Friday, 15 January 2010

Price elasticity of alcohol

There's a useful paper HERE that sets out some of the drivers behind the government's proposals for alcohol minimum pricing; in particular, it sets out the government's assumption that the price elasticity of alcohol overall is -1.0, i.e. every percentage increase in cost will result in the same percentage decrease in consumption.

Other research suggests price elasticities for alcohol are very different, with a much wider and complex spread of responses. The government assumption is too convenient.

However, even assuming that -1.0 is right, what price increase would be needed to reduce alcohol consumption back to 1960 levels? In 1960, we drank about 6l of alcohol each. Now it;s about 11l. So to secure a 46% reduction in consumption, price would need to almost double.

A minimum pricing policy that led to an overall increase of only 5% or 10% would have virtually no effect at all on consumption, particularly for drinks that have a real PE of -0.7 to -1.0, which includes virtually all the alcopops and white spirits consumed by young binge drinkers.

More on this to follow.

7 comments:

Demetrius said...

In 1960, as well as being relatively a lot more expensive, spirits, wines, and other stuff was sold only in a limtied number of defined outlets, more closely controlled. Moreover there was no easy and immediate credit so any cash you spent mattered. This meant you were watching everything you spent.

Blue Eyes said...

Has consumption really nearly doubled since 1960? On the Beeb site many moons ago they had a graph which I am certain showed that the average person's intake hadn't changed much over the centuries...

Raedwald said...

BE - True, if you go back to 1909 our alcohol intake is about the same as then, but it dropped sharply in the middle of last century, during and after WW2. It's this low point that the government and the scaremongers always refer back to - usually cutting off the earlier years from the graph.

William Gruff said...

The only way to get back to 1960 levels of consumption is to reintroduce wartime rationing and pray that the drinking classes, amongst whom I proudly number myself, can be deceived into believing, as many did in 1960, that half a bitter and a small sherry for the lady really is a good night out, or in.

Nanny's on a hiding to nothing with this one, unless, 'perish the thought', she merely wants to double the tax take.

Budgie said...

It is really just an excuse to raise the tax on alcohol. It won't halt teenage binge drinking which is fueled by rebellion not money. How else can they rebel? Trashing cinemas as in the 1960s?

It is typical Labour though: hit everyone, the poorest hardest, to supposedly 'tackle' a perceived problem as a result of a false analysis.

Blue Eyes said...

R, which presumably means that to regain our health we need a couple of decades of national poverty. Now we know what was driving New Labour's economic policy.

Weekend Yachtsman said...

In Nordic countries, booze is eye-wateringly expensive, but you still see drunks.

In Italy, it is wonderfully cheap, but you don't see drunks.

All this banging on about drink that we are currently being subjected to, is just leftwing puritanism rearing its ugly head again.

Personally I am completely fed up with being preached at by the State, for any reason good or bad. I would like them all to f*** right off and leave me in peace.