol-related harms are concentrated in the heaviest drinkers.
Table 5: Estimated impacts of a 50p per unit minimum price on death and hospital admission rates by drinker group [212]
| Policy impact on deaths per 100,000 drinkers per year (full effect) | Policy impact on hospital admissions per 100,000 drinkers per year (full effect) | |||||
|---|---|---|---|---|---|---|
| Moderate | Hazardous | Harmful | Moderate | Hazardous | Harmful | |
| Baseline level of alcohol-attributable harm per year | -7 | 95 | 424 | -100 | 1,839 | 7,120 |
| Absolute change 50p MUP | 0 | -5 | -30 | -5 | -84 | -497 |
| Relative change 50p MUP | 2.1% | -5.7% | -7.0% | 5.5% | -4.6% | -7.0% |
8.23. In the full effect, rates of deaths are differentially distributed across the drinker and poverty groups and show that health gains are greatest in hazardous and particularly harmful drinkers in poverty, with an estimated 119 deaths per year averted per 100,000 harmful drinkers in poverty under a minimum price of 50p per unit ( Table 6), compared to 16 deaths averted per 100,000 harmful drinkers not in poverty. Similarly, for hospital admissions, the model estimates 1,440 fewer admissions per year per 100,000 harmful drinkers in poverty under a 50p per unit minimum price, compared to 356 fewer admissions per year per 100,000 harmful drinkers not in poverty.
Table 6: Estimated impacts of a 50p per unit minimum price on death rates by drinker and poverty group [213]
| moderate | hazardous | harmful | ||||
|---|---|---|---|---|---|---|
| In poverty | Not in poverty | In poverty | Not in poverty | In poverty | Not in poverty | |
| Baseline alcohol-attributable deaths per year per 100,000 drinkers | 1 | -8 | 206 | 83 | 781 | 371 |
| impact of 50p MUP | ||||||
| Absolute change per year per 100,000 drinkers | -1 | 0 | -22 | -4 | -119 | -16 |
| impact of 50p MUP | ||||||
| Relative change per year per 100,000 drinkers | -83.0% | 0.9% | -10.8% | -4.4% | -15.3% | -4.4% |
Table 7: Estimated impacts of a 50p per unit minimum price on hospital admission rates by drinker and poverty group [214]
| moderate | hazardous | harmful | ||||
|---|---|---|---|---|---|---|
| |
In poverty | Not in poverty | In poverty | Not in poverty | In poverty | Not in poverty |
| Baseline alcohol-attributable hospital admissions per year per 100,000 drinkers | 103 | -130 | 4,563 | 1,539 | 11,555 | 6,454 |
| impact of 50p MUP | ||||||
| Absolute change per year per 100,000 drinkers | -22 | -3 | -359 | -54 | -1,440 | -356 |
| impact of 50p MUP | ||||||
| Relative change per year per 100,000 drinkers | -21.9% | 2.2% | -7.9% | -3.5% | -12.5% | -5.5% |
8.24. The full effect of a minimum price is not expected to be realised until 20 years following policy implementation. Figure 12 shows the estimated change in deaths by condition type across the 20 years to full effect. Most of the impact of the policy on deaths is estimated to be achieved in the early years of implementation. This Figure also highlights differences in the types of harms averted over time, with gains in acute conditions expected to accrue immediately, while those from chronic conditions take longer to develop due to the ‘time lags’ between reductions in consumption and reductions in corresponding risks of harm.
Figure 12: Impact of a 50p minimum unit price on annual deaths over 20 years by condition type
8.25. Table 8 presents the estimated cumulative impact across five, ten, 15 and 20 years in terms of reductions in alcohol-related deaths and hospital admissions. These highlight the full extent of the estimated impact of minimum pricing policies on health harms over time, with a 50p minimum unit price estimated to avoid 392 alcohol-related deaths and 8,254 hospital admissions over the first five years following implementation and 2,036 deaths and 38,859 admissions over 20 years.
Table 8: Estimated cumulative changes in deaths and hospital admissions under a 50p minimum unit pricing policy
| Cumulative change in alcohol-related deaths following implementation of 50p minimum unit price | Cumulative change in alcohol-related hospital admissions following implementation of 50p minimum unit price | ||||||
|---|---|---|---|---|---|---|---|
| 5 years | 10 years | 15 years | 20 years | 5 years | 10 years | 15 years | 20 years |
| -392 | -890 | -1,441 | -2,036 | -8,254 | -18,245 | -28,575 | -38,859 |
8.26. The modelling shows that those drinking at hazardous and harmful levels and in poverty are estimated to gain the most in terms of health benefits from a 50p per unit minimum price. The MESAS baseline [217] and final report [218] confirmed strong income/ deprivation patterns to alcohol-related health harm.
8.27. Using data from the Scottish Health Survey ( SHeS), the 2016 report from the University of Sheffield showed that, although those in poverty were more likely not to drink than those not in poverty (25% vs. 13%), if they did drink, they were more likely to drink harmfully. In addition, average consumption among low income harmful drinkers was higher than among other harmful drinkers. For those in poverty who were moderate drinkers, they drank less per annum than those who were not in poverty; for those who were hazardous drinkers, their consumption was similar; but, conversely, for those who drank at harmful levels, those in poverty drank a third more than those not in poverty (equivalent to 87 units per week vs. 64 units per week). This helps to explain the differential harm patterns described above [219] . In addition, those on low incomes are likely to be more responsive to minimum pricing [220] . Given this, it is therefore likely that those in lower income/ more deprived groups will benefit from the greatest reduction in health harms.
8.28. Cost savings are associated with a reduction in health harms. As already shown in tables 4, 5, and 7, there are estimated to be reductions in the number of hospital admissions. The 2012 report commissioned by the Scottish Government estimated that a minimum price of 50p per unit was likely to result in a reduction in healthcare service costs of around £6.7 million in the first year, and a full ten-year [221] cumulative effect of around £114 million. This was based on a reduction in admissions of 1,600 in the first year, rising to 6,500 after ten years. Whilst these numbers have now been revised downwards, it is still estimated there would be a significant reduction in health care costs.
8.29. The first three University of Sheffield reports for the Scottish Government also gave financial valuations for the reductions in harm using Quality Adjusted Life Years ( QALYs). In 2012, the value of the reduction in health harms was estimated to be £17.2 million in year one, with a cumulative value of £492 million after ten years [222] . Again, although the estimated impact has lessened, a financial valuation of the reduction in health harm would still be sizeable.
Crime
8.30. The 2016 University of Sheffield report for the Scottish Government concentrated on the comparative impact of minimum price and taxation scenarios on alcohol-related health harms. Alcohol-related harm associated with crime and employment were reported in the first three reports from the University of Sheffield to the Scottish Government (2009, 2010, 2012).
8.31. The 2012 report [223] estimated the effect of minimum pricing on crime. This report showed that, overall, crime volumes were estimated to fall following the introduction of a minimum price. For a value of 50p per unit, this would be by around 3,500 offences per annum. The distribution of the effect varies across the drinker groups with reductions, in this case, of around 800 offences from moderate drinkers, around 900 from hazardous drinkers and around 1,700 offences from harmful drinkers. The harm avoided in terms of victim quality of life [224] is valued at around £2.2 million in the first year and around £20 million over ten years. Direct costs of crime were estimated to reduce by around £2.9 million in the first year and by around £24 million over ten years. Given this modelling was carried out five years ago, the benefits listed are likely to be overestimated. We would anticipate that, in line with the findings for health-related harm, these will be reduced, although it is not possible to quantify by how much.
Employment
8.32. The 2012 University of Sheffield report [225] is the most recent which enables Scottish Government to estimate the effect of minimum pricing on employment. This report estimated that workplace harms would reduce for all minimum unit prices modelled in 2012 [226] . The economy was estimated to benefit from a reduction in alcohol-related absence and from a reduction in the number of unemployed. For a minimum price of 50p per unit, the estimate was around 1,300 fewer unemployed people and around 32,300 fewer sick days per year. The estimated reduction in unemployment was modelled for the harmful drinking group only. Sick days were differentially distributed across the groups, with a reduction of around 11,000 amongst moderate drinkers, around 8,900 amongst hazardous drinkers and around 12,200 amongst harmful drinkers. For the first year after implementation, the cost of sick days was estimated to fall by around £3 million and the cost of unemployment by £32.1 million. The cost of sick days and unemployment was estimated to reduce by around £292 million over ten years. Like the impact on crime, this modelling was carried out five years ago, and we would anticipate that the magnitude of the benefits listed is likely to be less, although it is not possible to quantify by how much.
Benefits to consumers: sensitivity analyses
8.33. The University of Sheffield carried out a number of sensitivity analyses [227] . Sensitivity analysis is carried out on variables in a model in order to explore the impact of key uncertainties in the evidence base. In the 2016 model, the University of Sheffield focused on three aspects of the model: underreporting of alcohol consumption in surveys, price elasticities and the protective effects of drinking on health. They undertook three distinct sensitivity analyses in which they tested the impact of alternative assumptions in these areas on the modelled impact of a 50p minimum unit price.
