Brexit opens door to ‘rational’ approach to alcohol duty

Post-Brexit all alcoholic drinks should be taxed at a single flat rate of 9p per unit, an economist has insisted in a new report on the current ‘excessive and illogical’ duty regime.

Christopher Snowdon, head of lifestyle economics at the Institute of Economic Affairs, says a 9p/unit rate would ensure a tax on alcohol rather than an ‘arbitrary’ levy on fluids.

Currently EU regulation prohibits the UK from introducing the system of alcohol taxation Snowdon prefers but he stressed that after Brexit the UK should look at a radical overhaul of the system.

He predicts his system would see duty increase on strong cider but fall for all other alcohol categories.

In his paper ‘ A rational approach to alcohol taxation’ he says: “Alcohol taxation in Britain defies common sense. The negative externalities associated with excessive drinking justify a tax to recoup the money spent by the Government on alcohol-related crime and health problems but rather than alcohol tax per se, the Treasury taxes volumes of fluid. A unit of alcohol is taxed at 27.7p if it happens to be a glass of whisky but at just 7.8p if it is a pint of cider. If the cider is strong, the tax is less than 7.8p, but if it is strong and fizzy the tax is 33.6p. Similarly, the tax on a unit of alcohol in a glass of wine amounts to 19.8p unless the wine is sparkling, in which case it is 25.4p.

“Overall, there is a greater than four-fold difference between the highest and lowest rates. Perversely, the highest and lowest rates of tax are levied on the same drink – strong cider.”

He insists that “it is time to wipe the slate clean and start from first principles” with the guiding principle that alcohol tax should seek to raise the £4.6bn needed to mitigate the impact on the wider economy of drinking.

He says: “Alcohol should be a tax on ethanol, since ethanol is the ingredient that can lead to drunkenness and ill health. British drinkers currently consume just over 50 billion units of alcohol per annum (Dept of Health 2014). To recover the £4.6bn in costs, there should be a flat rate of 9p per unit of alcohol sold.”

The following table illustrates how Snowdon sees a “rational tax” affecting drinks prices.

He concludes: “The current tax regime is characterised by paternalism and protectionism, neither of which can be justified in a free society. Moreover, the paternalism is largely ineffective. In an effort to clamp down on high-strength alcohol, the Government created a new, high tax category for beers and sparkling ciders with an alcohol content of more than 7.5%. As a result there is now a wide range of cheap, high-strength beers and sparkling ciders with an alcohol content of exactly 7.5%.

“A 9p/unit tax would pay for all the costs imposed on public services by alcohol abuse and would incentivise the development of lower strength drinks across the board. It would also effectively create a minimum unit price of 11p (including VAT on the duty) and would tackle alcohol duty evasion. It is time to tax alcohol, not fluids.”