Saturday, November 19, 2011

Pubs, Punters and Price Fixing

I heard someone say recently, "Pubs are like churches - not used all the time but there when you need them and both sadly suffering from falling rolls".

Often we hear about the ‘drinking culture’ in this country – true perhaps, but we shouldn’t necessarily be ashamed of that. This week, I had the great pleasure of listening to Lee Le Clerq from the Beer and Pub Association, who got me thinking about this.

I, for one, think alcohol is OK. Pubs and drink bring enormous enjoyment and benefits to individuals, communities and society as a whole.

What is not OK is the bad behaviour that too frequently accompanies alcohol consumption, serving alcohol to children or drinking to the extent that it causes physical or mental damage.

Alcohol has a dark side and its impact on individual health, family stability and our streets are all too apparent. However, let’s not lose sight of the fact that around 90% of the adult population drinks alcohol and most of us do know how to behave ourselves. Most licensees don’t sell alcohol to kids and thankfully most of us will not be burdened by alcohol-related illness.

The decline of the Local Pub

The government’s 1989 Beer Orders were introduced to reduce the apparent monopoly big brewing companies exercised in the pub sector. Today, the largest pub companies own many more pubs than the biggest national brewery estates back in 1990 – so large monopolies have in fact been replaced with larger ones.

The vast majority of these premises are tenanted or leased so while the pub company will own the freehold, the licensee is often committed to certain supply agreements in return for a low cost entry to the trade; the pub is run as an independent small business with the licensee responsible for its operation.

We then saw the introduction of the smoking ban in pubs, something I have serious issues with. I would have much preferred air quality legislation to force pubs to install appropriate extraction and filtration to maintain acceptable standards.

In addition, I don’t think a year has passed since the Licensing Act came in when we have not seen yet more laws, and dozens of regulations and restrictions primarily aimed at the pub trade. So much legislation in fact, that the government has found it necessary to run three separate series of road shows touring the country to explain the powers within the legislation.

Would minimum pricing help the pub industry?

The issue of minimum pricing is something largely driven by the public health lobby. A modelling study, carried out by Sheffield University in 2008, claimed that a 50p per unit minimum price would bring about a 6.9% reduction in overall alcohol consumption. This would, they predicted, lead to 97,700 less hospital admissions per year and the saving of around 3000 lives.

Since 2008, overall alcohol consumption (without minimum pricing) has dropped by more than 6.9%. As a nation we are now drinking 13% less than the peak in 2004 and yet – according to the health lobby - we are not seeing any such savings in lives or hospital admissions. On the contrary, these continue to rise. Of course there is a link between price and consumption but the link between national consumption levels and health is not as simple and clear cut as the Sheffield model suggested. They are currently revisiting their studies at the request of the Scottish Parliament and it will be interesting to see what they have to say this time around.

So, would a 50p unit price suddenly make the pub a significantly more attractive option than drinking at home? I suggest not.

Let’s consider 80p a unit, favoured by some members of the Scottish Labour Party. A pint of beer in packaged form in a supermarket would cost £1.60, still considerably cheaper than the same quantity in a pub. However, the cheapest bottle of spirit on a supermarket shelf would be priced at £24. The implication here is that at this price why anyone would buy blended whisky, when for very little more one could buy a 10 or 15 year old single malt? This would almost certainly signal the end of the Scotch whisky industry as it exists today, as the ‘wee dram’ became an elite beverage, only for the wealthy.

We’re told that sensible, moderate drinkers would be unaffected by minimum pricing but the evidence does not appear to support this. Would this reduce the consumption by heavy or dependent drinkers? Perhaps they would just spend a greater proportion of their income on drink, and as for deterring under-age drinkers a great many rarely pay for the alcohol they consume anyway.

Indeed, minimum pricing could be counter-productive by leading to an increase in the production and consumption of ‘moonshine’. Illegally produced alcohol is incredibly dangerous, sometimes containing levels of methanol high enough to cause instant blindness. What will be the cost to the NHS when those who want to drink turn to illegally produced alcohol, because they do not have the means to buy it legally, either in pubs or from shops?

The EU may have something to say if the Scottish Parliament tries to bring in minimum pricing, as there are indications that it would be illegal under UK legislation, namely the 1998 Competition Act, and these are laws that are not devolved to Scotland for them to amend at will.

What would the Office of Fair Trading do as the body responsible for monitoring price fixing in the UK? Will it take action against the Scottish Parliament if it embarks on such a scheme, or would it ignore it? There is no minimum pricing on anything anywhere in the EU so why start with alcohol?

