Monday, 8 February 2010

Minimum Pricing

I started to write this several days ago, actually, nearly a week it seems, when the offending program was still available on IPlayer from the BBC web site. So, lets try to finish it. I thought the whole of the Decision Time program, broadcast on 27th January 2010 was very interesting. The fact that Frank Dobson has never seemed to know what he's talking about shouldn't stop us analysing what the other speakers said. I thought there were some very intelligent and thoughtful speakers on the program and I wanted to capture the main points, I try to here.


Here we go again. Arguments about minimum pricing are doing the rounds. It seems that Frank Dobson, who used to be the Secretary of State for Health 1997-99, has upset Pete Brown due to Frank's derogatory and sweepingly generalised comments about people who are "heavy drinkers".

It is indeed an unfortunate opening to the program. I can't say the Right Honourable Mr Dobson MP has ever really inspired me to be honest and I can see why Pete has got a tad upset with him. When politicians use language normally only used in tabloid headlines I find my intelligence being insulted. I decided to have a listen to the whole program before I followed Pete's request to contact Frank.

I found the whole debate interesting. Mr Dobson rather clumsily putting his points and spoiling any effect he might have had by continually repeating the derogatory word "booze". I wonder if anybody counted the number of times he said it, I think it must have got to around 30.

There were some good balancing points put by the other panellists. John Redwood former Conservative Cabinet Minister, Lorraine Davidson formally a spin-doctor for the Scottish Labour party, Holly Grender who is a lobbying PR consultant and Sir William Sargent who until last year was the head of the Governments regulation executive.

After Frank's rather unfortunate outburst John Redwood went on to give, what I thought to be, a very balanced view. He pointed out that a policy like minimum pricing would put money in the supermarkets pockets, increasing alcohol duty would raise money for the treasury. There is the point that is often made about minimum pricing that it would disadvantage the less well off in society, which is an interesting point for a Conservative politician to make. He does of course ask questions about how it would effect businesses, but also asks if it would work.

There was considerable debate on the whole lobbying process. It was pointed out that the Department of Health is an extensive lobbying operation. This is compounded by the fact that the Media is sympathetic to minimum pricing. In actual fact the media is quite sympathetic to the whole neo-prohibitionist movement, but then we know that.

Several speakers pointed out that the problems are the antisocial behaviour - putting up the price will not stop this. Sir William Sargent putting this point quite well with the following:

"I think you have to analyse what the research is telling you. For example, the price elasticity, its reaction to being put up actually doesn't result in the lower paid part of the community consuming less automatically. They might find ways of getting it on the black market, or getting it from overseas, going to Calais at the weekend and filling up a transit van. That doesn't necessarily stop the leakage so to speak, if you want to use that analogy."

The Buffoon Dobson then points out that Supermarkets have been selling booze at below the duty rate. I am having difficulty finding evidence of this. I have not found a single case where this has happened. If any reader of this blog can give me firm details of sustained periods where alcohol really is sold at below duty rates I'd like to hear about it. OK, loss leading occurs from time to time but it is in practice short lived isolated cases1.

Supermarkets will absorb the price increases, it is claimed, if duty is used as a weapon. How will they do that then? They are businesses; they cannot absorb price increases indefinitely, any business that does that loses money. I agree that we should consider duty increases before minimum pricing, at least that way we get a little bit of the countries deficit paid off rather than increasing the supermarkets profits. After all, minimum pricing is just exactly the same as a price cartel.

Mr Dobson goes on to tell us that pubs would welcome minimum because they do not sell cheap "booze". But pubs are private enterprise and as such they might well welcome a price cartel. But private enterprise being pleased about Government interference in the free market?I for one think it might be a very dangerous slippery slope. Has price fixing, or should I say minimum pricing ever worked before to help a country? It would effectively have the same effect as large Monopolies as far as price is concerned.

Several of the speakers pointed out that there was legislation already in place to deal with the problems of alcohol related disorder, underage drinking and other drinking related problems. The examples were given of a scheme where police, retailers and Cambridgeshire council had an unpleasant relationship and so they got together with the child protection part of the council and the result is that they got the selling to underage down by two-thirds over a space of a very short period of time. Breaking it down into it's elements and dealing at grass roots, where the problems really are, is the way to deal with the problems. Not with broad brush legislation that is probably ineffective and risks hurting those who deserve it least.