Adjusting for underreporting
8.34. Alcohol consumption as estimated in population surveys routinely underreports known alcohol consumption taken from sales or excise clearance data by around 40% (i.e. the survey consumption accounts for only 60% of all alcohol sold). There may be many explanations for this discrepancy, both in the survey, including missing or under-represented populations, recall bias in respondents and a tendency to underestimate the size or alcohol content of home-poured drinks and in the sales or clearance data, including illicit alcohol and wastage. A range of methods were proposed to account for this observed underreporting, and details are in the report.
Alternative elasticity estimates
8.35. Elasticities measure differential price-responsiveness across a range of beverage types, including the on-trade and off-trade, and account for the full range of complement and substitution effects. There are different methodologies that can be used to calculate elasticities, and the model was run using elasticities from Meng et al (section 3.2.6 in the report). Sensitivity analyses was carried out using elasticities estimated and used by Her Majesty’s Revenue and Customs ( HMRC).
Protective effects of alcohol on health
8.36. There is no clear consensus on whether alcohol may have a protective effect on specific health conditions and overall mortality. The modelling includes the protective effects as identified in the most recent high quality systematic reviews and meta-analyses [228] . In the sensitivity analysis, all protective effects were removed from the model.
Results
8.37. Accounting for underreporting and using HMRC elasticities, both lead to larger estimates of reductions in consumption, both absolutely and relatively. Underreporting does not change the spending results substantially, but HMRC elasticities reverses the estimated direction of effect, with a 50p minimum unit price now estimated to save all drinkers £5.49 per year on average, although the magnitude of this effect is still small (<1%).
8.38. As for consumption, underreporting and HMRC elasticities both increase the estimated absolute and relative reductions in alcohol-related mortality and hospital admissions compared to the base case. Removal of the protective effects from the model leads to larger estimates of baseline harm than the base case (as alcohol is no longer protecting those drinking at low levels from some health conditions), but marginally smaller absolute (and thus significantly smaller relative) reductions in harm.
8.39. Table 9 shows that the overall distribution of effects across drinker groups is similar under all sensitivity analyses with two main exceptions. The first is the impact of using alternative elasticities on spending, where spending in all groups is estimated to reduce, with greater reductions in heavier drinkers. The second is the impact of adjusting for underreporting on harm reductions, with alcohol-related mortality in harmful drinkers estimated to reduce by twice as much in the base case (62 fewer deaths per year per 100,000 drinkers vs. 30) and a similar conclusion for hospital admissions (1,064 fewer per year per 100,000 drinkers vs. 497). The effect on moderate and hazardous drinkers is considerably smaller and thus under the underreporting adjustment, a 50p minimum unit price is estimated to be substantially more targeted at harmful drinkers in terms of harm reductions (i.e. they make up a greater proportion of the total reduction in harm).
Table 9: Impact of alternative assumptions on modelled effects of 50p minimum unit price by drinker group [229]
| |
Consumption (units per drinker per year) | Spending (per drinker per year) | Alcohol-related deaths per 100,000 drinkers per year | Alcohol-attributable hospital admissions (per 100,000 drinkers per year) | |||||
|---|---|---|---|---|---|---|---|---|---|
| Baseline | Absolute change | Baseline | Absolute change | Baseline | Absolute change | Baseline | Absolute change | ||
| Moderate | Baseline | 312 | -4 | 359 | 2 | -7 | 0 | -100 | -5 |
| Underreporting ( SA1) | 363 | -5 | 422 | 1 | -9 | 0 | -161 | -5 | |
| HMRC Elasticities ( SA2) | 312 | -8 | 359 | -3 | -7 | 0 | -100 | -13 | |
| No protective effects ( SA3) | 312 | -4 | 359 | 2 | 17 | 0 | 453 | -7 | |
| Hazardous | Baseline | 1,402 | -36 | 1,194 | 15 | 95 | -5 | 1,839 | -84 |
| Underreporting ( SA1) | 1,500 | -45 | 1,291 | 13 | 94 | -7 | 1,838 | -125 | |
| HMRC Elasticities ( SA2) | 1,402 | -65 | 1,194 | -10 | 95 | -11 | 1,839 | -166 | |
| No protective effects ( SA3) | 1,402 | -36 | 1,194 | 15 | 127 | -5 | 2,582 | -85 | |
| Harmful | Baseline | 3,498 | -246 | 2,360 | 6 | 424 | -30 | 7,120 | -497 |
| Underreporting ( SA1) | 3,644 | -247 | 2,556 | 6 | 866 | -62 | 15,185 | -1,064 | |
| HMRC Elasticities ( SA2) | 3,498 | -249 | 2,360 | -19 | 424 | -38 | 7,120 | -773 | |
| No protective effects ( SA3) | 3,498 | -246 | 2,360 | 6 | 425 | -28 | 7,241 | -440 | |
Benefits to retailers – off-trade
8.40. Minimum pricing is estimated to result in increased revenue to the alcohol industry as a whole. Table 10 shows that, for a minimum unit price of 50p, there is estimated to be increased revenue (excluding VAT and duty) of around £34 million per annum.
Table 10: Estimated impact of minimum price of 50p per unit on exchequer revenue and retailer revenue [230]
| Estimated change in duty & VAT revenue to Government of MUP 50p | Estimated change in revenue to retailers (after accounting for duty & VAT) of MUP 50p | |||||
|---|---|---|---|---|---|---|
| Off-trade | On-trade | Total | Off-trade | On-trade | Total | |
| Baseline receipts (£ million) | 666 | 469 | 1,136 | 428 | 961 | 1,389 |
| Absolute change in revenue per annum (£ million) | -12 | -4 | -15 | 41 | -7 | 34 |
| Relative change in revenue per annum | -1.8% | -0.7% | -1.3% | 9.6% | -0.7% | 2.5% |
8.41. These are high-level estimates of revenue changes, and it is important to note that this is revenue and not profit. We do not know where change in revenue may accrue, i.e. whether the estimated increases would benefit retailers, wholesalers or producers, or all of them to some extent. The alcohol market is highly segmented, and this makes it particularly difficult to identify potential effects. For different products, where the additional revenue accrues will depend, to some extent, on the relative market power of different parts of the supply chain. The total increase in revenue at a minimum unit price of 50p represents 0.8% of the estimated value of total alcohol sales for both the on and off-trade sectors (£4,079 million [231] ) in Scotland in 2016. It is worth noting that, in the discussions on implementation with the alcohol industry, some considered minimum pricing would not result in additional revenue to the industry.
8.42. A minimum pricing policy is likely to affect predominantly the off-trade sector, as the average price of alcohol is considerably lower in the off-trade sector than in the on-trade. The average price of a unit of alcohol in the on-trade in 2016 was £1.79, whilst for the off-trade it was 53p [232] . The proportion of alcohol sold in the off-trade has increased over the years: in 2016, 73% of all alcohol sold in Scotland was sold through the off-trade, compared with 52% in 1994. The overall trend in alcohol sales is driven by the off-trade sales, which are 47% higher than in 1994. The majority of off-sales are from the large supermarket chains. Nielsen estimates that over 80% of all alcohol off-sales are from “large multiple retailers” such as Asda, Morrison’s, Tesco and Sainsbury’s [233] .
8.43. The off-sales market is increasingly split between supermarket purchases at low prices (supermarkets have substantial buying power and the ability to negotiate lower prices from suppliers and producers) and impulse and convenience purchases from small shops, with independent off-licence chains such as Haddows forced to exit the industry [234] . The remaining specialist market is dominated by Conviviality Retail (owners of Bargain Booze and Wine Rack) and Majestic Wine, with the number of enterprises continuing to decline [235] . In 2016, 42% of all alcohol sold off-trade through large multiple retailers (excluding discount retailers) was sold on promotion. A minimum price per unit may allow smaller chains and independent shops to better compete with supermarkets in terms of price.
8.44. The 2012 BRIA reflected the various views expressed by producers on what might happen to any increased revenue, including whether any additional revenue would be retained by retailers. Some considered that, if retailers were to hold down the price of premium products and so undermine a brand’s position in the market, producers would seek to raise prices to retailers in order to maintain the brand’s position. Others considered that how any additional revenue was shared would be part of a commercial conversation between retailers and suppliers. In discussions with retailers, they queried whether there would be any additional revenue. The RAND report for the Home Office [236] in 2011 concluded that the evidence from the UK alcohol market suggested that major retailers of alcohol, operating in an oligopolistic market, have a relatively stronger bargaining position than producers. This situation has not changed.
8.45. For the 2012 BRIA, convenience stores’ representatives [237] said that they needed to try to maintain low prices to compete with supermarkets, particularly as supermarkets continue to develop their “convenience store” format (such as Tesco Metro and Sainsbury’s Central). They suggested a minimum price would reduce the ability of large supermarkets to undercut prices in smaller shops, and allow the smaller shops to compete on non-price elements such as convenience. The convenience store sector could benefit through the creation of a ‘level playing field’ with supermarkets on alcohol.
8.46. Previously, as noted, some grocery retailers have sold goods, including alcohol, at below-cost as a competitive strategy [238] . If this practice occurs it means that those who drink moderately, or not at all, are subsidising those that drink heavily and purchase very low price alcohol. If this practice is no longer possible through the implementation of a minimum price per unit, it has been suggested that these retailers could consider lowering prices on other goods which are currently cross-subsidising low prices on alcohol [239] such as CDs, DVDs, books, non-alcoholic beverages and health and beauty products.