I have often voiced my concerns regarding the ‘Tescofication of the high street’ and some of the large supermarket pricing policies are cynical, and have a detrimental effect on the suppliers, particularly farmers. The Government has recently announced the ‘below cost’ minimum pricing option which simply takes into account excise duty plus VAT which should ensure that supermarkets cannot sell alcohol below this price. This is, I think a positive step and goes a long way to address the issue of alcohol being a ‘Loss Leader’ for the supermarkets - so perhaps a little good news for pubs here.

The dilemma ....

We’re all consumers and the overwhelming majority of us use supermarkets. Do we really want the government artificially increasing prices to protect us from ourselves when the overwhelming majority of ‘ourselves’ need no such protection? If an argument is made for minimum pricing, why should it stop with alcohol? The NHS spends three times as much on combating obesity as it does on dealing with alcohol abuse. Would the next target be McDonalds? How dare they sell a calorie laden burger for only £1.99! Then there’s the inestimable environmental damage caused by global aviation. What if those advocating minimum pricing decide that we should no longer allow hard-working families to holiday abroad at ridiculously affordable fares?

The industry knows that it is necessary for sale of alcohol to be licensed, regulated and monitored. Pubs understand their responsibilities. It’s important that everyone who retails alcohol understands the regulations and complies with them, and the vast majority of our pubs do so. There should be no state interference in fixing prices – especially when the consequences cause more harm than good.


Anonymous said...

There are lots of interesting ssues and ideas here - but why is the solution on offer to try and alter (or nudge) our behaviour with pricing/duty/VAT? You have described the dilemma - make alcohol more expensive and people won't drink so much, but they won't go to pubs either and will spend their money in T***o instead. What you haven't mentioned is the army of national and local civil servants which are necessary to administer and police the regulations. It's enough to make you want take the ferry to the continent - they order things rather differently there (Laurence Sterne). A votre sante!


Kizzy Whetstone said...

You are absolutely right to be against state interference in fixing prices although as a Conservative I would be surprised if you were in favour of intervention in the free market. The problem of illegally produced spirits is increasing and yes, this would make it worse. Agree with you also on the smoking issue too. Greg Knight MP has campaigned on this issue, see
He is right,it should be up to publicans whether they allow smoking on their premises or not. If there is a good ventilation system what is the problem? If people don't like it, they can vote with their feet and go to a smoke-free pub. This was one of the big problems with the Labour government, too much nannying and too many dictats instead of giving people freedom of choice over such matters.

Andrew Allison said...

The more the state tries to interfere and legislate on matters it should keep its nose out of, the more problems it creates

As you correctly say, the majority of us drink alcohol responsibly. All minimum pricing will do is push up costs, and penalise responsible drinkers. It will also cost jobs - no doubt about it. The thought of a bottle of blended whisky being the best part of £25 is a horrifying prospect, and should be enough to persuade politicians (at least south of the border) to see sense.

Jipp Voigt said...

The Sheffield study links cost with general consumption. I do not think there is much argument here. However the assertion that those who are addicted or abuse alcohol will be deterred by price does not stem from that conclusion. We know drugs are expensive but those who abuse them are not deterred by price and often resort to crime to fund their habit or find cheaper alternatives (your older readers will remember meths drinking as a problem). Abusers will always continue their abuse regardless of cost. Most likely the casual user will not order a bottle of wine in a restaurant, will miss an occasional night out or buy a cheaper brand. This will cut consumption but will have no effect on health or NHS costs. The Scottish Parliament are entirely right to ask the University to revisit their conclusions. There is a very pertinent Yes Minister episode damning of third rate politicians who are essentially impotent but want to appear to the voters to be doing something. SOMETHING MUST BE DONE-THIS IS SOMETHING THEREFORE THIS MUST BE DONE! Price fixing is political subterfuge by those who do not have the skill to come up with real solutions. I am not surprised that Cllr Robinson sees it for what it is.

John in Gilberdyke said...

Every prospective government minister should be thoroughly schooled in the laws of unintended consequences before being allowed to take office.
Prescott brought in changes to the building regulations, particularly "part P" which sought to make domestic electrical installations safer. Justified by gobbledegook and "statistics" - the net result - an increase in electrically related domestic incidents, together with fantastic costs to the industry and thus the consumer. I don't think anyone outside the skewed consultation group expected much else even as the machinery was being set up.

Anonymous said...

At least one pub in Gilberdyke seems to be climbing upwards, mostly due to the sheer effort of the landlady (Yes you Fee).