Scotland rolls out minimum

alcohol pricing after years of

legal blocks
EURACTIV.com with AFP
2 May 2018

Scottish supporters gather in a pub in central Warsaw prior to the international friendly soccer match between Poland and
Scotland in Warsaw, Poland, 05 March 2014. [EPA/BARTLOMIEJ ZBOROWSKI]

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Scotland on Tuesday (1 May) introduced minimum pricing for alcohol, in what First
Minister Nicola Sturgeon hailed as a “bold” and “brave” policy move that has endured
years of legal battles.

The Scottish leader said she expected other nations to enact similar policies, which will set a
minimum price according to the alcohol content of a drink.
“Already we know that Wales and Ireland are wanting to take forward unit pricing policies of
their own,” Sturgeon told AFP.

“But as we see the benefits of these policies that have been predicted in modelling and in
evidence start to be felt in real life, then I think we will see countries across Europe and further
afield look to replicate what has been done here in Scotland,” she added.

Some form of minimum pricing for alcohol is active in six countries: Canada, some US states,
Russia, Moldova, Ukraine and Uzbekistan.

The Scottish policy, designed to cut long-standing issues around alcohol-related harm, will set
a minimum price of 50 pence (€0.57) per unit of alcohol.

Minimum pricing on alcohol still debated after court ruling

Introducing minimum pricing unit (MUP) on alcohol in the EU will likely restrict the single market, the Court of
Justice (ECJ) ruled just before the Christmas break.

“Life-saving” legislation

It has been welcomed by the medical profession and health campaigners as the biggest
breakthrough in public health since the ban on smoking in public.
“This legislation will be life-saving,” said Alison Douglas, chief executive of the Alcohol Focus
Scotland charity, who predicted it would save 58 lives in the first year.

“But the effect builds over time and by year 20 – which is full effect – it will save 121 lives
here in Scotland,” she added.

Audrey Duncan, 37, a recovering alcoholic from Glasgow whose life was devastated by the
addiction, said the cheap price of booze had helped fuel it.

“I don’t think it (minimum pricing) would have put me off but I certainly would have run out
of money quicker,” she added.

Scotland first to introduce minimum price on alcohol

The Scottish Parliament overwhelmingly passed a bill last week (24 May) that introduced a 0.50£ (0.63€)
minimum price for a unit of alcohol, the first legally-binding minimum price within the European Union.

Years of court wrangling

Retailers said they expected minimal hits on some stock, but added they had long been
anticipating the scheme.

Linda Williams, proprietor of a store in Edinburgh, said it could “even out the playing field
between supermarkets and local shops”.

“There will be no more heavy discounting on spirits and on big packs of beer which really have
caused all the problems in the first place with alcohol,” she added.

The plan finally came into force this week after years of court wrangling delayed its
introduction.

Britain’s Supreme Court last year backed the Scottish government’s move, declining an appeal
by the Scotch Whisky Association (SWA) and other industry representatives to strike it down.

Seven judges in London unanimously ruled that such pricing is “a proportionate means of
achieving a legitimate aim” and does not breach European Union law.
That ended a half-decade legal battle which had gone all the way to the European Court of
Justice in 2015.

UK Supreme Court approves Scottish law on minimum alcohol

pricing
Britain’s highest court on Wednesday (15 November) supported the Scottish government’s plan to impose
minimum prices on alcohol, ending a five-year-long legal challenge from a leading drinks industry group.

Whisky industry worries

Despite losing its appeal, a spokesperson for the SWA said the industry had worked “co-
operatively” with the government to implement the scheme, “which we hope will be smooth”.

“We agree with the Scottish government that there needs to be an objective, independent and
robust assessment of the impact of minimum unit pricing,” it added.

Sturgeon said she never believed it would damage Scotland’s lucrative whisky industry.

“The premium whiskies that the industry in Scotland is so renowned for are not the alcohol
products that are going to be most affected by minimum pricing,” she added
 ECONOMICS COMMENTARY
The article mentions the recent imposition of a minimum price per unit alcohol in

Scotland.

Alcohol is widely deemed as a demerit good engendering negative externalities which

frequently leads governments worldwide to take detractive measures. In Scotland’s

case, the measure taken is minimum pricing. The Scottish government intervened to

implement a minimum price of 50p per unit alcohol to minimize the externalities of

alcohol consumption.

Figure 1. Impact of Negative Externalities of Alcohol Consumption on Scottish Economy

Costs/Benefits of
Consuming unit alcohol
Welfare Loss MSC=MPC=Supply

P C
Popt External cost
A
P1
B MPB=Demand

MSB

0 Qopt Q Quantity of alcohol consumed

Socially Free
Optimum Market
(Per unit alcohol)
Allocation Allocation
Diagram designed in Microsoft Word Office 2013

1
 In free markets, where individuals seek to maximize their benefits, an equilibrium is

reached at point C in Figure 1, where MPB equals MPC. However, due to external

costs(C-B) of consuming alcohol, benefits to society(P1) are clearly smaller than private

benefits(P), at equilibrium quantity Q, ceteris paribus. A socially desirable equilibrium

would be established at point A, where MSB cuts MSC, with significantly less quantity

Qopt than Q, which demonstrates that the market overallocates scarce resources and

this leads to a welfare loss represented by the area ABC. Although the theory lacks

where MSB curve is located (as some individuals state Qopt should be zero, where

some see benefits in alcohol consumption), there is in any case a market failure, where

resources are misallocated for the market of a demerit good.