8.47. In 2012, the Scottish Grocers Federation ( SGF) [240] considered it was unlikely that retailers would use any additional revenue to reduce the prices of other commodities. However, if this did happen, they would be concerned if these products included bread and milk, where there is near-price parity between supermarkets and smaller retailers.
8.48. Minimum pricing per unit could encourage an increase in advertising, which may run counter to the aims of the legislation. The Scottish Government acknowledges that the imposition of minimum pricing will constrain price competition and that this may lead to an increase in non-price competition, including increased advertising or marketing. Through the evaluation programme of studies (see paragraphs 9.26 – 9.32) research has already been commissioned to consider the impact on, and response of, the alcohol industry to minimum pricing.
Benefits to retailers – on-trade
8.49. On average, on-trade prices are well above any potential minimum price. Table 10 above shows that for a 50p per unit, revenue in the on-trade is estimated to decrease slightly (e.g. £7 million per year, a 0.7% reduction) while off-trade revenue is estimated to increase substantially (e.g. £41 million per year, a 9.6% increase). This is because, although prices in the on-trade are unaffected, the effect of cross-price elasticities [241] (i.e. people’s switching behaviour) means that changes in off-trade prices lead to a slight reduction in total sales volumes. In the off-trade, total sales volumes decrease as consumers purchase less alcohol. However, this is offset by the additional revenue gained due to the higher prices following the implementation of minimum pricing.
8.50. The average price of a unit of alcohol in the on-trade in 2016 was £1.79, whilst for the off-trade it was 53p [242] . A minimum pricing policy is therefore much more likely to affect the off-trade sector than the on-trade sector. In 2012, (reported in the BRIA) the Scottish Licensed Trade Association [243] considered that few products in the on-trade would be affected at a 50p per unit minimum price. This position has not changed.
Benefits to wholesalers
8.51. Minimum pricing is estimated to result in increased revenue to the alcohol industry as a whole. Wholesalers deal mainly with smaller retailers on a trade to trade basis, and considered they will see very little change. In the 2012 BRIA, in common with SGF, they considered that the introduction of minimum pricing may result in their customers being better able to compete with larger retailers.
Benefits to producers
8.52. A 50p minimum unit price is estimated to generate an overall increase (excluding VAT and duty) of £34 million per annum to the industry with an increase in the off-trade and a small decrease in the on-trade sectors. It was beyond the remit of the modelling to consider where the change in revenue may accrue. We do not know how any increased revenue would be distributed across the supply chain within this highly segmented market and the extent to which producers may benefit.
8.53. The 2012 BRIA reflected the various views expressed by producers on what might happen to any increased revenue, including whether any additional revenue would be retained by retailers. One view was that, if retailers were to hold down the price of premium products and so undermine a brand’s position in the market, producers would seek to raise prices to retailers in order to maintain the brand’s position. Others considered that how any additional revenue was shared would be part of a commercial conversation between retailers and suppliers.
Benefits to local government and public bodies
8.54. As outlined in paragraphs 8.21 to 8.32, there are likely to be substantial savings in terms of health, crime and employment. Local authorities, for example, would benefit from the estimated reductions in crime and associated police and court costs. It is not possible to place an accurate cost on the potential saving to local authorities and public bodies.
Benefits to central government
8.55. As outlined in paragraphs 8.21 to 8.32, there are likely to be substantial savings in terms of health, crime and employment. Central government, for example would benefit from the estimated reductions in NHS demand and an increase in the productivity of the workforce more generally. It is not possible to provide an accurate estimate of the amount of saving directly accrued by central government.
Costs
Costs to consumers
8.56. On the introduction of a minimum price, consumers directly affected will be those who previously purchased products priced below this. In particular, the evidence suggests that this will mainly be hazardous and harmful drinkers. Using increased price to manage the demand for alcohol is recommended by the WHO as one of the most effective interventions available to reduce consumption and associated harm. However, without an accompanying increase in income (which would negate the effect) policies which increase price are likely to be regressive. The 2016 University of Sheffield report estimated that, in all taxation scenarios modelled, spending would increase across all groups of drinkers, including those in poverty. But for a 50p minimum unit price, harmful drinkers in poverty are actually estimated to reduce spending. This is because taxation affects the price of all products, whereas a minimum price affects only cheaper products, but to a greater extent, changing relative prices [244] .
8.57. Analysis of Scottish Health Survey 2016 data [245] shows that 16% of adults over 16 years old were non-drinkers, 58% were moderate drinkers and 26% drank at hazardous/harmful levels [246] . Those who drink moderately should be largely unaffected by minimum pricing by virtue of consuming a relatively small amount of alcohol.
8.58. Analysis of SHeS 2015 and 2016 data by income quintiles found that 79% of men and 90% of women in the lowest income quintile did not drink or drank moderately. However, this group were also the most likely to drink at harmful levels (9% of men and 3% of women). Furthermore, and significantly, average weekly consumption among low income harmful drinkers was much higher than among other harmful drinkers. This was 91 units for men and 60 units for women, compared to 75 and 51 units respectively for harmful drinkers in the highest income group (data for 2013/14/15/16 combined) [247] .
8.59. The Scottish Government is aware that, for those who drink very heavily and/ or who are dependent drinkers, a minimum unit price of 50p could have a large impact on the cost of the alcohol they are currently consuming. There is also an awareness of the possible strategies that dependent drinkers might employ if unable to maintain their previous level of consumption (e.g. potential for substitute behaviours or an increase in acquisitive crime). None of these unintended consequences is a reason not to introduce the policy, and Alcohol and Drug partnerships ( ADPs) are aware of the possible increase in demand for their services. The consultation response from the Scottish Directors of Public Health, along with Scottish Health Promotion Managers and the Public Health Special Interest Group, noted the potential for increased demand on specialist services but welcomed the introduction of a minimum unit price and, in particular, the potential to impact on health inequalities [248] . This recognition that there is the potential to have significant impact on the heaviest of drinkers is reflected in a specific research study within the evaluation portfolio looking at the impact on harmful drinkers [249] .
8.60. Analysis on expenditure data published by SHAAP [250] showed that all income groups purchase low price off-sales alcohol and confirmed that low income households are less likely to purchase off-sales alcohol at all. Further, it concluded that the relationship between income group and the amount of alcohol purchased at the cheapest price (below 30p a unit) is not particularly strong, and that middle-to-higher income groups were the main purchasers of alcohol priced between 30p and 50p. When propensity to purchase alcohol is taken into account, the lowest income groups are among the least likely to buy cheap alcohol. However, for those in low income groups who do buy alcohol, cheap alcohol makes up a proportionally larger share of the total alcohol bought.
8.61. A further paper [251] also demonstrated that low-income households are not the predominant purchasers of any alcohol or even of cheap alcohol. It found that, at the population level, minimum pricing in the UK is unlikely to be significantly regressive. It concluded that minimum pricing will affect the minority of low-income households that purchase off-trade alcohol and, within this group, those most likely to be affected are households purchasing at a harmful level.
8.62. In oral evidence to the Health and Sport Committee of the Scottish Parliament, a senior research consultant at the Institute for Fiscal Studies ( IFS) described how their work had estimated that, while minimum pricing could potentially have a slightly bigger effect on lower-income groups, this would not be substantial [252] .
8.63. Consumers can be expected to respond to changes in price by reducing their consumption of an alcoholic product if the price increases, or by switching to alternative products (substitutes) whose relative price has decreased. The extent to which this happens will depend on consumers’ price responsiveness, known as own-price elasticity ( PED) and cross-price elasticities ( XED) of demand, which will determine change in consumption and switching behaviour.
8.64. Knowledge of price elasticities is crucial in determining, for example, the impact of the change in duty rates. HMRC has a costing model in which price elasticities are one of the most important inputs. Their most recent work estimating elasticities, Estimation of price elasticities of demand for alcohol in the United Kingdom [253] , lists over 30 studies [254] which they consider show that “there is fairly conclusive and longstanding evidence that price has a negative impact on alcohol consumption in the UK” [255] .
8.65. Estimates of elasticity are crucial to the Sheffield Model, which essentially works in two stages. The first stage models elasticities taking into account on and off-trade, different types of products and different categories of drinker. The analysis has found that most products are substitutes to each other so a price increase in one product leads to increased consumption of other goods (switching) [256] .
8.66. The Sheffield Model (2016) separated drinkers into the categories moderate, hazardous and harmful and by those in, and not in, poverty. The results show that, whilst the introduction of a minimum price for a unit of alcohol leads to a decrease in consumption, it would result in an increase in consumers’ spending for hazardous drinkers and harmful drinkers not in poverty, whilst harmful drinkers in poverty would see a decrease in spending. Hazardous and harmful drinkers would be most affected as they consume the most alcohol and tend to consume cheaper products. The effects are slightly larger for hazardous and harmful drinkers than for moderate drinkers, i.e. they are more responsive to price change. Table 11 shows the estimates for changes in consumption and spending for the proposed minimum price of 50p:
- the moderate drinker is estimated to reduce mean annual consumption by 4.1% (for those drinkers in poverty) with no increase in spend, and by 0.8% (for those drinkers not in poverty) with an increase of £2 per annum;
- the hazardous drinker is estimated to reduce mean annual consumption by 6.1% (for those drinkers in poverty) with an increase in spend of £1 per annum, and by 2.1% (for those drinkers not in poverty) with an increase of £16 per annum;
- the harmful drinker is estimated to reduce mean annual consumption by 15.1% (for those drinkers in poverty) with a decrease in spend of £88 per annum, and by 5.4% (for those drinkers not in poverty) with an increase of £20 per annum.
