Alcohol - minimum unit pricing - continuation and future pricing: interim business and regulatory impact assessment

Executive Summary

Despite progress, alcohol-related harm continues to be one of the key public health challenges in Scotland. In 2021, there was enough alcohol sold in Scotland for every adult to drink 18.1 units of alcohol a week. This is the equivalent to around 36 bottles of spirits, or around 90 bottles of wine, per adult each year. This is nearly 30% more than the lower-risk UK Chief Medical Officers' guidelines of 14 units per week. Scotland has the highest alcohol-specific death rate in the UK, there were 1,276 alcohol-specific deaths in Scotland in 2022, and 35,187 alcohol-related hospital admissions in 2021/22.

The Scottish Government introduced minimum unit pricing (MUP) in May 2018, which sets the minimum price that a unit of alcohol can be sold for in Scotland – currently set at 50 pence per unit (ppu).

The policy aim of MUP is to reduce health harms caused by alcohol consumption by setting a floor price below which alcohol cannot be sold. In particular, it targets a reduction in consumption of alcohol that is considered cheap, relative to its strength. It aims to reduce both the consumption of alcohol at population level and, in particular, among those who drink at hazardous and harmful levels. In doing so, it aims to reduce alcohol related health harms among hazardous and harmful drinkers and contribute to reducing harm at a whole population level.

People who drink at hazardous and harmful levels in lower socio-economic groups suffer greater harms than those who drink at these levels in higher socio-economic groups due to the impact of multiple drivers of health inequality. MUP is also intended to address alcohol related health inequalities by reducing consumption and therefore harm among hazardous and harmful drinkers as a whole, having a positive effect on health inequalities given the greater harms people in lower socio-economic groups experience in relation to alcohol.

MUP is one of a range of population and individual level interventions set out in the Scottish Government Alcohol Framework that together are intended to improve the prevention and treatment of alcohol related harm in Scotland.

Scotland's MUP legislation contains a 'sunset clause' which means the legislation will expire at the end of 30 April 2024, unless the Scottish Ministers make an Order to continue its effect. It also requires the Scottish Government to assess the operation and effect of the policy five years after it comes into force, and to report on this to the Scottish Parliament. Alongside this, the Scottish Government have also conducted work to review the minimum price per unit.

Evidence shows that as alcohol becomes more affordable, drinking and alcohol-related harm increases, and that one of the best ways to reduce the amount of alcohol drunk by people in any country is by making alcohol less affordable.^[1] The Scottish Government's approach to tackling alcohol harms is in line with the World Health Organisation's focus on affordability, availability and attractiveness of alcohol.^[2]

The Scottish Government, in its National Performance Framework provides a clear vision for Scotland with broad measures of national wellbeing covering a range of economic, health, social and environmental indicators and targets. Building a better relationship with alcohol will significantly contribute to realising this.

MUP has been extensively evaluated during its first five years by Public Health Scotland (PHS) who led a wide-ranging, comprehensive, five-year review of MUP. The evaluation comprised a portfolio of quantitative and qualitative studies across a number of areas including price and product range; alcohol sales and consumption; alcohol related harm; and economic impact on the alcoholic drinks industry. Their final report found:

"Overall, the evidence supports that MUP has had a positive impact on health outcomes, namely a reduction in alcohol-attributable deaths and hospital admissions, particularly in men and those living in the most deprived areas, and therefore contributes to addressing alcohol-related health inequalities. There was no clear evidence of substantial negative impacts on the alcoholic drinks industry, or of social harms at the population level."^[3]

That is why the Scottish Government is proposing to retain minimum unit pricing of alcohol as one of the interventions to tackle alcohol harms. In addition to the proposal to retain MUP, Ministers have suggested a preferred price going forward, set at a level that ensures the value of the minimum unit price continues to support the Ministerial ambition of reducing alcohol harm.

MUP is a price set in cash terms at a point in time and so will erode in real terms over time as inflation and the purchasing power of money reduces. National Records of Scotland latest publication on alcohol specific-deaths has shown there were 1,276 alcohol-specific deaths in 2022, and deaths were 4.3 times higher in the most deprived areas compared to the least deprived areas. An effective level of MUP needs to be in place in order to continue to reduce alcohol-related harm.

In addition to modelling on the impacts on consumption and health harms of changing the level of MUP, the following factors and evidence are relevant in considerations of a preferred price for MUP:

• Affordability of alcohol
• Alcohol prices including price distribution
• Cost crisis
• Impact of Covid-19 restrictions on alcohol consumption and harms
• Covid recovery

Consultation

Alongside the publication of this Interim BRIA, a public consultation on the proposals to continue MUP and to seek views on the preferred price per unit of 65 pence is open until 22^nd November 2023.

The results of the public consultation, in addition to the wide range of evidence that exists, will enable the Scottish Government to make a decision on whether to continue the policy and, if so, at what price.

