Can Price Fixing Fix the Drinking Problem in Britain?

Using Economic Principles as Policy Tools - And Still Not Getting it Right

The bad news for Britain, it has and has had a severe drinking problem.  The good news, things are getting better.

Britain is a little drier than it was a few years ago. Drinking has fallen since 2004, breaking a five-decade upward trend. More people are teetotal, the number of underage drinkers has shrunk and consumption by 16- to 24-year-olds is ebbing faster than in the overall population.

But back to the bad news again, even with better statistics the drinking in Britain is a serious health and social disease.

But that still leaves a big group of heavy, troublesome drinkers. Bingeing—drinking at least twice the recommended daily limit—is rising. Alcohol was a factor in half of all violent offences in 2009-10, according to the British Crime Survey, and in more than 1m hospital admissions, twice as many as in 2002-03. Chronic liver disease, which has been falling in France, Italy and Spain, has risen in Britain since the 1970s.

Everyone now knows that prohibition is not the answer, it just doesn’t work and as the U. S. experienced, it creates all sorts of long lasting problems.  So Britain is considering adopting the Econ 101 solution, raise the price and allow economic behavior to cause drinking to decline.  Does that work?  Yes, to some extent.  See in Britain the problem is not that alcohol is so readily available, it is that it is so inexpensive.  So that may change

Britain’s plans are radical. On March 14th the Scottish government voted to introduce a minimum price per unit of alcohol; it will fix the level in April and hopes to enact it in 2013. On March 23rd David Cameron, the prime minister, proposed the same for England and Wales.

Does raising the price of alcohol reduce consumption.  Well absolutely, it just about has to unless basic economics of supply and demand are no longer valid.

No other country has set a floor price for alcohol. But some Canadian provinces have made some or all drinks more expensive*. They tend to witness a rapid drop in consumption, crime and hospital admissions as well as a fall in alcohol-related illnesses after two to four years, says Tim Stockwell of the University of Victoria. A University of Florida study of consumption in more than 30 countries found that a 10% price rise led to a 4.6% cut in drinking.

So here lifting our glass to Britain (ok, bad phrasing there, sorry old chaps), but before we do we have to remember that in Britain we still have Conservatives in charge.  So no, the higher prices are not going to be from higher taxes, you know, funding government program to fight the terrible social and health problems that result from alcoholism.  No Britain will just set minimum prices and look who gets the windfall.

But a high minimum price will have an odd effect. Whereas other countries have raised prices through taxation, Mr Cameron’s proposal would instead deliver an estimated £850m yearly windfall to retailers and producers, reckons the IFS. The booze industry ought to raise a glass to that.

Yep, as we all knew, Conservatives can take a good policy and somehow manage to mess it up.  Maybe they are just drunk on power.