Table 11: impact of a minimum unit price of 50p on consumption and spend by drinker & poverty groups [257]
| |
Moderate | Hazardous | Harmful | |||
|---|---|---|---|---|---|---|
| In poverty | Not in poverty | In poverty | Not in poverty | In poverty | Not in poverty | |
| Drinker population | 345,308 | 2,314,021 | 83,404 | 758,402 | 31,248 | 208,089 |
| Consumption | ||||||
| Baseline consumption per drinker per year (units) | 238 | 323 | 1,456 | 1,396 | 4,499 | 3,348 |
| Absolute change per drinker per year (units) | -9.8 | -2.7 | -88.1 | -29.7 | -680.9 | -180.9 |
| Relative change per drinker per year | -4.1% | -0.8% | -6.1% | -2.1% | -15.1% | -5.4% |
| Spend | ||||||
| Baseline spending per drinker per year | £230 | £378 | £1,102 | £1,204 | £2,484 | £2,341 |
| Absolute change per drinker per year | £0 | £2 | £1 | £16 | -£88 | £20 |
| Relative change per drinker per year | -0.2% | 0.6% | 0.1% | 1.4% | -3.5% | 0.8% |
8.67. In the 2012 BRIA, some producers considered product ranges could be reduced, thereby resulting in less choice for consumers. This could be in different ways, for example, retailers are only able to display alcohol in a pre-determined alcohol display area so they could choose to reduce the product range in order to concentrate on those products that deliver consistent sales. It is not known which products these might be, given it is not known what the shift in consumer behaviour might be. As many logistics operations are UK-wide, significant changes may have to be made as a result of minimum pricing which may incur excess cost to the industry and may result in a reduction in consumer choice.
Costs to retailers – off-trade
Sales
8.68. For a 50p minimum unit price scenario, the Sheffield Model estimates an increase in revenue to the alcohol industry as a whole (note this is revenue, not profit). For a 50p minimum unit price, it is estimated to result in a net increase (excluding VAT and duty) of £34 million per annum, with £41m in increased revenue to the off-trade. Any effect on retailers would need to take into account that this overall impact is estimated to be as a result of a reduction in the volume of sales but with increased prices.
8.69. Alcohol industry sales data [258] shows that 46.9 million litres of pure alcohol was sold through both the on and off-trade in Scotland in 2016. Of this, 73% was sold through the off-trade and just over a quarter (27%) through the on-trade.
Within the off-trade sector:
- 33% was sold as spirits (of which 40% was vodka and 21% blended whisky);
- 32% as wine;
- 23% as beer;
- 7% as cider; and
- <1% as RTD [259] .
93% of the difference in off-trade sales between Scotland and England & Wales, in 2016, was due to higher off-trade sales: 63% of the off-trade difference was due to spirits sales; and per adult sales of vodka through the off-trade in Scotland were 2.1 times higher than in England & Wales [260] .
8.70. The Sheffield Model’s focus is on the impact on alcohol-related harm, in particular health harms (as discussed in paragraphs 8.21 to 8.29), not the impact on the industry.
8.71. However, it estimated that, on average, demand for alcohol would reduce by an average of 26.3 units per drinker per year, equivalent to 98.4 million units per year in total. Sales data shows that 51% of alcohol sold in the off-trade in 2016 retailed at less than 50p per unit. It is this alcohol that will require to rise in price and, subsequently, from which a reduction in demand is expected.
8.72. The 2016 sales data showed that 62% of spirits (of all kinds) were sold below 50p per unit. In terms of the scale of impact, if the reduction in demand was proportionate to the distribution of sales then that would represent a reduction in demand for spirits of around 1.2 million bottles (assuming an ABV of 37.5%).
8.73. Sales data for 2016 indicate that, in terms of pure alcohol, the proportions sold below 50 pence per unit were as follows:
- 72% of vodka;
- 59% of whisky;
- 64% of beer;
- 71% of cider; and
- 29% of wine.
8.74. It is not just the proportion of sales affected that matters, but also the degree of price increase required to comply with legislation. This will vary with the product due to different price distributions. For example, as shown above, 71% of cider retailed at less than 50p per unit, with 56% at less than 40p per unit, whereas although 64% of beer retailed below 50p per unit, only 35% was below 40p per unit.
8.75. Large and small retailers are likely to be affected differently. Larger retailers sell large volumes of popular brands (often priced very competitively) and also a greater range of products. In the 2012 BRIA, convenience stores’ representatives said that they needed to maintain low prices to compete with supermarkets, particularly as supermarkets continued to develop their “convenience store” format (such as Tesco Metro and Sainsbury’s Central) putting pressure on independent retailers to compete with them on price. They considered it was unlikely that retailers would use the additional revenue to reduce the prices of other commodities. However, if this did happen, they would be concerned if these products included bread and milk, where there is near-price parity between supermarkets and smaller retailers.
Implementation costs
8.76. There will be costs to retailers associated with the implementation of a minimum pricing scheme such as re-pricing products, altering bar codes, shelf tickets and price lists. Retailers will also have to ensure staff are familiar with the legislation. In the short term, this is likely to mean local training to raise awareness and understanding amongst staff on complying with the mandatory condition of minimum pricing. The Licensing (Scotland) Act 2005 makes it mandatory for personal licence holders to undertake prescribed training every five years. Awareness of complying with the mandatory condition of minimum pricing will need to be included in the prescribed training.
8.77. Those retailers that operate on a UK-wide basis may incur costs associated with a different pricing and promotion regime operating in Scotland. These retailers are predominantly large supermarket chains who potentially have the resources available to investigate the most cost-effective method of implementing differential pricing across stores in different parts of the UK. Given large retailers may also increase their revenue on the introduction of minimum pricing, we do not believe the net cost of implementation costs will be substantial.
8.78. A study on how often prices change for products in supermarkets, using weekly scanning data collected by Nielsen (including alcohol), showed that around 40% of prices in supermarkets change frequently. Around 25% of changes are adjusting for temporary reductions and, in any one week, 29% of alcohol prices rose and 29% fell [261] . Any changes in alcohol duty imposed by the UK Government also result in the need to re-price, and often at very short notice (for example, at midnight that same day). As stores adopt electronic pricing which can be easily varied (surge-pricing systems), changing prices is becoming more common. Retailers do state that manual re–pricing can still be required, even in larger outlets, for example for individual items that have come from a broken multipack.
8.79. The 50p per unit minimum price will determine the proportion of products which will require re-pricing following the introduction of a minimum price (the price distribution shown in Figure 8, paragraph 5.69 provides an indication). The Scottish Government is working with retailers in order to identify how best to achieve implementation, and is discussing any issues which might need addressed. The Scottish Government is in the process of producing guidance on the implementation of minimum unit pricing in consultation with relevant parties such as business organisations, retailers, wholesalers, producers, Licensing Standards Officers, Police Scotland, Licensing Clerks to the Licensing Boards. The Scottish Government will continue to work with retailers following implementation.
8.80. Additional costs are likely to be less for stores with head office support and/ or electronic pricing. However, for independent and unaffiliated retailers, this may be equivalent to one member of staff for up to several days. If it is assumed that one shopfloor worker earning £7.50 per hour (national living wage for 25 years and over) [262] is employed for 16 hours, this would cost the employer approximately £145 per worker (including costs). It is unclear how many retailers would be affected in this way. It will also depend on the number of products in the shop that will be affected by the minimum price, as not all products will need to have a price change. In March 2017, there were around 16,678 premises licence in operation in Scotland [263] . Of these, 5,091 were for off-sales only. Assuming this cost applied to all gives a total incurred cost of around £738,000. The actual figure will be less than this given not all off-sales premises will be affected and not all products in off-sales will be affected.
8.81. Wholesalers may choose to increase prices in the knowledge that retail prices of certain goods have increased, but that will be for individual companies within the supply chain to determine. Where wholesalers hold a premises licence, they will need to ensure they comply with minimum pricing.
8.82. The 2012 BRIA reflected the view that some producers considered there would be increased costs in allowing for two different pricing systems north and south of the border. Since the introduction of the multi-buy ban in Scotland (and not in England), there will already be different pricing systems to some extent. Arguably, multiple grocers would be able to absorb these costs, but independent and unaffiliated retailers would be potentially less able to, so their overall business performance could be impacted.
Cross-border sales
8.83. There may be a loss of trade for Scottish retailers due to an element of cross-border alcohol tourism in order to take advantage of those areas in the UK that do not have minimum pricing in place. Within the EU, according to Cnossen [264] , around 12% of the population of the EU live near a border with another member state. In other jurisdictions where there are different costs on either side of a border, which may be due to different currencies, different taxation regimes, or as in Canadian provinces, minimum pricing for alcohol, there is an incentive to cross the border to purchase goods. A paper examining cross-border shopping between Sweden and Finland confirmed that the lowering of alcohol taxes in Finland in 2004 had an effect on trade but, in common with evidence for the US, it found that those most likely to take advantage of it were the more affluent. These are not those at most risk of alcohol-related harm [265] .
