Evidence shows that minimum unit pricing reduces alcohol harm. However, a key objection to the policy of setting a floor price for alcohol is that it unfairly creates a financial windfall for retailers, who benefit financially from being able to charge higher prices without competition. This report explores ways of taxing this windfall, examining potential changes to the alcohol duty system and the case for a new additional tax.

KEY POINTS

Minimum unit pricing for alcohol is likely to be under consideration at Westminster, following success in Scotland Raising the price of cheap alcohol is the best evidenced policy to prevent harmful drinking.

• MUP sets a ‘floor price’, below which it is illegal to sell alcohol – in Scotland, this is 65p per unit (10ml pure alcohol).
  Wales and the Republic of Ireland also have MUP, with Northern Ireland currently exploring the option.
• An objection to MUP is that it creates a windfall for retailers while reducing Treasury revenue from alcohol taxes Estimates vary, but our ‘best guess’ at the size of the retailer windfall from a 65p MUP is £600 million in England and Wales and £65 million in Scotland. 
• Some of this is recouped by the Government in VAT, leaving a £550 million surplus remaining. 

Our estimate of the reduction in tax revenue from MUP for the UK is a little over £300 million. 

• The simplest response would be to raise alcohol duty rates, but this would be poorly targeted However, the tax would not be well calibrated to the MUP windfall: products whose profitability rises with MUP and those unaffected are hit relatively indiscriminately. 
• By raising the price of other products, a blanket duty increase could reinforce the health benefits of MUP by deterring drinking even more, but this could undermine its political appeal. 

A minimum unit tax offers the best balance of effective targeting and practicality, but depends on the Westminster

• Government acting An MUT would be well calibrated to capture the MUP windfall for retailers, and would not mean significant price increases for consumers. 
• For devolved administrations, an alternative tax would be less well targeted and create operational difficulties, but may be the only suitable option if Westminster does not act. If so, the preferred option would be to tax retailers on the basis of alcohol sales. 
• A sales-based levy is the most accurate option for capturing a windfall, but it presents significant operational challenges. A levy based on rateable value through the business rates system – as used in the original Public Health Supplement – is a reasonable alternative.