Figure 2. Implementation of Minimum Price on Alcohol in Scotland

: Deadweight loss

: Surplus
(Excess Supply)
Supply
Price of alcohol (pences)

A B
50p Minimum price
(Price floor)
P C

Demand

0 Qd Q Qs
Quantity of alcohol (unit alcohol)

Diagram designed in Microsoft Office Word 2013

2
As a solution in Figure 2, the price floor causes quantity supplied to extend from Q to

Qs and quantity demanded to contract from Q to Qd , as an outcome of law of demand

and supply. Since quantity supplied Qs is greater than demanded Qd, the excess supply

creates a surplus(area ABC). In addition, due to market equilibrium not being reached,

the community surplus diminishes; as part of consumer surplus(area between Demand

and P) and producer surplus(area between Supply and P) become deadweight loss.

There are numerous stakeholders: Producers, sellers, consumers and government.

Since retailers see drop in sales as they cannot offer cheaper alcohol anymore, pubs

and local stores see increase in sales, which “evens out the playing field” and equates

an increase in total revenue of small organizations. Moreover, increase in price of

alcohol leads to substitute non-alcoholic beverages appear more desirable to some

consumers, thus decreasing demand even more in long run.

As implied in article, demand for alcohol is relatively inelastic for consumers with

addiction, therefore, the increase in price should be relatively high to see significant

decrease in quantity demanded. Considering consequences of excessive alcoholism,

this would benefit society in health and domestic defence sectors. However, since this

is a regressive legislation, this may lead some consumers with low income to find

alternative ways. Assumption of theory is that supply and demand adjust over time and

ration excess supply, yet again, parallel markets selling below minimum price can

emerge as producers and consumers want to maximize benefits. Some individuals

may even go as far to make moonshine, which, if left unregulated, may cause fatal

health issues, and decrease revenue received from alcohol duties.

3
 Figure 3. Imposition of Pigouvian Tax in Scotland as an alternative to Minimum Price

: Deadweight loss
Costs/Benefits of
Consuming unit alcohol
: Welfare Loss

Government Revenue : Consumer burden

MSC + Tax
: Producer burden

P2 D Per unit tax

MSC=MPC=Supply

P C
Popt
A
External cost

P1 B

MPB=Demand
MSB

0 Qopt Q Quantity of alcohol consumed

Socially Free
Optimum Market (per unit alcohol)
Diagram designed in Microsoft Office Word 2013 Allocation Allocation

Scottish government could have preferred to implement Pigouvian tax to internalize

the externalities. As seen on Figure 3, the initial market equilibrium is at price P and

quantity Q, where MPB cuts MPC. When an indirect tax P 2-Popt is introduced, supply

curve shifts from MSC=MPB=S to MSC+Tax. As demand contracts and supply

extends, new equilibrium is reached at the price P 2 and the socially desirable quantity

Qopt.

4
The introduction of indirect tax brings government revenue (area P2DPoptA), which can

be used to subsidize socialcare services and to broadcast negative advertisement.

However, since alcohol has relatively inelastic demand, for achieving the decrease in

quantity Q-Qopt, a substantially large tax has to be introduced. Additionally, the tax puts

larger burden on consumers(purple area) than producers, and this reduces real income

of consumers and leads to unrest. Producers also take some burden(blue area), and

their sales revenues get limited to the area PoptAQopt0, which jeopardizes small

enterprises to go out of business. On the other hand, if the government invests in

negative advertisement, the demand may shift leftwards and approach socially

desirable quantity in long run, however the costs-benefits ratio is questionable and the

opportunity cost is substantial.

In conclusion, as mentioned in the article, short term effects are insignificant and

unrecognizable, only diminishing relatively elastic demand of young drinkers in

comparatively short time. Apart from them, addicted consumers are unlikely to stop

easily, and for “lucrative whiskey industry”, increase in price does not contract quantity

demanded, and may even extend it. However, in long term, such as “20 years time”,

demand and supply should adjust at new equilibrium, price control should enhance

social welfare and at least “save 121 lives” annually, with also supporting the survival

of small businesses.

Word Count: 750

5
References
EURACTIV.com with AFP. (2018, May 2). Scotland rolls out minimum alcohol pricing

after years of legal blocks. Retrieved from EURACTIV:

https://www.euractiv.com/section/alcohol/news/scotland-rolls-out-minimum-

alcohol-pricing-after-years-of-legal-blocks/