8.84. Other Scandinavian studies have also analysed sales of alcohol and tobacco in Norway, both close to the border with Sweden (where the tax is lower) and further away. In one, revenue from these products was lower for Norwegian stores near the border, but consumers there reported higher consumption than those further away. This suggests cross-border shopping by a number of Norwegian households. They also found that measures of externalities were higher near the border. The authors concluded that large tax differentials near borders induce tax avoidance behaviour [266] . This behaviour was confirmed by two other studies [267] .
8.85. Cross-border shopping is most likely to occur when it is easy and convenient, thus incurring little cost, and/or where the incentive, i.e. the price differential, is great enough to counterbalance any additional cost incurred. In Scotland, this will be around the border where it is convenient to shop in England. Most of the Scottish population live a considerable distance from the English border, with only 5% [268] of the population living in the areas adjacent to the English border, in the Scottish Borders and Dumfries and Galloway.
8.86. The majority of the population (around 70%) live in the Central Belt, with Glasgow and Edinburgh being the most populated cities. A round trip from Glasgow to Carlisle (the nearest large town across the English border) involves a journey of just under 200 miles. Assuming an average of 50 miles per gallon, and a fuel cost per gallon of around £5.36 (equivalent to 118p per litre [269] ) the journey would cost over £21 in petrol/diesel alone and take around four hours. Additional variable running costs of around 8p per mile [270] (based on an annual mileage of 15,000 miles and an engine size of 1.2-1.6l) adds £16 to the cost. The total travel cost is therefore £37. This excludes any valuation of the time cost of around four hours. On the east coast, Berwick upon Tweed is around 57 miles from Edinburgh, so a similar costing would result in a total travel cost of £21, with a time cost of around three hours.
8.87. Travel primarily to buy alcohol would be incentivised by a significant price differential between Scotland and England. As previously described, it is anticipated that certain products will be more affected than others. Assuming that alcohol products in England do not rise in price, for bottles of spirits, for which at the lower end of the market £11 is a common price point for vodka ( ABV 37.5%), you would need to buy 17 bottles to break even for a trip to Carlisle and 10 bottles for a trip to Berwick. For cider, if buying the 2L bottles currently retailing at £2.05 ( ABV 5%) you would have to buy 13 bottles for a trip to Carlisle and eight bottles for a trip to Berwick. Whilst this is possible, it represents a significant up-front cost (£224 for the vodka example for a trip to Carlisle, and £131 for a trip to Berwick).
8.88. In the 2012 BRIA, the example cited was of higher sales of alcohol in Northern Ireland due to the increase in the numbers of people travelling from the Republic of Ireland to Northern Ireland to take advantage of cheaper alcohol deals. This issue of cross-border shopping between Northern Ireland and the Republic of Ireland was addressed in a report conducted by the Office of the Revenue Commissioners and the Central Statistics Office for the Irish Department of Finance [271] . The report noted that the main causes of price differentials between goods in Northern Ireland and the Republic are operating costs, profit margin, taxes and, in particular, the value of Sterling against the Euro (depreciation of around 30% between January and December 2008). These are specific circumstances where it is not just alcohol that is cheaper – people are travelling to do all their shopping. Intertrade Ireland confirm that the main drivers for cross-border shopping are economic factors, such as price differentials and exchange rate fluctuations [272] . The impact [273] of fluctuations in exchange rates has been seen again in 2016, when the value of Sterling dropped after the vote to leave the European Union (with the subsequent 10-12 per cent rise in the value of the Euro against Sterling).
8.89. As set out in section 9, the Scottish Government is committed in legislation to evaluate the impact of minimum pricing five years after the implementation of the policy. Within the research portfolio [274] , a number of the studies will collect data and information which are expected to provide understanding of any cross-border effect.
Internet sales
8.90. Minimum pricing will apply to all sales of alcohol licensed under the 2005 Act. This includes premises in Scotland supplying internet sales. Therefore, consumers who regularly buy their weekly groceries online, including alcohol, would be affected by minimum pricing, as these orders are normally despatched locally, i.e. within Scotland. It is worth noting that, in 2016, Amazon was granted premises licences for two Scottish distribution centres, bringing them within the scope of the Licensing (Scotland) Act 2005 [275] .
8.91. Where alcohol is purchased through the internet or mail order and despatched from outside Scotland, these sales are not subject to the 2005 Act and so minimum pricing will not apply. Like the potential for cross-border shopping, the incentive to buy from outwith Scotland via the internet will be greater the bigger the price differential between the price of alcohol in Scotland and elsewhere, combined with the volume of goods being purchased.
8.92. The Office for National Statistics ( ONS) estimates that internet sales account for 16.9% of all retail sales values excluding automotive fuel [276] . A separate figure for alcohol sales via the internet is not available from ONS. Market research reports show around 21% of UK consumers had bought alcohol online, behind only China (27%) and Japan (22%). This compares to a global average of around 8% [277] . The report, from Profitero, cited factors including the continued migration from in-store to online as well as the expansion of click and collect, home delivery and the ability to compare products and check prices. It also referenced convenience and consumer access to an “endless aisle” of products as contributing to shoppers favouring online buying. None of these factors would necessarily preclude dispatch from within Scotland, although they do point to the possible growth of food and drink shopping online from, in particular, large retailers with access to wider ranges of goods.
8.93. The Scottish Government is aware of the possible purchasing route from other jurisdictions, via the internet, but considers that the type of alcohol that will be largely affected by a minimum pricing policy is not routinely purchased in this way. Much of the sales online are driven by demand for niche products such as craft beers – and also increasingly gins – from an audience of enthusiasts. Stores have also been able to increase sales by offering subscription bottle box schemes (similar to wine clubs) with a regular box of different beers determined by the retailer or the preferences of the customer [278] . The relatively expensive nature of these products, and the subscription cost, if applicable, means that a minimum price of 50p per unit is unlikely to impact on this service.
8.94. Purchasing from the internet involves a time lag between purchasing and receiving the goods which means it is not suitable for immediate or impulse purchases. This makes it less likely as a source for those for whom widely available cheap alcohol both facilitates and encourages regular and impulse purchases. Home delivery, if that is simply delivering from a local store to the customer’s home (both within Scotland) via either a telephone or online order, would be subject to the legislation.
8.95. The Scottish Government is aware that this is a developing market, that online sales are increasing and that minimum pricing could provide an incentive to purchase alcohol via the internet from outwith Scotland. This makes it a market segment which will require careful monitoring, and it is included within the evaluating and monitoring programme for minimum pricing.
Illegal sales
8.96. Illicit alcohol could be either alcohol on which the appropriate tax and duty has not been paid or counterfeit alcohol products. The former could, at present, be goods brought in from other parts of the EU where duty is lower and sold on illegally. Under minimum pricing, these could include goods bought in other parts of the UK and sold on below the minimum price. This would be illegal. Police Scotland does not consider there is a significant problem with either the production or sales of illicit alcohol in Scotland. This is confirmed by both HMRC and Trading Standards [279] . It is worth noting that HMRC estimates that in 2015/16, for spirits, the illicit market was in the region of 6% of the spirits consumed in the UK, 12% for beer and 3% for wine in their respective markets [280] .
8.97. Like individual purchases of alcohol from across the border, the incentive for trafficking on any scale would depend on the price differential between Scotland and the rest of the UK. The Scottish Government does not consider that the differential is likely to be such as to incentivise this kind of activity. In giving evidence to the Health and Sport Committee during 2010, Chief Constable Pat Shearer of Dumfries and Galloway stated that illegal sales have never been a major issue, but they would assess whether it was becoming one after the introduction of minimum pricing [281] . Police Scotland has confirmed this view again to the Scottish Government in 2018. The potential for illegality is not a justification for failing to introduce a policy estimated to deliver significant individual and societal benefits, including a reduction in crime.
Home production
8.98. Home production of alcohol is currently considered to be undertaken on an insignificant scale, and it is unlikely that a minimum unit price of 50p will result in a major increase in this activity. Whilst home production of alcohol will result in cheaper alcohol in the longer term, it involves initial expenditure in purchasing the equipment and materials required [282] . Time and effort from the individual will also be required during the production process, and it will take from days to weeks for the end result to be realised. The Scottish Government considers these factors are likely to make the home production of alcohol unattractive to those that are most likely to drink the alcohol affected by minimum pricing.
8.99. The 2016 sales data estimated that 51% of off-sales were retailing at below 50p per unit. Of these sales, 40% were spirits, 29% beer, 18% wine, and 10% cider. It is much more usual for wine, beer and cider to be made at home. As regards spirits, HMRC Excise Notice 39: spirits production in the UK [283] states that the production of spirits by a person who does not hold a distiller’s licence is an offence for which there are financial penalties, and that a licence will not be issued to produce spirits for individual use.
Costs to retailers – on-trade
8.100. The Scottish Government’s proposed minimum unit price of 50p falls well short of the average price of £1.79 [284] per unit in on-trade premises in 2016, so any negative impact on the on-trade is likely to be marginal. The alcohol market is complex and changes in price induce changes in behaviour including switching between products and between on and off-sales. Overall, at a 50p minimum unit price, the most recent modelling estimates a decrease in revenue after duty and VAT of around £7 million per annum (0.7% of revenue) [285] .