This public consultation follows targeted stakeholder engagement with a wide range of internal and external stakeholders carried out in 2022 and 2023.

Options

In preparing this Interim BRIA the Scottish Government has considered the different options available and have provided a summary of those considerations.

In order to inform these options the Scottish Government commissioned the University of Sheffield Alcohol Research Group (SARG) to undertake new modelling work to inform a review of the current 50ppu threshold. SARG is a world-leading centre for research on alcohol harms. Their work is widely used by policymakers, practitioners, and the general public.

Option 1: not continuing MUP as a policy

The 'do-nothing' option would see the sunset clause come into effect and there would no longer be MUP for alcohol in Scotland from 1 May 2024.

During consultation with businesses, the impact of removing MUP was unclear. If the floor price is removed, it is likely that some alcohol products would reduce in price. What is unknown is whether this would happen quickly or whether there would be a more gradual reduction. The response would likely vary across different retailers and producers depending on product demand and competition.

The Sheffield Model estimates that relative to the impacts of 50ppu in 2019 shortly after it was first introduced, removing MUP would lead to an increase in average alcohol consumption across drinkers, increasing by 5.4%. This increased consumption shifts individuals up drinking categories, with an increase of 10,684 hazardous drinkers and 26,841 harmful drinkers estimated.

Increased alcohol consumption from the removal of MUP would be expected to result in increased health harms and costs to the NHS. The removal of MUP is estimated to lead to an increase of 131 deaths in year 1 after it had expired. The increased mortality is estimated to be concentrated in the most deprived SIMD quintiles.

Hospital admissions would also be expected to increase if MUP was removed. At the population level it is estimated there would be an additional 1,751 admissions in the first year after it had expired.

Alcohol related disease imposes a significant burden on the NHS. The estimated impacts on NHS costs of removing MUP are forecast to amount to £10 million over the first 5 years (assuming MUP increased in line with inflation annually). As well as these costs, there will be increased costs relating to the need for more alcohol treatment and support services as alcohol harms increase.

As the removal of MUP is estimated to increase alcohol consumption and hence alcohol harms, which is not consistent with the policy aim of reducing alcohol-related harm, the Scottish Ministers are proposing that MUP as a policy should continue. If it were to be removed, alcohol consumption would increase and hence so would alcohol-related harms. This option is, therefore, not being proposed because it does not meet the aim of the policy going forward.

Option 2: continuing MUP at 50ppu

Continuing MUP with a 50ppu price floor would mean that retailers would continue to be required to retail alcohol at or above the current MUP level in Scotland.

Maintaining the price at its current level of 50ppu would mean retailers would not be required to make any changes to prices in order to comply with the new legislation.

The evaluation has shown that 50ppu has been effective in reducing alcohol-related harms however, as time passes, its effectiveness is likely to decrease as the cash price level is eroded by inflation in real terms. The PHS evaluation final report referred to this as a consideration for policy-makers: the evaluation of MUP was conducted at 50ppu and, if MUP continues, it is likely benefits realised will only be maintained at similar levels if the value of MUP is maintained relative to the prices of other products. The report also mentions that increasing the level of MUP would potentially increase the positive impact on consumption and harms, but that any negative or harmful impacts might also increase.

The Scottish Ministers are proposing that, on balance, the current level of MUP at 50ppu should be increased. If MUP remained at 50ppu, alcohol consumption would increase and hence so would alcohol-related harms. This option is, therefore, not proposed because it does not most effectively deliver the intended public health impact.

Option 3: continue MUP at a level lower than 50ppu

Retailers would be required to continue to retail alcohol above a minimum unit price, but that level would be lower than the current 50ppu. This MUP level would represent a decrease in both cash and real terms compared to its introduction in 2018.

Similar to the removal of MUP, a lowering of the level of MUP in cash terms is estimated to increase alcohol consumption and hence alcohol harms, which is not consistent with our policy aim of reducing alcohol-related harm.

As set out above, the Scottish Ministers are proposing that the current level of MUP at 50ppu should be increased in order to maintain its effectiveness going forward. A lowering of the current level would result in increased alcohol consumption and hence increased alcohol-related harms. This option is, therefore, not being proposed because it does not meet the aim of the policy going forward.

Option 4a: continue MUP at levels above 50ppu

As set out in the PHS evaluation, in order to maintain its effectiveness going forward, the current level of MUP may need to increase to ensure its value in real terms (i.e. relative to other products). This will ensure that the desired public health benefits of the policy are realised.

Setting a new price provides the opportunity to take account of the significant changes which have taken place since MUP was first introduced, including the high levels of inflation, the impact of the covid pandemic and the ongoing cost crisis.

Given the positive impact which evidence suggests MUP at 50ppu has had, the Scottish Ministers are seeking a price that will continue to achieve at least similar levels of public health benefit with a preference to achieving further reductions in alcohol related harm than seen at 50ppu.

