Across the globe, winemakers, brewers and distillers have been pouring into the UK to discover the secret of how not only to cut, but actually to eliminate, the costs of making, packaging and shipping their products.

The background to this breakthrough was revealed in a May 2013 Parliamentary briefing document which said

In July 2010 the Home Office launched a consultation on “rebalancing” the Licensing Act 2003. One of the options on which views were sought was to ban the sale of alcohol “below cost”:

Consultation Question 24: For the purpose of this consultation we are interested in expert views on the following.

a. Simple and effective ways to define the ‘cost’ of alcohol
b. Effective ways to enforce a ban on below cost selling and their costs
c. The feasibility of using the Mandatory Code of Practice to set a licence condition that no sale can be below cost, without defining cost.

According to the summary of responses issued later by the Home Office:

Responses [have] indicated a wide range of views on the subject with no overall consensus. Many respondents raised issues of commercial confidentiality and the feasibility of enforcing a ban which did not contain a clear and simple definition of cost.

An ingenious solution was provided by “many in the off-licence trade” – in particular Walmart-Asda – who proposed that cost be defined as “duty plus VAT”. This was backed by

Gavin Partington, of the Wine and Spirit Trade Association, [who described it] it as a “pragmatic solution” that addressed concerns about cheap alcohol without affecting moderate drinkers. (…)

Opponents predictably included 

(H)ealth campaigners and the beer and pub industries [who] warned that the minimum price was being set too low to have any impact. They claimed it would still mean beer and lager being available at “pocket money” prices in supermarkets… [And] Professor Ian Gilmore of the Royal College of Physicians, [who] said the government’s proposal was an extremely small step in the right direction, adding: “It will have no impact whatsoever on the vast majority of cheap drinks sold in supermarkets.”

Despite these reservations, “duty plus VAT” has now been accepted as the “cost price” of alcohol in the UK. The government has announced that, following its failure to introduce minimum pricing for alcohol, it will outlaw its sale below this “cost”. Members of the industry who – reasonably – resent the already high levels of tax on their products in the UK will be breathing a huge sigh of relief. For most of them, compliance will be very similar to falling in line with laws banning sex with animals: however cheaply wine, in particular, has been offered in UK supermarkets, it has very, very rarely been sold at prices that fall below duty and VAT. In the real world, growing, picking, fermenting, bottling and shipping grapes do actually cost money that has – at least partially – to be paid by someone.

Anyone who believes that the – let’s face it, wholly ludicrous – notion of duty-plus-VAT will put a lid on the simmering alcohol debate in the UK is very mistaken. Despite heavy opposition from the industry and the EU, the semi-independent Scottish government is still committed to introducing minimum pricing on its side of a border that does not physically exist. Many dismiss its ability to achieve this, but it’s worth recalling that the ban on smoking in pubs was originally introduced in Scotland before being adopted elsewhere.

The health lobbyists are very unlikely to admit defeat, especially as the cash-strapped UK government has accepted estimates of over £40bn of  “costs” – using a different definition, obviously – to the English and Welsh economies being caused by alcohol misuse.

The cost of alcohol misuse in England is estimated to be around £21bn per year made up of the following:

  • National Health Service (NHS) costs, at about £3.5bn per year at 2009-10 costs
  • Alcohol-related crime, at £11bn per year at 2010-11 costs
  1. Lost productivity due to alcohol, at about £7.3bn per year at 2009-10 costs (UK estimate).
The impact of alcohol on health is a significant issue. Over the last ten years health harms have continued to grow. Alcohol-attributable deaths in England rose by 7%, from 14,000 in 2001 to 15,000 in 2010. In contrast, deaths from all causes in England fell by 7% over this period. Over the same period, alcohol-specific deaths rose by 30%. The rate of liver deaths in the UK has nearly quadrupled over 40 years, a very different trend from most other European countries. Approximately 60% of people with liver disease in England have alcoholic liver disease, which accounts for 84% of liver deaths. In addition, the rate of alcohol-related hospital admissions has also continued to rise by an average of 4% each year over the eight years 2002-03 to 2010-11. Alcohol is now one the three biggest lifestyle risk factors for disease and death in the United Kingdom, after smoking and obesity.

There is also a strong link between alcohol and crime, particularly violent crime. In 2010/11, there were around 930,000 (44%) violent incidents in England and Wales where the victim believed the offender to be under the influence of alcohol, this rose to 58% in instances of stranger violence.

Friends in the wine industry like to dismiss most or all of these figures, but unfortunately the majority of them are as undeniably linked to the products we are involved with as road deaths are to cars. Even more unfortunately, “misuse” in the case of alcohol is harder to define. The stress-relieving qualities of a glass or two of wine at the end of a day may help to ward off cancer. Sadly, for a woman, that second glass almost certainly will increase the risks of breast cancer.

As someone who loves alcohol in its myriad forms and gets his livelihood directly and indirectly from the alcohol industry, I naturally have to support it is its fight against government interference. When I see it win battles such as the one over “cost price”, however, I cannot help feeling like an England cricket supporter watching a player failing to “walk” after being caught out. It means that the next innings is going to be a lot tougher. If we abandon logic to win our arguments, let’s not be surprised when the anti-alcohol lobby increasingly follows the same strategy to win theirs.

  1. Honestly, this debate/issue has been going on and on for years… This is not a govt issue, this is a cultural issue, end of. Until there is a change in the psychology in the UK of drinking to get drunk and so on, (I know not everyone does that!) it won't change. There needs to be more of an understanding and respect for food and wine – just look at the prices Napa gets from visiting tourists on average… People are prepared to pay when there is added value and when they feel they “should”. We – from the importers to the retailers have trained the consumer to expect wine for nothing, whether it is 3 for 10
    s or half price deals… It's very hard to break habit, it's very hard to teach an old dog new tricks,.. So (as boring as this may sound) this is an education thing… And not another boring strategy of educating people, but FUN, INTERACTIVE education where people are interested and engaged and learn… especially at the younger age groups… If we want change then we need to begin with the younger age groups. But to target this group well, the products need to be engaging, interesting. One could argue as you normally do that things like low alcohol flavoured wines are a good intro for the younger generation, but then again is it? It might not be a place to start – will they trade up in the future? I think they are different options and we need to see REAL innovation in wine and INTERESTING methods of educating…. in order to see real cultural change…

  2. Yes to all of the above.

    All I'm saying is that for the wine trade to support the notion of duty-plus-VAT=cost-price does the rest of us no credit. It's no different to my views of the UK pub trade still selling 250ml glasses. Neither of these moves is logically or morally supportable, and they play straight into the hands of those who want to paint us as irresponsible peddlers of a dangerous product.

  3. I entirely agree with you Robert. As a trade we like to adopt the stance that we can avoid government regulation by managing ourselves responsibly. Calculating the cost price in this way appears to me like a serious own goal. It doesn't seem to me that difficult to agree a nominal ( but meaningful ) amount to be added to duty + vat to get to something more realistic

  4. It would not be that difficult to come up with a meaningful figure – and I really cannot see how failing to do so suits the responsible parts of the UK wine trade. If we behave like tobacco, we'll get treated like tobacco…

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