Researchers call for rethink on way alcohol duty is levied

Supermarkets in the UK could be hindering government efforts to reduce the negative impacts of alcohol consumption by not fully passing tax increases onto the price of the cheapest beers and spirits, according to research carried out by Jonathan Seaton from the School of Business and Economics at Loughborough University.

Retailers appear to respond to increases in alcohol taxes by ‘under-shifting’ their cheaper products (raising prices below the level implied by the tax increase) and conversely ‘over-shifting’ their more expensive products, according to the research.

The pioneering study, funded by the Medical Research Council, was led by the University of Sheffield’s School of Health and Related Research (ScHARR), with business experts from the University of East Anglia (UEA) and Loughborough University.

Using weekly product-level supermarket prices for 254 alcohol products, the researchers analysed how prices changed in response to tax changes. They examined drinks sold at different price points and in four categories: beers, ciders, spirits and wines.

The findings, published in the journal Addiction this week, showed that supermarkets responded to tax increases by subsidising prices of cheaper products. Price rises for cheaper products were up to 15 per cent below the level expected if the tax increase had been passed on fully.

Although under-shifting affected around one in six of all product lines, these drinks account for a large proportion of total sales: approximately 68 per cent of beer, 38 per cent spirits and 31 per cent of cider sales.

Jonathan Seaton, Reader in Business Economics at Loughborough University, said: “The findings in our study show there is a very clear need for a re-think on government policy in the way alcohol duty is levied to take more fully into account how retailers pass on duty increases to consumers. The Government needs to send a strong message to retailers to encourage more responsible price setting on alcohol or otherwise face regulation through more direct policies such as minimum pricing.”

There is a likely implication on health with previous research showing the heaviest 5 per cent of drinkers in the UK population, classified as higher-risk drinkers according to NHS guidelines, buy 33 per cent of all shop-bought alcohol and favour cheaper supermarket products. Subsidising cheaper alcohol when taxes are increased is likely to lead to smaller reductions in excessive alcohol consumption, and consequently smaller reductions in the harms caused by excessive alcohol than if tax rises were passed on in full.

Paul Dobson, Professor of Business Strategy and Public Policy at UEA, said: “Subsidising cheap alcohol might be attractive to supermarkets in their efforts to increase the number and frequency of store visits that shoppers make, but it is socially irresponsible when it encourages excessive consumption.

“It is imperative that the Government take a much closer look at how taxes and duty are applied on alcohol and consider more targeted measures to address dangerous levels of consumption of cheap alcohol.”

Prof Petra Meier, principal investigator from Sheffield Alcohol Research Group (SARG) at the University of Sheffield, said: “The Government has identified the ready availability of cheap alcohol as a key influence on the UK’s high rates of alcohol-related harm. Alcohol duty increases can be part of a mix of measures to tackle this problem.

“Our new research shows that, after a tax increase, supermarkets appear to subsidise those cheaper products and pass more of the tax increases onto the mid-range and more expensive products. Because these cheaper products are the ones which tend to be favoured by high-risk drinkers, the implication is that this could hinder efforts to reduce harmful drinking.”

Research conducted at ScHARR has been influential in providing evidence to inform alcohol policy decisions in the UK and beyond. Last year ScHARR reported that the Government’s introduction of the ban on below-cost selling, which would prevent retailers selling alcohol cheaper than the cost of the tax payable on the product, would have a negligible impact on the consumption of alcohol and related harms in comparison with a 45p minimum unit price for alcohol.

Loughborough University’s Jonathan Seaton concludes: “It does seem ironic that, coming from an area near to the Robin Hood legend where he allegedly took from the rich to benefit the poor in response to high taxes, we find evidence of retailers achieving something similar in their reaction to tax changes. Unfortunately providing cheap alcohol does not necessarily benefit the poor or society. It will be interesting to see how modern day key players – government policy makers, industry, retailers and consumers – treat this major finding.”

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