Costs to wholesalers
8.101. Minimum pricing is a mandatory condition of a premises and occasional licence. Therefore, where a wholesale business has a licence, it will need to comply with minimum unit pricing. A wholesaler which sells to both trade and the public will have to ensure that it complies with the new mandatory condition on its licence. Wholesalers only selling alcohol trade-to-trade do not require a licence, so minimum pricing will not apply. Minimum pricing is estimated to result in increased revenue to the alcohol industry of £34 million as a whole. Wholesalers may benefit from a portion of this revenue, depending on their market power within the supply chain.
8.102. Wholesalers may be affected indirectly by the decrease in the volume of overall sales, although the modelling estimates that there will be an increase in their value. The extent of the decrease is likely to vary across different types of alcohol. For example, a minimum unit price of 50p is likely to impact on a larger proportion of cider, beer and spirits than of wine.
Costs to producers
8.103. Minimum pricing is estimated to result in increased revenue to the alcohol industry as a whole. For a 50p per unit minimum price, the modelling estimates increased revenue to the alcohol industry (excluding VAT and duty) of £34 million per annum. It was beyond the remit of the modelling to consider where the change in revenue may accrue, i.e. whether the estimated increases benefit retailers, wholesalers or producers, or all of them to some extent. The alcohol market is highly segmented and this makes identifying potential effects difficult. For different products, where the additional revenue accrues will depend, to some extent, on the relative market power of different actors in the supply chain and negotiations between them.
8.104. Producers considered that a reduction in sales could also have an effect on suppliers of such items as bottles, labels, cases, etc, and further back along the supply chain it would impact on transport, farmers, maltsters and ultimately investment.
8.105. The supply side reaction to the introduction of a minimum price is not known, and there are differing views within the industry resulting in different scenarios. It remains difficult to predict the impact on producers, including identifying which types of producer are likely to be most affected. It is possible that, in some sectors, minimum pricing will incentivise producers to produce lower strength alcohol products as these would retail more cheaply. For others, this is not an option; for example, Scotch Whisky production which must have a minimum bottling strength of 40%.
8.106. Producers that are likely to be most affected by a minimum price are those whose production consists of a significant volume of products which routinely retail below 50p per unit. One of the scenarios put forward by producers is that own/ private label products will not exist in the market after the introduction of minimum pricing. Whilst the market may respond in this way, it is likely that some alcohol will retail at the threshold determined by a minimum price of 50p per unit, i.e. the cheapest price allowed. Products may be branded differently; much will depend on decisions around marketing and retail pricing for brands. It is possible that the companies previously supplying own/ private label will continue to supply this alcohol, but perhaps in reduced quantities. It is also possible that companies may change their product emphasis, for example, moving from producing cheaper alcohol to premium products.
Cider
8.107. In the case of ciders, the market leader for cheaper ciders, Strongbow [286] is made by a subsidiary of Heineken which is a major drinks company producing a whole range of alcohol products. It is likely to be affected to a very minimal extent by minimum price, due to the diversity of their products and their international sales base.
8.108. Frosty Jack’s is one of the best known of the “white” [287] ciders and is among the top five best-selling ciders in the UK. Its market is not confined to Scotland and, for example, it does not feature in the Scottish Grocer’s list of Scotland’s most valuable alcohol brands for 2016 [288] . It is manufactured by an independent cider making company in England which includes own/ private label, and premium brands, within its portfolio of products [289] .
Spirits
8.109. For the 2012 BRIA, two companies were identified as being significantly involved in own/ private label whisky production in Scotland: Whyte & Mackay and Glen Catrine. Both of these companies produce branded products as well as own/ private label and both supply the UK market. Whyte & Mackay’s blended whisky remains among the top 20 spirits brands (by natural volume) in Scotland. Glen Catrine produces a very successful brand of vodka (Glen’s), which is now the UK’s second best-selling spirit [290] .
8.110. The Sheffield Model estimates that there will be an increase in the value of sales but a decrease in the volume overall. The impact will vary across types of alcohol and between on and off-trade. For a 50p per unit minimum price, the modelling estimates that on average there would be a reduction of 26.3 units per drinker. Using the population and consumption data in the University of Sheffield report (a drinking population of 3,740,472), the total reduction would be over 98 million units in a year. Assuming the reduction was apportioned in the same way as sales, then approximately 30% of that reduction would come from spirits sales, equivalent to around 29 million units or 2% of sales. This represents around one, million bottles of spirits a year across all types of spirits (vodka, gin, whisky, rum etc.) and both imported and domestic products.
8.111. It should be noted that around 93% of Scotch Whisky is exported [291] . SWA has previously suggested that around 20% of the UK domestic sales are in Scotland, which implies only around 1.5% of total production is sold in Scotland [292] . If the same percentage decrease applied across all spirit categories, this would mean a reduction of less than 0.2% of total whisky production as a result of the introduction of minimum pricing. This should be considered in the wider context of figures showing that, in 2016, the value of exports of Scotch whisky grew by 4% to over £4 billion [293] . This growth represented 56 million bottles of whisky. The value of Scotch Whisky exports increased by 3.4% in the first six months of 2017 [294] , although the volume decreased by 2.2%.
Beer
8.112. A minimum price of 50p per unit is likely to result in an overall reduction in consumption of beer, but the impact on brewers is difficult to predict, as is their response to changing market conditions. The most popular well known brands, e.g. Tennents, Stella Artois and Budweiser, like many beers, are available in a variety of individual product and pack sizes. Most of the top selling versions of these brands (shown in Table 15), were, in 2017, selling at less than 50p per unit [295] . The growth in craft breweries is noted, and their products are unlikely to be affected directly by a minimum price. After the introduction of minimum pricing, their products may appear less expensive in relative terms, making it easier for them to compete.
8.113. The growth in zero alcohol and low strength products (e.g. Diageo’s mid strength Guinness, Becks Premier Light and Carling C2) is likely to have been assisted by the 50% duty discount on beer with an ABV of 2.8% or less from 1 October 2011 [296] . The increasing number of people, especially younger people, who drink little or no alcohol has meant both big brewing corporations and craft breweries are introducing new products [297] . CGA Strategy [298] estimate that zero and low ABV beer is now worth nearly £30 million annually to the UK on-trade [299] . The introduction of a minimum price per unit may further accelerate this growth, given that such products are likely to be unaffected by minimum pricing by virtue of their low unit content.
Wine
8.114. In recent years, there has been a drift towards buying higher strength wine. The introduction of minimum pricing may help reverse this trend, given the price incentive in limiting the ABV. For instance, under a 50p minimum price per unit, a 75cl bottle of 12% ABV wine would retail for a minimum of £4.50 compared to £5.25 for a wine with a 14% ABV.
Raw materials; agriculture
8.115. Both spring and winter barley are grown in Scotland and the UK. Spring barley is the dominant barley crop grown in Scotland, and production is heavily reliant on the strength and long-term confidence of the Scotch Whisky industry. In 2015/16, it is estimated that Scottish grown barley supplied 80-90% of the demand from the Scotch Whisky industry, and Scottish produced malt supplied around 60% of the needs of the Scotch Whisky sector [300] .
Jobs
8.116. There are currently no specific estimates available on the Scotland-wide impact on employment of the introduction of a minimum price per unit of alcohol. There may be negative and/ or positive effects. Previous iterations of the Sheffield Model estimated that a minimum price of 50p per unit would reduce unemployment among harmful drinkers by 1,300 per annum through their increased ability to participate in the workforce.
8.117. Given the uncertainty in assessing the impact of minimum unit pricing on the market, it is difficult to estimate the impact on jobs in the alcohol industry. In the 2012 BRIA, producers considered there would be job losses for companies heavily involved in own/ private label production. Whilst it is not yet clear what will happen to own/ private label products, it is likely that value products (i.e. products currently priced at or below the minimum price) will still be sold, although in reduced quantities, and likely at the level of the minimum price.
8.118. In written evidence to the Health and Sport Committee in 2012, NHS Scotland [301] referred to evidence that declining alcohol consumption may not affect employment in the way described by the industry. While the analysis conducted by Anderson and Baumberg [302] was on the Europe-wide alcohol market, they stressed that, for each domestic market, there are a number of factors other than demand which will impact on the employment level in the drinks sector. Amongst these factors are consumer preferences (consumption of domestic versus foreign produced goods), consumers’ choice of whether to drink in on-trade facilities or at home, labour productivity, wage rates, the cost of capital associated with the production process, etc. While acknowledging that further research is needed, the study analysed Eurostat data and found no relationship between trends in employment in hotels, restaurants and catering (and bars) and alcohol consumption. In several countries (e.g. Italy) employment and consumption levels even went in opposite directions.
