Saturday, 25 August 2012

Stuck on the slow line

Some surprise has been expressed that the petition to scrap the beer duty escalator is crawling along on the slow line, still below 90,000, while that urging the government to reconsider its decision to take the West Coast rail franchise away from Virgin Trains has stormed through 100,000 in a couple of weeks.

By the general standards of government e-petitions, 89,000 is a very respectable number, but I can think of several possible reasons for this relative lack of traction:

  1. To the man (or woman) in the pub, the issue isn't as clear-cut as you or I might think. “Freeze beer duty until the next election” would have been a more easily grasped message – which of course is the equivalent of what fuel tax campaigners are now asking for.
  2. The petition has lacked mass-media exposure. No national newspaper or TV channel has taken it up, which is important in getting the message across to the general public.
  3. The escalator applies to all forms of alcoholic drinks, so perhaps the petition would have been better worded to refer to the “alcohol duty escalator”, thus giving consumers of wine, spirits and cider more reason to sign it.
Of course, if you think that’s bad, the petition against minimum alcohol pricing has so far reached the grand total of 183 signatures.

It also seems to me that some of the core arguments in favour of the petition are not wholly convincing. In his open letter to Chloe Smith, Roger Protz says:

The reality is that the government loses far more than £35m every year as a result of the impact of the eye-watering levels of duty and VAT levied on beer, brewing and pub retailing. Every time the government increases duty, fewer people go to the pub. When the consumption of beer goes down, less duty is paid to the Treasury. The same holds true for VAT.
However, although each 2% on duty will bring in less than 2% extra revenue, as it suppresses demand to some extent, we are still a long way from the point where increasing duty leads to an absolute reduction in revenue. (A point which has now been reached with tobacco duty)

It is also incorrect to say that the escalator uniquely impacts on the pub trade. In fact, as margins are much greater in the on-trade than the off-trade, each increase in duty has a greater proportionate impact on the price of a bottle or can in the supermarket than a pint in the pub.

A pint of 4% beer currently bears duty plus VAT on duty of 53.2p. We have now had five years of the escalator so, without it, the duty would be 5 or 6p a pint lower. Obviously the escalator doesn’t help, but there are many reasons for the decline of pubs apart from price, and I don’t really see that 6p off a pint is really going to make much difference to their general viability. Indeed, as I have argued in the past, some sections of the pub trade seem to shoot themselves in the foot on the pricing issue.

Rather more convincing arguments against the escalator would be:

  1. Even on its own terms, it is unlikely to be effective in combating problem drinking. The demand for alcoholic drinks is fairly inelastic and, the higher the individual’s consumption, the less elastic it becomes
  2. Increasing prices will not simply reduce consumption – rather it will inevitably lead to an increase in smuggling and illegal alcohol production, often of very dubious quality
  3. The responsible consumption of alcoholic drinks is something that has been enjoyed for hundreds of years by a large majority of the adult population in this country, and it is fundamentally wrong and illiberal to impose punitive taxation on it
Maybe what is needed in the longer term is a campaign to align UK alcohol duties with the European average.

8 comments:

  1. With lower taxes, pub prices would not go down. Just look at the sting of soft drink prices in pubs, and they are free of duty.

    ReplyDelete
  2. If pubs gave own-brand lemonade and cola away for free, it would make virtually zero difference to their trade.

    You are falling victim to the "fair price" fallacy there, matey - and I thought you had some understanding of economics.

    ReplyDelete
  3. Are yes I forgot the economic rule of "the pub rip off conundrum" where notable economist Dave Keynes (Brother of the less famous economist that wrote about the multiplier effect) wrote his great life work on why the price of peanuts, crisps & soft drinks are a bit steep in pubs.

    I believe the conclusion was that pub landlords are "rip off merchants" or "robbing bastards"

    ReplyDelete
  4. I think you're wrong there, Cookie about pub landlords. Most of them are struggling to make a living and have their hands effectively tied over beer prices. Caught between a rock and a hard place, who can blame them for charging high prices for soft drinks and snacks, especially as there's far more profit to be made on these items than there is on beer.

    ReplyDelete
  5. Soft drink prices in pubs are comparable with those in chain restaurants and curry houses, so it can't be said they're out of line with the competition.

    Plus the demand for soft drinks in pubs is much less price-elastic than that for beer, so licensees can't really be blamed for applying a higher markup.

    On this issue Cookie seems to believe that each item has an intrinsically "fair" price that bears no relation to cost or supply and demand.

    Or perhaps he's just trolling...

    ReplyDelete
  6. I think that, in busy pubs at least, the justification for high soft drink prices is that when you step inside a pub, you are renting a space - not just buying drinks. The landlord needs to collect a certain rent. If a pint of beer is drunk at the same rate as a cheap lemonade, he wants approximately the same profit, say £1. So the soft drink, worth a few pence, will cost maybe £1.30. The whingeing about soft drink prices annoys me. If you want to drink 10p lemonade, stay at home.
    Jonathan Bagley

    ReplyDelete
  7. A week later, it's still not gone through 93,000, and seems to be tailing off. It looks as though it may die the death, or at best just struggle over the line...

    ReplyDelete
  8. Martin, Cambridge4 September 2012 at 22:20

    I'm not signing the petition. I want the Government to do their job and get the deficit down. I'd rather they'd did it by scrapping pet projects but I'm a realist.

    Beer isn't more important than the NHS.

    ReplyDelete

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