Minimum pricing

The New Zealand government is likely to mull over a minimum pricing regime for alcohol.

I hope they get a copy of this one:

The Scottish Government’s plan to control the price of alcohol will barely tackle problem drinking while costing consumers £184million a year, according to a leading consultancy.

The Centre for Economics and Business Research said the introduction of a minimum price of 40p per unit would cause heavy drinkers to cut consumption by less than a pint of beer a week.

The poorest would be hit the hardest, with 10% of the population with the lowest income paying just over 50% more per unit. Moderate drinkers would cut consumption by 4.6% due to their greater sensitivity to price.

The report criticises a Sheffield University study that the government has used to support its legislation.

The CEBR said the Sheffield model failed to take into account “unintended consequences” such as cross-border and internet sales, the impact on jobs, the black market and policing costs, implementation and the reduction in consumer spending on other items.

Senior CEBR economist Benjamin Williamson said: “This report shows that the case for minimum pricing is extremely weak. It would not target problem drinkers and would have a genuine negative economic impact in terms of jobs, trade and costs to the consumer.”

CEBR's reports are here and here. I like this bit:

In effect, minimum pricing legislation forces firms to price as if they were in a cartel.

In addition to promoting cartel style profits, minimum pricing is also likely to lead to a reduction in the number of alcohol producers and brands available to consumers, as such price levels would ‘crowd out’ producers at the lower end of the market.

If minimum pricing was introduced merely as a regulation rather than as a tax, it may actually lead to the more powerful alcohol producers lobbying for increases in the minimum price. There appears to be evidence that this has occurred in Canada where leaked correspondence between the Ontario Finance Minister and the chairman of the Liquor Control Board of Ontario revealed that ‘industry requests’ were made to the government to raise minimum price levels, and that the government supported these requests.

Absent some other market imperfection, these rents ought to be eroded pretty quickly. But more on that later.

HT: Puddlecote.