Effect on market
8.119. As previously reported (paragraphs 6.6 and 8.3), there is no consensus within the alcohol industry (either in 2012 or currently) on the future pricing structure within the market, or on the impact (including availability) on specific types of products or ranges of products after the introduction of a minimum price per unit of alcohol. A variety of views have been expressed by those in the alcohol industry:
- All products in the market would be affected, i.e. both those priced below and those priced above the minimum unit price;
- Only prices below the minimum unit price would be affected;
- There would be a mixture of an impact on prices; unable to be precise;
- The introduction of a price floor would distort the market;
- The value attached to premium brands over value brands would reduce and consumers might switch to other drinks categories;
- Consumers likely to switch to premium brands if the differential between premium and value was reduced;
- The own/ private label market will be decimated and likely de-listed; or
- Supermarkets could maximise profits by continuing to stock own/ private label at the expense of brands.
8.120. As previously referenced, the unpredictability of the market response is recognised in the UK Supreme Court judgment, where Lord Mance concludes:
That minimum pricing will involve a market distortion, including of EU trade and competition, is accepted. However, I find it impossible, even if it is appropriate to undertake the exercise at all in this context, to conclude that this can or should be regarded as outweighing the health benefits which are intended by minimum pricing. In the overall context of the Scottish or, on the face of it, any other market, it appears that it will be minor, though it will hit some producers and exporters to the Scottish market more than others. Beyond that, the position is essentially unpredictable. Submissions that the Scottish Government should have gone further to predict the unpredictable are not realistic. The system will be experimental, but that is a factor catered for by its provisions for review and “sunset” clause. It is a significant factor in favour of upholding the proposed minimum pricing régime.
The impact on the market forms part of the evaluation of minimum pricing.
8.121. The alcohol products that appear most likely to be directly affected by minimum pricing are own/ private label, for which there is no clear consensus on whether supermarkets would continue to sell these. This could be conditional on the price differential between own/ private label and the lower-priced premium brands which would result, so may vary with the product type. Not all own/ private label products are cheap. For example, Tesco Finest 12 year old Highland malt whisky retails at around £25 for a standard 70cl bottle, competes on price with mainstream brands and will not be directly affected by a 50p per unit minimum price.
8.122. In the 2012 BRIA, some producers believed retailers have considerable control over what is sold and have a number of options. They may decide to remove the own/ private label products from the shelves, or maintain the pricing differential between own/ private label and standard blends and so increase their return, or hold down the price of premium products thereby undermining the brand’s position in the market. Much will depend on the negotiations between producers and retailers.
8.123. Producers also considered product ranges could be reduced. As retailers are only able to display alcohol in a pre-determined alcohol display area, they could choose to reduce the product range in order to concentrate on those products that deliver consistent sales. They were unable to identify which products these might be, given any shift in consumer behaviour is unknown. A reduced product range would result in reduced choice for consumers. It was also considered that suppliers would find it harder to bring new products onto the market, particularly where the costs of production of a new product are lower.
Off-sales market: product range
8.124. Scottish consumers have a wide range of alcohol products available to them. These are sourced across a number of countries worldwide and, as shown by the sales data, cover a range of prices. Minimum pricing will apply to all products, irrespective of which country produces them. As previously outlined, it is anticipated that the measure will impact mainly on the off-sales segment of the licensed trade. The 2016 sales data estimated that 51% of off-sales were retailing at below 50p per unit [303] . Of these sales, 40% were spirits, 29% beer, 18% wine, and 10% cider. It is extremely difficult to predict with any certainty which individual products are likely to be most affected, and the country of origin of such products. The following paragraphs summarise some publicly available information to provide a high-level description of various market segments.
Spirits
8.125. Spirits sold in Scotland are both domestically produced and imported. The 2016 sales data shows that whisky was predominantly domestically produced (90%) and accounted for around 7% of total alcohol off-sales. Imported whisky accounted for 10% of sales of whisky. Across all types of whisky, 59% was sold at under 50p per unit with 77% of blended whisky (domestically produced) falling into this category and less than 1% of malt whisky (domestically produced) compared with 17% of imported whisky. A minimum price of 50p per unit would, therefore, impact on both domestic production and imports, with more of the former likely to be impacted.
8.126. Vodka, the majority of which (72%) retailed below 50p per unit in 2016, makes up 13% of total sales, and 19% of all sales below 50p per unit. The top selling vodka in Scotland in terms of sales value was Smirnoff Red, followed by Glen’s vodka (produced by Glen Catrine in Scotland) [304] . These two brands were ranked 1st and 2nd in terms of the value of sales of brands in Scotland in 2016. A minimum price of 50p per unit would impact on both domestic production and imports. However, it is anticipated that it would predominantly be domestic production that is affected.
8.127. Gin accounted for 4% of total sales with more than half (60%) falling below 50p per unit. Gin is both domestically produced and imported. There is notable growth in the number of gin distilleries in Scotland, with these primarily producing premium brands which will be unaffected by minimum pricing. Rum, which is predominantly imported, although there is some domestic production, made up around 1% of sales, with golden rum generally retailing at higher prices than white or dark rum.
8.128. Table 12 shows the top 20 selling off-sales spirit products [305] in Scotland in 2017. Of these, around half are currently retailing at a price equivalent to the minimum price of 50p per unit – the remainder were below the minimum price and, again, the popularity of vodka sales is evident.
Table 12: top selling 20 spirits, off-trade, Scotland, 2017 [306]
| product | volume | production | |
|---|---|---|---|
| Smirnoff Red Label | vodka | 1 L | UK |
| Glen's | vodka | 1 L | UK |
| Smirnoff Red Label | vodka | 700 ML | UK |
| The Famous Grouse | blended scotch | 1 L | UK |
| Glen's | vodka | 700 ML | UK |
| Gordons | gin | 1 L | UK |
| Glen's | vodka | 350 ML | UK |
| Whyte and Mackay | blended scotch | 1 L | UK |
| Bells Original | blended scotch | 1 L | UK |
| Bacardi Carta Blanca | white rum | 1 L | non EU |
| Captain Morgans Spiced | flavoured/spice rum | 1 L | non EU |
| Russian Standard | vodka | 1 L | UK |
| The Famous Grouse | blended scotch | 700 ML | UK |
| Private Label | vodka | 1 L | UK |
| Gordons | gin | 700 ML | UK |
| Private Label | vodka | 700 ML | UK |
| Whyte and Mackay | blended scotch | 700 ML | UK |
| Baileys Original | cream liqueur | 1 L | EU |
| Russian Standard | vodka | 700 ML | UK |
| Captain Morgans Spiced | flavoured/spice rum | 700 ML | non EU |
Wine
8.129. The vast majority of wine is imported and, in common with the rest of the UK, the off-sales market in Scotland includes a breadth of products from a large number of countries retailing across the range of prices. The UK is a key market for the global wine trade [307] .
8.130. In 2014, NHS Health Scotland published a briefing paper using 2013 alcohol sales data to describe the wine market in Scotland [308] . This showed the breadth of countries from which wine is imported and the dominance of New World wines. Table 13 shows the percentage of total off-trade wine sales by country in 2013. At that time, around 32% of wine retailed at below 50p per unit. In 2016, that figure was 29%.
Table 13: Distribution of wines sold off-trade in Scotland, 2013, by country [309]
| Country of origin | % of total off-trade wine sales |
|---|---|
| Australia | 18.6 |
| Italy | 12.6 |
| South Africa | 10.3 |
| USA | 10.1 |
| Spain | 9.9 |
| France | 9.2 |
| Chile | 8.5 |
| New Zealand | 3.5 |
| Argentina | 1.4 |
| Germany | 1.1 |
| Portugal | 0.6 |
| Bulgaria | 0.2 |
| Romania | 0.1 |
| England | <0.1 |
8.131. The 2016 Wine & Spirits Trade Association Wine Report [310] confirms that, in 2015, Australia continued to lead off-trade sales of wine in the UK, by both value and volume (23% by either measure). Italy was again second with 15% of sales by volume. In contrast, in the on-trade, French and Italian wines take much larger shares (28% and 25% respectively, by volume).
8.132. In terms of individual products, Table 14 shows the most popular products in Scotland in 2017, which again illustrates the dominance of New World wines in off-trade sales (where origin can be attributed).
Table 14: Top selling wines in off-trade, Scotland, 2017 [311]
| Product | Type | Grapes | volume | area of origin (if known) |
|---|---|---|---|---|
| Private Label | Sparkling | 750 ML | EU | |
| Private Label | white | Pinot Grigio | 750 ML | |
| Plaza Centro | Sparkling | 750 ML | EU | |
| Private Label | white | 750 ML | ||
| Campo Viejo | red | Tempranillo | 750 ML | EU |
| Casillero Del Diablo | red | Cabernet Sauvignon | 750 ML | non EU |
| Villa Maria Private Bin | white | Sauvignon Blanc | 750 ML | non EU |
| Blossom Hill | rose | White Zinfandel | 750 ML | non EU |
| Private Label | white | Soave | 750 ML | EU |
| Isla NegraA Reserva | white | Sauvignon Blanc | 750 ML | non EU |
| Private Label | white | Sauvignon Blanc | 750 ML | |
| Barefoot | white | Pinot Grigio | 750 ML | non EU |
| Private Label | red | Tempranillo | 750 ML | EU |
| Private Label | white | Sauvignon Blanc | 750 ML | |
| Casillero Del Diablo | white | Sauvignon Blanc | 750 ML | non EU |
| Brancott Estate Classics | white | Sauvignon Blanc | 750 ML | |
| Private Label | red | Rhone | 750 ML | |
| Blossom Hill | white | 750 ML | non EU | |
| Echo Falls | rose | White Zinfandel | 750 ML | non EU |
| Private Label | red | Blend | 3 L | |
| Wairau Cove | white | Sauvignon Blanc | 750 ML | non EU |
| Private Label | white | Chenin Blanc | 750 ML | |
| Private Label | white | 750 ML | ||
| Isla Negra Seashore | red | Merlot | 750 ML | non EU |
| Gallo Family Vineyards | rose | Grenache White | 750 ML | non EU |
8.133. The average price of a bottle of wine will vary by country, as will the ABV, and, consequently, the price required to comply with 50p per unit. In general, New World wines tend to be higher in alcohol than those produced in Europe. European wines may, therefore, find themselves better able to compete on price with the introduction of minimum pricing, or retailers may stock more products with a relatively lower strength.
