The PM’s plans for minimum pricing may breach EU trade law and do little to cut binge drinking - but they will hurt
It wasn’t so much a leak as an effusive gush from Number 10.
With several national papers running an identical story that the PM was determined to push ahead with minimum pricing for alcohol to fight binge drinking, it seems the die is cast.
Behind the scenes, drinks industry and retail bosses have grown increasingly concerned that the PM, despite opposition from health secretary Andrew Lansley, has been persuaded by the health lobby to favour a full-scale clampdown on below-cost prices to tackle what he calls “the scandal of our society.”
Now, as ministers frantically rewrite the government’s alcohol strategy, due to be published next month, to include minimum pricing, suppliers and retailers are calculating the cost. The figure mooted as a minimum unit price was from 40p to 50p, and analysis by The Grocer reveals its significance to the trade.
Based on a minimum price of 40p per unit, our analysis of 420 beer SKUs across the big four suggests that 35, or 9.1%, would fall foul. In percentage terms, cider SKUs would be hit even further: 29 of the 172 ciders we assessed, or 20% of the total, would take a hit.
But in terms of total SKUs, the impact on spirits would be even greater: out of 1020 SKUs sold by the big four, 92, or 9%, would fall below the minimum price. And 40% of the 155 own-label spirits for sale, including all the 15 budget own-label sales, would need to go up in price.
The impact would be even greater if a 50p figure were imposed - the price of more than a third of all alcohol SKUs sold in supermarkets would have to go up. And it’s not just the volume of deals, either. Some SKUs would face huge hikes. A 2-litre, 4.2% abv bottle of Tesco Value cider, currently £1.69, would hit £3.36 under the 40p model. Under a 50p model, this would increase to £4.20.
Brands do not escape, with a 2-litre, 5.3% abv bottle of Strongbow in Morrisons facing a hike of nearly a third from £3.23 to £4.24 (at 40ppu) or £5.30 (at 50ppu). A 3-litre bottle of Frosty Jack’s, packing 22.5 units and recently on offer at Tesco for £2.99, could not legally be sold for less than £9. Or £11.25 at 50ppu.
Price hikes on spirits would also hit hard: a 700ml bottle of Tesco Value vodka, currently £8.72, would have to rise by at least 21% to £10.52, or 51% to £13.15 at 50ppu. As for wine, while the impact of a minimum price appears more limited, a 13% abv bottle would have a minimum price of £3.90 at 40ppu, while a 14% bottle would be £4.20, effectively ending three-for-£10 deals.
Drinks suppliers have branded the plans unfair and illegal. Diageo, owner of Smirnoff and Guinness, says there is “no credible evidence” they will reduce alcohol-related harm. Its lawyers warn the move is potentially a breach of both UK and EU competition law and that some shoppers will turn, prohibition-style, to “illicit sources”, potentially on the web.
“It’s very regressive, it penalises the moderate drinker and it’s quite probably illegal,” says a spokesman for SAB Miller, maker of products including Peroni and Grolsch.
Supermarkets have also attacked the plans, described by The Co-operative Group as an “ill-targeted blunt policy instrument”. However, Tesco has broken ranks, with UK chief executive Richard Brasher welcoming the prospect of “constructive discussions” on minimum pricing with ministers and referring to a “significant societal problem”.
Some retailers believe the government may yet be playing mind games. “In political terms Cameron has committed to minimum pricing but we’re hearing that the strategy won’t refer to a minimum price of 40p a unit at all but a more woolly ‘price control mechanism’ of 40p to 45p a unit,” says Matthew Hughes, joint MD of Bargain Booze, which would see five of the six cider deals it currently offers banned under a 40p limit. And all six under a 50p limit.
Hughes suggests nothing will come into force until 2015 because this is when the duty escalator - introduced by Alistair Darling in 2009 with Tory support, imposing a 2% above-inflation hike on alcohol duty every year - expires. At this year’s rate of duty increase (5.1%), the 2015 duty burden on a litre of beer would render a 40p rate obsolete, he adds.
However, other sources say Cameron is willing to drive through new legislation immediately. Having delayed its alcohol strategy White Paper, the PM, they say, is convinced that initial proposals to tackle alcohol abuse by outlawing below-cost alcohol - defined as the level of “duty plus VAT” - went nowhere near far enough.
With more draconian measures planned, a legal challenge against Cameron’s plans was described as “inevitable” by one brewer, with a possible test case likely first in Scotland, where plans for banning alcohol below 45p a unit are progressing.
There are also misgivings north of the border. This week, as the Bill progresses, Holyrood’s health and sport committee’s report recorded some members were “unconvinced by the efficacy of minimum pricing” and warned moderate drinkers and lower-income groups would suffer.
The opposition is likely to be far stronger in Westminster. “None of the evidence suggests this will reduce alcohol misuse,” says Gordon Johncox, sales and marketing director at Aston Manor Brewery, the country’s biggest own-label cider producer. “They aren’t tackling the reasons why a minority are misusing alcohol.”
Or as one leading brewer put it: “The government is using a huge sledgehammer, to completely miss the nut.”