A controversial point, that is made in the program, was that much of the problem drinking does in fact occur in certain licensed premises. In this writers view the vast majority of alcohol sold in the supermarkets is sold to people who want a quiet tinnie or two in the evening, not in actual fact where the vast majority of disorderly drinking is occurring. I am not disputing the teenage park bench crowd exists, drinking their low priced white cider, but that is an anomaly. The vast majority of the trouble is caused by city centre nightclubs, if indeed we want to think of it all as trouble.

I would like to think I have a reasonable amount of experience in surveying nightlife at first hand. I've walked through a few parks in my time as well. The assertion that the trouble is caused by youths taking a slab of cooking lager into the park is simply absurd in my view. No, most people like to get out into the town in a Friday or Saturday night and possibly both. I know there is this theory that many are pre-loading but that is not my experience, who are these people who pre-load? I do not know any and I suspect these people are few and far between. Drinking is not just about getting pissed. People like to go out and have a good time, you can't do that at home. For all these reasons I agreed with the panel that minimum pricing won't actually work. People will find ways of paying the bill and will simply cut back on spending in other areas. That's the nature of price elasticity of alcohol.

The point was made that the problems exists within a few percentage points of the population and ages. Because of the actions of a small proportion of the population the Government are suggesting bringing in another crazy law. There are already laws on the statute books to deal with problems and it would seem to me more legislation is being generated just to make us think the Government is doing something to justify their existence. It is sound bite politics to produce publicity.

The panel did bring out a very important point for me; how exactly would minimum pricing work? Would it apply to all shops? What about home brew? How would we deal with places that might trade as both retail and wholesale? Obviously wholesale and brewery gate prices are lower. What happens if I sell a cask to a mate for his party in a church hall? I would have to charge him more than I might now?

I am constantly told that as a pub I should be pleased about minimum pricing and in many ways I can see how it might help the on-trade. But supposing I wish to run a perfectly legitimate free night? Suppose for instance I wish to have a party for a loyal group of customers, to show my gratitude for their continued support. Right now I could put a barrel on for free one evening and it would be completely legal. Although I'm tight and the likelihood of me doing so is remote, but I'd like to retain the option. What about free tasters at a brewery? A free glass of wine with a meal? The list could go on and on.

The panel also made a nice ridicule of the term "passive drinking" quite clearly the majority of the speakers thought this was just being silly. You can sit in a room drinking a glass of wine and do no harm to anyone else in the room. This is quite a different situation compared to the passive smoking argument.

Interesting parallels were made with the questions surrounding porn activities on the internet. Many people are worried about the activities of paedophiles, for instance, on the internet. Many of us are also worried about the possibility of draconian measures to limit our freedoms on the internet. Currently IT companies are helping police to combat the real issues and dangers without the requirement to bring in new laws. Perhaps we do have a responsibility as an industry to do something to show we are tackling the problems.

I'd have to say I was horrified by the suggestion that 24 hour licensing was a mistake. This seemed to be said without any regard for the fact that it probably isn't the problem its made out to be. I've lived through, drank through and run a pub through the changes. My experience does not agree that any alcohol problems have got worse and indeed the 11pm kick-out has been significantly reduced.

One speaker was at pains, and I think it was William Sargent, made the point that much of the legislation over the past 30 years has been difficult to administer. Often the nub of the legislation has as its key, a "scheme" that is worked out in detail by civil servants. Not a democratically decided scheme but one that is left to those in ivory towers to determine. Considering that most legislation is, as I've already pointed out, made to justify the elected parliaments salaries and expenses, rather than in the best interests of the country, it would seem to me that the next government would be best advised to concentrate on quality of legislation rather than quantity. Minimum pricing is a blunt weapon that will solve little and make most low paid drinkers suffer.

After listening to the whole program and trying to summarise the whole issue it struck me that there would be a maintenance problem. There is the first question of setting the correct level for minimum price. Moreover, how is the price adjusted? No doubt once the legislation is approved there will be a back door allowing the NHS to dictate what they consider to be the correct level. There is sure to be an escalator included that will increase at greater than the rate of inflation. But why should I complain? Eventually the pub retail industry will be part of one big price cartel.