Beer and Cider
8.134. Beers are both domestically produced and imported. In 2016, lager made up by far the largest proportion of beer sales (87%), constituting around 20% of total off-trade alcohol sales. More than two thirds (67%) sold for less than 50p per unit. Ales now make up around 11% of the beer category (2% of total sales) and are all domestically produced. Just under half (47%) were sold at below 50p per unit in 2016.
8.135. The top selling beers in the Scottish market have changed little since 2012, with Tennents, Stella and Budweiser remaining popular brands. In terms of product, Table 15 reflects the variety of ways in which beer is packaged. In 2017, only larger cans of Tennents and the 12 pack of Corona would have met the 50p per unit threshold.
Table 15: Top selling beers in off-trade, Scotland 2017 [312]
| product | type of beer | volume | production |
|---|---|---|---|
| Tennents | standard | 20 x 440mls | UK |
| Stella Artois | premium | 4 x 568mls | UK |
| Tennents | standard | 10 x 440mls | UK |
| Tennents | standard | 15 x 440mls | UK |
| Fosters | standard | 20 x 440mls | UK |
| Tennents | standard | 12 x 440mls | UK |
| Carling | standard | 20 x 440mls | UK |
| Budweiser | premium | 12 x 300mls | UK |
| Stella Artois | premium | 18 x 440mls | UK |
| Tennents | standard | 4 x 500mls | UK |
| Budweiser | premium | 20 x 300mls | UK |
| Stella Artois | premium | 10 x 440mls | UK |
| Budweiser | premium | 24 x 300mls | UK |
| Budweiser | premium | 4 x 568mls | UK |
| Budweiser | premium | 10 x 440mls | UK |
| Budweiser | premium | 18 x 440mls | UK |
| Tennents | standard | 4 x 568 mls | UK |
| Corona | premium | 12 x 330 mls | UK |
| Mcewans Export Ale | premium | 4 x 500mls | UK |
| Miller Genuine Draft | premium | 20 x 275mls | EU |
8.136. Cider, of which 71% retailed for under 50p per unit (a third below 30p per unit), accounts for 10% of sales under 50p per unit. There are over 500 cider makers in the UK [313] . Despite a growing interest in craft products, increasing sales of fruit ciders and the entry of Carlsberg into the market (producing Sommersby cider), the market leader remains Strongbow, produced by Bulmers, which is a subsidiary of Heineken [314] . Strong “white” ciders are those likely to experience the largest increase in price under a minimum unit price of 50p. Strong cider, as defined in the Nielsen data, made up less than 1.4% of off-sales [315] .
8.137. Table 16 brings together some of the market information on alcohol products discussed in this section.
Table 16: Scotland off-sales 2016 market shares [316]
| Drink category | production # | % of total sales by volume of pure alcohol | % of sales below 50p per unit | % of ALL sales below 50p per unit | |
|---|---|---|---|---|---|
| Domestic | Imported | ||||
| Total off-sales market | 51% | ||||
| Spirits | 33% | 62% | 40% | ||
| Vodka | Y | Y | 13% | 72% | 19% |
| Blended Whisky | Y | 7% | 77% | 11% | |
| Gin | Y | Y | 4% | 60% | 4% |
| Cream Liqueur | Y | Y | <1% | 27% | <1% |
| Brandy | Y | 1% | 66% | 1% | |
| White Rum | Y | Y | 1% | 71% | 2% |
| Imported Whisky | Y | 1% | 17% | <1% | |
| Liqueur | Y | Y | 1% | 35% | <1% |
| Malt Whisky | Y | 1% | 1% | <1% | |
| Dark Rum | Y | Y | 1% | 47% | <1% |
| Cognac | Y | <1% | 0% | 0% | |
| Golden Rum | Y | Y | 1% | 51% | 1% |
| Beer | 23% | 64% | 29% | ||
| Lager | Y | Y | 20% | 67% | 27% |
| Ales | Y | Y | 3% | 47% | 2% |
| Stout | Y | Y | <1% | 30% | <1% |
| Super Strength | Y | Y | <1% | 11% | <1% |
| Cider | Y | Y | 7% | 71% | 10% |
| White/Strong | * | * | 1% | 100% | 3% |
| Regular | * | * | 6% | 65% | 8% |
| Wine | 32% | 29% | 18% | ||
| Table Wine | Y | Y | 28% | 33% | 18% |
| Sparkling Wine | Y | Y | 3% | 4% | <1% |
| Champagne | Y | <1% | 0% | 0% | |
| Fortified Wine | Y | Y | 3% | 27% | 1% |
| RTD | Y | <1% | 0% | 0% | |
| Perry | Y | Y | <1% | 96% | 1% |
ref: published Nielsen data set
Price distribution of alcohol (L pure alcohol) sold off-trade (Scotland, 2016)
* no information on imports : # information supplied by Nielsen
International markets: discrimination
8.138. In the 2012 BRIA, the SWA expressed concern that a minimum pricing policy runs the risk of encouraging international “copy-cat” discrimination which could affect Scotch Whisky exports. The assertion is that Scotch Whisky is already treated unfairly in many countries and such action is, and would remain, unjustifiable. No information has been provided in respect of any countries which may be contemplating or are likely to pursue such discriminatory action.
8.139. It is not possible to predict the reaction of other jurisdictions. The Scottish Government’s proposal treats all products fairly, whether imported or domestic. Where other countries have imposed barriers that are against international trade laws, trade bodies will continue to have the Scottish Government’s full support in tackling any discrimination and unlawful trade barriers.
Costs to local government and public bodies
8.140. The position of Licensing Standards Officers ( LSOs) was created through the Licensing (Scotland) Act 2005. LSOs work on behalf of local authorities and are responsible for the monitoring and enforcement of the new licensing regime which became fully operational from 1 September 2009. Amongst other duties, LSOs ensure compliance with any conditions attached to premises licences. The Licensing (Scotland) Act 2005, and associated secondary legislation, sets out a number of conditions that are attached to a premises licence and an occasional licence including conditions covering an operating plan, premises manager, staff training, pricing and promotion of alcohol, payment of fees, display of notices and alcohol display areas. Minimum pricing will be added to these mandatory conditions.
8.141. The Scottish Government is in the process of producing guidance for those involved in the implementation of, and compliance with, minimum pricing, in consultation with relevant parties which include LSOs, Police Scotland and Licensing Clerks to the Licensing Boards. It is considered there would be an increase in demand for advice to licence holders from LSOs in the run up to introduction and in the period immediately after introduction. This may cause a reprioritisation of duties and resources. The Scottish Government, together with the Scottish Grocers Federation, has produced marketing material to raise awareness of minimum pricing prior to, and following, implementation. In the longer term, as licence holders and LSOs become more familiar with the minimum pricing provision, the workload associated with introduction should decrease. The cost of running the licensing system, including the costs of LSOs, are generally recovered by Licensing Boards from fee income in line with the Licensing (Fees) (Scotland) Regulations 2007 ( SSI 2007 No. 553).
Costs to central government
8.142. The Sheffield Model estimates there will be an adverse impact on the level of UK Exchequer receipts (see Table 10 in paragraph 8.40). The actual effect will depend on the response of both consumers and the industry. Total receipts from VAT in the UK were £121,520 million in 2016/17, of which Scotland contributed £10,193 million. Total receipts from alcohol duties in the UK were £11,117 million in 2016/17, of which Scotland’s share was £1,038 million [317] . A reduction of around £15 million to VAT and alcohol duty receipts is associated with a 50p minimum unit price, which represents 0.01% of total UK VAT and alcohol duty receipts, and 0.12% of total Scottish VAT and alcohol duty receipts.
8.143. There will be initial set-up costs for the Scottish Government in introducing a minimum price per unit of alcohol, in order to provide guidance and marketing materials to licence holders about the necessity to comply with the provision. The Scottish Government has budgeted funding of up to £50,000 for this. Discussions with relevant parties, including retailers and LSOs, will determine how this funding could best be used.
8.144. An updated Monitoring and Evaluation of Scotland’s Alcohol Strategy ( MESAS) portfolio of studies has been designed to assess the impact of minimum unit pricing [318] . The legislation sets out what has to be included in the report to the Scottish Parliament five years after implementation, as specified by the Scottish Parliament in 2012. The monitoring and evaluation of minimum unit pricing is, therefore, spread out over five years: 2017/18 to 2022/23. The evaluation is comprehensive and includes a number of portfolio studies. The total cost over this period is estimated at approximately £1.1m.
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