Wednesday, 10 March 2010

Minimum Truth on Minimum Pricing

In the saga of the SNP’s policy for the minimum pricing of alcohol in Scotland, it was only a matter of time before the distillers converted the fear of a drop in profits into the threat of job losses.

John Beard, chief executive of Glasgow-based Whyte & Mackay has told Holyrood's health committee that minimum pricing would lead to significant job losses across their distilleries, bottling plant and distribution centres.
"We anticipate that our bottling plant in Grangemouth, which employs 200 people, would close," said Mr Beard.
"Our production levels would also be affected so there would be a knock-on effect at our distilleries - our best estimate is that another 100 jobs would be at risk."
This was followed by a threat to ministers, that if Whyte & Mackay were to lose that many jobs, and lose that significant profit, there would be no way that they could continue working with government to fund and promote responsible drinking initiatives. Something I hope they threaten the Chancellor with the next time hikes up the price at the budget.

Is that much supermarket whiskey drunk in Scotland that minimum pricing would close a bottling plant and cost 300 jobs?

Of course not.

It would appear though, that even though minimum pricing is being advanced by the Scottish Government for Scotland only, Whyte and Mackay’s assertion regarding job losses is based upon an assessment of what might happen if minimum pricing was introduced across the UK.
Still, better we know this after the committee hearing than be left thinking than the distillers had been deliberately trying to mislead Parliament and the people of Scotland. Not to mention unnecessarily suggesting to many in it’s workforce that they would lose their jobs.

Another argument made against minimum pricing was that it will affect people on fixed incomes (Nu-Labour Speak for the poor.) These people, not surprisingly, are the most likely to buy cheaper alcohol. So why not just call them “out target market” and be done with it?

What really discriminates against the less well off when it comes to buying alcohol is Excise Duty, and in particular, the VAT which is levied on the cost price (including the excise duty!).
Both force the producer or seller to recover the tax by raising the price paid by the buyer. But, as the amount of excise duty remains the same (acting in fact like a minimum price) it’s interesting to see just what this means for the tax on cheaper ‘own brand’ whiskey.

On a standard size and strength bottle (70cl and 40%abv) with a retail price of £10 there is £6.34 excise duty plus £1.49 VAT totalling £7.83 which is 78% of the retail price.

On the same bottle with a retail price of £30 the excise duty remains the same at £6.34 but, the VAT is now £4.47 giving a total of £10.81. This though is only 36% of the retail price.

But if you can afford to splash out a £100 for a bottle you’ll only be getting stung for just 21% tax.

So there you have it - the more you can afford to pay for your whisky the less tax you pay as a percentage of the cost.

Cheap booze my arse.