An Assessment of the Economic Evidence Base Underlying the Scottish Alcohol Consultation

A Report for ASDA

September 2008

This report aims to assess the recommendations in the Scottish government in their consultation paper: ‘Changing Scotland’s relationship with alcohol: a discussion paper on our strategic approach’, in particular its recommendation to impose a minimum price for alcohol. We study the responsiveness of demand for alcohol to price and how this may vary between different alcohol users. We also consider the distributional consequences of alcohol taxation and regulation and the evidence on the wider influences on alcohol consumption.

2. Key findings

The key findings in this report are:

• While increases in prices are likely to reduce demand, there is uncertainty over the responsiveness of demand to changes in price
• The evidence shows that in many cases demand for alcohol is relatively price inelastic; the lowest estimate for beer demand shows that a 50 per cent increase in price would result in a 2 per cent reduction in consumption
• Digging deeper, heavy drinkers tend to be least responsive to price changes yet these are the people the government wishes to target and whom impose social costs upon the rest of society. An important US study finds the heaviest drinkers do not significantly respond to changes in price
• The literature finds factors other than price play a role in determining the demand for alcohol
• There is a clear distributional issue in taxing alcohol; taxes on alcohol impact lower income groups more
• The Scottish minimum price proposal is even more regressive than alcohol taxation – and is therefore likely to have a greater negative welfare impact on the lower income groups.

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