Floor on price of alcohol means £390m hit to taxpayer

PUTTING a minimum price of 50p per unit on alcohol would cost the taxpayer £390 million in lost revenue and hand a windfall to the drinks industry, the Institute of Fiscal Studies ( IFS) has warned.

Ministers are considering whether to follow Scotland in introducing a 50p minimum unit price on alcohol sales in England and Wales, which would double the price of some cheaper drinks but slash the tax raised by the Treasury.

The IFS said that although a minimum price was “reasonably well targeted” at changing the habits of heavy drinkers, it undermined competition and reduced the tax raised by cutting the amount of drinking overall by as much as 11 per cent.

“The minimum unit price reduces competition in the alcohol market, reducing tax revenue and creating windfall revenues for the alcohol industry,” said the IFS.

It said the Government should overhaul duties to introduce a two-tier structure so that drinks were taxed in proportion to their alcohol content with a higher rate on strong spirits. The IFS said this would be almost as well targeted at heavy drinkers as a minimum unit price and would lead to an increase in tax revenue of more than £70 million.

“Combining this two-rate tax structure with a 50p minimum unit price would be as well targeted as the same minimum unit price applied on top of the current system of taxation, but would lead to much smaller falls in tax revenue,” said the IFS.

Kate Smith, associate director at IFS and an author of the research, said: “Brexit offers a valuable opportunity to improve the way we tax alcohol.”