55ppu

Taking account of all the evidence and factors, the Scottish Ministers consider 55ppu to be too low a price. Whilst it provides the option closest to the level of interference in the market in terms of the distribution of prices in the off-trade that 50ppu did, it is estimated to have lower benefits than has been achieved by 50ppu. Based on the Consumer Price Index (CPIH) since MUP was introduced, the price would need to increase to at least 60ppu to obtain the equivalent scale of impacts as modelled for 50ppu in 2019. There are other factors that need to be taken into account, however, how the price compares with inflation is a significant element in maintaining the effectiveness of MUP. Therefore the Scottish Government consider that 55ppu is too low as it is unlikely the positive impact which evidence suggests MUP at 50ppu achieved in 2018. This option is, therefore, not proposed.

60ppu

60ppu provides the option that is closest to maintaining the benefits of the policy at the same level as when it was introduced, and would uprate MUP in line with CPIH. It would likely result in a small increase in the share of products captured by MUP compared to when it was first introduced.

Given the level of alcohol related harms in Scotland, or instance as set out in the 29 August National Records of Scotland alcohol-specific deaths publication, Scottish Ministers are, given the level of population wide alcohol harms, proposing that the MUP level is set to increase the public health benefits of the policy and to further reduce alcohol harms compared to the initial implementation of MUP. This option is therefore not proposed.

65ppu

65ppu provides even greater positive health benefits than 60ppu, with modelling showing it could avert an additional 60 deaths in the first year and 774 fewer hospital admissions compared to 60ppu. The number of hazardous drinkers is estimated to fall by 15,742 and the number of harmful drinkers fall by 11,403, compared to 60ppu. The modelling estimates that the health benefits would be experienced most acutely by those in the most deprived groups of the population on average (22 fewer deaths in the most deprived SIMD quintile and 6 fewer deaths in the least deprived SIMD quintile in year one of the policy compared to a 60ppu MUP. However, it will have an increased impact on industry and market interference. This impact, however, must be considered within the context of rising alcohol harms as latest alcohol-specific deaths show there has been an increase of 2% in 2022.

As Scottish Ministers are seeking a level which will derive greater benefits than the current policy, raising the level to 65ppu is proposed as the preferred position on price for the purposes of this consultation. This strikes an appropriate balance of achieving increased health benefits while minimising unnecessary interference in the market.

Option 4b: Continue MUP at 70ppu, 75ppu or 80ppu

Increasing MUP above 65ppu is recognised as being at too high a level for Scotland. The impact on consumers, dependent drinkers and the market would be very large. It is also likely that the possibility of unintended consequences would be increased, such as potential financial difficulties for dependent drinkers and increase in use of non-beverage alcohol.

At these levels, the price floor would begin to impact beyond lower price alcohol products that have been the core target of the policy intent to reduce alcohol that is cheap relative to its strength. The level of interference of 70ppu, 75ppu and 80ppu is, therefore, too high to justify the policy aims despite the greater health benefit that would be achieved. We, therefore, conclude that the options of increasing the current level of MUP to 70ppu, 75ppu or 80ppu is not acceptable and, therefore, do not proposed implementing any of these options.

Taking into account all relevant factors, the Scottish Ministers consider a MUP of 65ppu offers a balance of reducing alcohol harms and impact on the alcoholic drinks market, and is the proposed preferred price.

Impact on businesses

Products that currently retail below the preferred minimum price per unit will require to raise their price to comply with the legislation.

Evidence from the PHS evaluation highlights that there is no strong evidence of an adverse impact on the alcohol industry as a whole as a result of MUP. However, there is evidence that the impacts were felt differently across the sector, with evidence of some producers experiencing lower profits, and some smaller retailers having reduced revenues. Similar results are expected with an updated minimum unit price, with products more likely to be directly impacted (such as spirts) seeing greater falls in sales than products which are currently priced above the preferred price.

Summary of the technical tests around EU, markets, Scottish Firms Impact Test etc

United Kingdom Internal Market Act 2020

At present MUP is excluded from the scope of the United Kingdom Internal market Act 2020 (IMA) on the basis of it being a statutory requirement which was in force before that Act came into force. The proposed change in price would amount to a substantive change for the purpose of section 9 of that Act. Accordingly, the Scottish Government has given consideration to whether the proposals would comply with the principle of non-discrimination for goods.

Scottish Firms Impact Test

In 2020, there were 502 business units in Scotland with 11,500 jobs in the manufacture of beverages (both alcoholic and non-alcoholic) in Scotland. The manufacture of spirits, cider and beer had total employment of 10,000 and a total turnover of almost £4.2 billion in 2020, with a Gross Value Added of almost £2 billion. Sections 5 and 7 sets out the impact of a change in MUP on specific sectors of the alcohol industry including:

• Jobs
• Product supply chain
• Costs to retailers – off trade
• Costs to wholesalers
• Costs to producers
• Small retailers
• Small specialist retailers
• Small producers
• Small on-sale premises