1I didn't notice that unintentional pun until a re-read.

Sorry, that took over a week to get to the point of me hitting the "Publish post" button. I hope my summary of what was said, mixed with my own opinion, was worth the wait. Sometime soon normal service should resume on this blog, in a weeks time perhaps. I'm visiting a big brewery that resides in some place called Burton soon. Expect some words from this excited small brewery brewer agog at a place reputed to be the birthplace of British Bitter. You never know, I might even find out what "Burtonising" is.


Curmudgeon said...

Very good piece, well said.

I think there is a difference between a minimum pricing scheme that is deliberately set some way below the typical price of off-trade alcohol, to effectively put a floor on pricing, and one that deliberately sets out to increase the typical price of off-trade alcohol with the aim of reducing overall consumption. The former might actually do a tiny bit of good, the latter certainly wouldn't.

Cooking Lager said...

On the issue of price elasticity, those commodities that maintain the same level of demand at higher prices tend to be considered by consumers as necessities. The government can get away with increasing the price of petrol knowing the same amount will be shifted as punters have no other choice. In terms of cigarettes, as addictive substances price isn’t entirely linked but related. Price increases above key boundaries do affect demand and encourage quitters. The price boundary appears to be every unit of £1. For instance when a packet moved above a fiver or above £6. When it comes to booze, where most customers are neither addicts nor consider it a necessity you would expect price increases to result in lower volume sales.

How that manifests no one can say. Whether people maintain their Saturday night out and stop drinking in the week or do the opposite and stay at home is unclear. You would expect volume falls for grog producers. I could not tell you how that would affect small brewers like yourself and would understand your natural propensity for optimism, but in any change the reality of outcome is unknown. Many craft brewers like to think they operate in a different market to the mainstream but the reality is often that they feed off what the mainstream considers too small to bother with. In a market without price discounting large scale brewers may be after every customer they can get.

You can expect increases in bootlegging and possibly even adulterated vodka killing off the destitute. As much as cheap vodka may offend the sensibilities it is cheap and clean ethanol rather that the methanol found in bootleg vodka.

One thing is certain. The outcome will be different from what many expect and those hoping minimum pricing will help the pub industry will find they have helped the start of a process that ultimately will damage it.

MessageForce said...

In order to increase the sales and customer base of any product it is essential to have it in the market at the minimum possible rate so that it is accessible to the masses.

Unknown said...

Cookie, small point. I don't suggest that minimum pricing won't decrease consumption of alcohol but rather that the consumption of alcohol within the targets the government are aiming at will be small.

Price elasticity is not zero for alcohol, but I suggest it is less than for meat and potato pies, for instance.

The big difference between alcohol and tobacco is that the vast majority of drinkers do so responsibly. They are the ones that will suffer.

The so called "binge drinkers" DO consider getting wasted on a Friday and Saturday night essential. They will still continue to do so. As will I.

Ed said...

Burtonising's not as tricky as it looks!

Eddie86 said...

How about another form of minimum pricing? One that ticks that bloody annoying 'green issues' box but that works for the on trade? How about a container tax?

Kegs and Casks, easily recycled (empty, clean, refill, continue). 0 tax. Bottles and Cans, machined to be recycled (melted down and reformed - or any other form that is more than just clean & refill), tax. Green-people are happy, pubs are happy, win-win situation. Better than the minimum pricing option, that will only end in tears for the on-trade.

Just a thought :D

StringersBeer said...

Ah, green "beverage container taxes". I'm game. You need to have a deposit system for this to be fair, I think. So that refillers pay returners deposits. Reprocessors will pay a proportion of the deposit... etc. Fillers pay the deposits they charge (less any payouts) to the exchequer. Simple. What could possibly go wrong?

FWIW, bottle rescue will take care of your bottles for you - cleaning ready for refilling.

Philip Carney said...

I do not see any reason that anybody should have the authority to set prices, especially the government and cartelisation is already illegal.

Brian, follower of Deornoth said...

Well, it didn't take long for the wheels to fall off this one...