The SNP have it wrong: we must oppose the minimum price of alcohol

Browse By

Any economist will tell you that the use of price floors or indeed price ceilings is a massive mistake for any government enacting economic policy. It’s time for an economics lesson as Scotland opts for market intervention and yet again curbs the freedom of the market and hurts the individual.

Just what happened?

Taking a step back in the world and turning their back on the very concept of economic freedom, Scotland has decided to become the first country in the entire world to impose minimum pricing for alcohol. These minimum pricing measures are nothing new: the Alcohol Minimum Pricing Act was first voted for by Scottish MPs in May 2012 but faced legal challenges and appeals by the Scotch Whisky Association, who else? Their case was founded on the idea that the proposals to enforce minimum pricing were “ineffective and illegal” before starting their legal proceedings. Despite this, on Wednesday seven Supreme Court judges voted unanimously to back the legislation meaning that every unit of alcohol sold must be at least 50p. In simple terms, a 700ml bottle of spirit cannot be sold for less than around £14.

What next?

Whilst brew lovers may be quick to denounce this decision, there are indeed perceived merits to the enforcement of minimum pricing and they are worth examining. The need for a minimum price scheme, it could be argued, comes from the fact that there is a welfare loss within the market, namely that the social costs of alcohol consumption are much higher than the private costs of alcohol consumption. This could come about for a variety of reasons. For example, overconsumption by private individuals may result in a rise in liver disease or use of A&E from alcohol-related injuries. The body which must cover the cost of this is indeed the taxpayer or “society”.

The forced rise in the cost of alcohol covers that external cost and, theoretically, eradicates this welfare loss to society and improves allocation efficiency: the concept that everybody is made better off within a market and no one person can be made better off without making somebody proportionally worse off. This point is a desirable, social point within a market structure and is achieved through enforcing the minimum price on alcohol.

And it isn’t that bad a solution! Wider society will benefit from the reduced availability of cheap spirits! But this is where the problems start to develop.

Firstly, by distorting the natural market in this way, the Scottish face the issue of developing an alcohol black market. By enacting this authoritarian legislation, whilst with good intentions, the Scottish will drive their young delinquents, the primary problem with alcohol abuse, away from dodgy off-licences and into the realms of illegal brewing and dealing. Because most countries in the West are rational, there is little reliable data with regards to illegal alcohol markets and so I cannot give you a shock statistic to demonstrate my point. However, let us make no mistake: any black market is a market which presents a greater danger to society and it must be prevented at all costs or else the cost to society as a result of illegal trade and associated crime, much like the illegal drugs market.

Secondly, the Scottish government in this action, as always, fails to reflect on proper economic practice. In the end, price floors typically hurt society more than they help. This is related to basic supply and demand: because the given price at which alcohol can now be sold has risen, the amount that suppliers will produce must, for them to stay afloat and in business, be in line with the market price. Because that price is higher than what the market would naturally demand, the actual demand is lower than it would be in an undistorted market.

The end result is a massive oversupply of alcohol in the market and all the resources into that surplus are effectively wasted. Allocative efficiency within that particular market has hence not been achieved, and there is now an overproduction of alcohol within the market rather than overconsumption, both of which bring a welfare loss to the market and society.

Of course, this is all theoretical and Scotland is not about to turn back to the early 1900s USA when gangsters roamed the streets and engaged in wars over illegal alcohol, but it’s certainly not a positive move. Sure, fewer youths will be abusing alcohol, but as we have seen with the drugs market and the failed war on drugs, there is little doubt that youths and delinquents will work their way around the price floor by going to illegal, dangerous, markets. And even if we don’t focus on those abusing alcohol, the average individual will be facing an increase in the cost of living because of the foolish actions of others. A better choice for the Scottish government would have been to take a liberal standpoint on economic freedom, keep out of the business and wallet of those who enjoy alcohol responsibly, and provide information and tackle the issue of alcohol misuse at its core.