Minimum Prices on Alcohol

The Scottish courts have strengthened the likelihood that we will soon have a minimum price on alcohol.

The debate around this policy is interesting on many fronts for economists. One interesting claim is that a “Nanny State” is restricting the expression of free will and in particular that of poorer individuals. Leaving aside for the moment why there are large pre- and post-tax income inequalities in the UK, the debate about the freedom to consume whatsoever we wish so long as do not interfere with others has a long history. In Economics, we could of course look to the work of John Stuart Mill.

The freedom debate, at its most basic, needs to address and balance: how the desire for alcohol develops; whether the common good would increase if we were to reduce consumption; and whether individuals are only affecting themselves. Classically, economists have built models around individuals who maximise personal satisfaction through individual consumption without reference to wider society, trends or cultural values. This very limited perception of the world does indeed capture the motivation behind some of our actions. Nonetheless, simply focusing on the mere quantity of the goods we command – perhaps because it is easily measured – means we fail to analyse the wider welfare of the individual and the community.

In terms of alcohol, there are clear cultural and group norms which direct our choices about what and how we drink; our choice set is not independent of others’ choices. Further, the prices we pay are not only shaped by summing together the demand of each individual. Communities construct markets by defining: access (age, time of day, location); taxation; wider legislation on drink size (not too much head on a beer, for example); and drink driving restrictions. On top of this, advertising and the power of producers further mould what we want (or what we think we want) and whether we can afford it.

Are we rational when we drink? More likely we are irrational in a predictable manner. We focus on the immediate pleasure and choose to ignore rather uncertain consequences. This is not simply that we may not know the full consequences of our actions (we have bounded rationality), rather we may engage in self-justification reinforced by our immediate peer group. Given this social dimension, wider society could have a role in enabling more beneficial decisions.

While we as individuals weigh up actions from our own limited perspective, the state can observe the consequences of very many individual decisions. The state, in this framework, is not the nanny state, but a means of filtering collective wisdom. This wider information can then form the basis of policy and the provision of services not directly demanded by drinkers, but still related to alcohol consumption; services such as: police and emergency services; public healthcare; and good street lighting to “show me the way to go home” from the pub’.

Indeed, it is in the pub’ where prices will not change in response to the minimum price policy; therefore, the theory of relative pricing indicates, it is the pub’ to which we may move our drinking. Such a move which may mean our leisure is further influenced by a wider sweep of society and increasing engagement with the local community. Maybe such a nudge is not a bad thing!

Matthew Gobey

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