Sunday 21 November 2010

"Alcohol from shops ‘should be taxed more' "

From Friday's Evening Standard:

Lives would be saved if alcohol served in pubs was taxed at a lower level than drinks bought from shops, an expert claims.

Nick Sheron, a liver expert at the University of Southampton, suggested that lowering tax in pubs while increasing duty to make supermarket alcohol more expensive would reduce the damage done by excessive drinking.

Dr Sheron, writing in the British Medical Journal, said: “It's not pubs that are the problem, it's people buying the cheapest alcohol and drinking it at home.”


The linked extract is actually a bit more intelligent than the headline or article suggest, as it talks about 'Varying VAT' (which we can't do of course, as it's the EU who sets the rules).

If we are agreed that it is 'better' for people to drink in pubs than at home, the quickest win is of course to scrap the smoking ban (which would go down like a cup of cold sick with the bansturbators); as a secondary issue, if we want people to drink in pubs rather than at home, the key to this is reducing the price differential between the two. Alcohol duty itself does not discriminate between beer from the supermarket or beer in the pub - what makes the big difference is VAT. As I've said before:
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Beer tax is £16.15 "per hectolitre per cent of alcohol in the beer", i.e. the 'beer tax' on one pint is about 40p. The EU imposed Value Added Tax is 13% of the total selling price (or 15/115 of the total selling price). Remember that 'beer tax' is the same whether it's sold in a supermarket or in a pub, but VAT is a percentage of the total selling price!

So if a pint of beer in a supermarket costs 80 pence, and a pint in a pub costs £2.40 (i.e. three times as much), the total tax on the pint from the supermarket is 50p but the total tax on the pint in the pub is 70p. Ask yourself...

1) What would happen if they went the whole hog and scrapped the beer tax entirely in some vague attempt to help pubs, and both supermarkets and pubs passed on the full saving to the consumer* - then the pint in the supermarket would fall to 40p and the pint in the pub would fall to £2. All of a sudden, a pint in the pub would cost five times as much as a pint from the supermarket that you drink at home. Would this help pubs? Methinks not.

2) What would happen if they went the on the other tack and scrapped VAT but increased beer tax to 55p per pint (in the interests of some sort of fiscal neutrality), and both supermarkets and pubs passed on the full tax changes to the consumer* - then the pint in the supermarket would increase to 95p and the pint in the pub would fall to £2.25. All of a sudden, a pint in the pub would only cost two-and-a-third times as much as in the supermarket. Would this help pubs? Methinks it would.

Ergo, if 'they' really want to help pubs via the tax system (rather than just scrapping the smoking ban), it's not the beer tax they should be looking at, it's the bloody VAT, The Worst Tax of All.

* The price-demand curve for alcohol is inelastic, so this is one of the few cases where the consumer bears the bulk of a sales or turnover tax.

8 comments:

Steven_L said...

Duty on spirits is crazy. I've seen £500 a day's worth of government inspectors perform an operation to collect £72 of evaded duty on bootlegged vodka.

The shops are full of fake and bootlegged spirits - some of them dangerous - because of this crazy tax.

Mark Wadsworth said...

SL, it ain't the worst tax. Sure, the cost of some operations outweigh the gains from that particular operation, but that isn't the point.

It'd be like saying "This is a low crime area - why should we pay for police officers to patrol the streets?" It's a low crime area largely because those officers are on patrol.

So you have to remember that as long as all the other bootleggers are aware that even if they are only trying to avoid £72 in duty, the customs guys will be down on them like a ton of bricks, then the total return to that £500 operation will be many £ thousands.

Steven_L said...

All they do is seize it then bill the shopkeeper duty x2.

The shopkeeper never tells them where it came from.

Removing the tax wouldn't stop the counterfeiters though I guess.

Mark Wadsworth said...

SL, there's a Laffer Curve for booze duty like anything else, and there's a cost-benefit exercise to be done on enforcement costs.

But worrying about the tax that we inevitably don't or can't collect is like me worrying about all the winning goals that I never scored in a cup final. That tax was never going to be collected, and those goals were never going to be scored any way, let's be grateful for the tax we get and have done with it.

Anonymous said...

I haven't been in a pub since the smoking ban, but in June 2007 the relative prices of the pint of bitter I drank in the pub and the bottle of table wine I drank at home were no different to what they are now. This won't make a difference. I wouldn't go to a pub if beer were 50p. After all, I'm not insane. I don't keep opening my front door and going out in the cold for a smoke. After the ban I could see how much I had been paying for a coffee in Cafe Nero. I estimated it at 50p. Then there was £1.50p for the rent of the seat and the enjoyment of the cigarettes.

Steven_L said...

If they just scrapped the booze duty and charged Tesco more for the licence to sell it than a pub landlord, now that would be a better way to collect tax.

Leg-iron said...

I have to agree with Anonymous. Even if booze in supermarkets cost more than the same booze in the pub, I still wouldn't be there.

It's not about the price. It's about having a relaxing evening and since it has rained here every day since mid June and is now hitting sub-zero temperatures, outside the pub is not an enjoyable place to spend an evening.

Not even if the booze was cheaper.

I used to go to the pub regularly and pay pub prices without a murmur. I haven't been there for a very long time. It's not the 'cheap supermarket' that has driven me away and it would not be the 'expensive supermarket' that would entice me back.

For me at least, this has nothing at all to do with money. I don't think I'm the only one.

Mark Wadsworth said...

Anon, Leg-Iron, I did say in the post that "the quickest win is of course to scrap the smoking ban (which would go down like a cup of cold sick with the bansturbators)".

Cafe Nero etc would benefit from this just as much, of course. Oh to sit inside the cafe looking out, instead of shivering on the pavement...

SL, charging people for the licence-to-sell is of course the best way of doing it, which overlaps nicely with Land Value Tax.