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Alcohol taxation: the truth, the whole truth and nothing but the truth

February 2nd, 2012 Posted in Spin, Tax by

“The truth, the whole truth and nothing but the truth” is what we swear to do when we testify in court and perhaps our world would be a better place if society encouraged that approach in public life. Sadly society doesn’t so it seems to be increasingly acceptable to tell half truths and even clever lies if they are “on message” or “advance the cause” and as a result our lives are increasingly governed by partial truths and spin.

Notable recent examples are activist’s persistent claims that social problems with alcohol are caused mainly by the “real price being less than it was 30 years ago” or “alcohol being cheaper than it has ever been”. The price /affordability confidence trick has been exposed before, but as the guilty include senior medics and the media still don’t seem to have worked it out yet, here is a step by step look at how the confidence trick of affordability indexes works. This requires no special expertise and the NHS /ONS statistics on alcohol are available to all.

Most people think of real price as the price of a product relative to all other products so using the term “real price” implies that alcohol is cheaper now than in the past taking into account inflation.

The reality is that alcohol has increased in price relative to RPI by 22.9% over the last 30 years according to the NHS as shown in Figure 1.

Figure 2 gives some insight into how health campaigners arrive at their claims. It shows the “affordability” of alcohol and we see that alcohol has indeed become more affordable over time. Some activists do recognize the difference between affordability and price but stop short of telling the whole truth by not mentioning what is driving affordability.

In the interest of the whole truth we need to provide context, which Figure 3 does by including the affordability of all goods using the same measure. Without context such indexes are deceptive.

Affordability indexes are simply price relative to RPI plotted against household income relative to inflation. The driver behind alcohol affordability is not “real”price but disposable household income which has risen significantly above inflation since 1980. As a result alcohol has become more affordable but less so than other RPI goods. The “real” affordability of alcohol relative to all RPI goods is shown in Figure 4.

Whilst we might expect the deception that confuses price and affordability from activists, it is worrying that Figure 2 is the only graph featured in the NHS Alcohol Statistics from which I derive all the data used here.

When household disposable income is corrected for baseline and inflation:

Affordability of alcohol = (Household disposable income / ((Alcohol Price Index/RPI)*100))*100

= (177.5 /122.9)*100 = 144

Affordability of all RPI goods = (Household disposable income / ((RPI/RPI) * 100))*100

= (177.5 /100)*100 = 177.5

So increases in alcohol taxation called for campaigners would not be a response to falling prices as they have claimed but an affluence tax.

Some might argue in favour of sin taxes based on relative affluence and a link between alcohol taxation and disposable income but activists are not campaigning on that basis. Backed by an uncritical media, activists have grabbed the attention of politicians by popularising the myth of ever increasing consumption driven by ever decreasing prices despite the ONS data pointing in the opposite direction.

We hear that more young people are damaging themselves with alcohol these days and who better to make the point than liver doctors who can be rightly considered experts in the consequences of alcohol abuse. However, they are not experts on the economics of our relationship with alcohol and it is conceit for them to assume expertise on the causes of what is a complex social problem.

Despite this, activists waste no opportunity to inflict their evangelical views on the nation. Here is the BBC reporting senior medic and activist Ian Gilmore

Sir Ian told the BBC there had been a ‘very close link’ between the falling prices in real terms over the last 20 years and the amount Britons drank

The ONS has only begun recording total (at home and outside the home) household consumption recently but based on the data since 2001 I beg to differ. Figure 5 shows the percentage change in consumption and the alcohol affordability index from a 2001 baseline. I see no “close link” using this data or any other consumption data.

As a father of two teenagers I am all too aware of the pitfalls faced by young people in our modern society. It would be helpful if we could rely on our political and medical establishments to guide us, but we cannot as they are clearly averse to telling the whole truth or even most of it unless it suits their agenda. It would be wonderful if any political party owned up to the lack of honesty in public life and did something about it. Or am I alone in expecting people with knighthoods to be honest?

By Chris Oakley. Chris has previously posted on Liberal Vision A Liberal Tolerant nation? and  What hope is there for liberty if truth becomes the plaything of political lobbyists.

5 Responses to “Alcohol taxation: the truth, the whole truth and nothing but the truth”

  1. Dick Puddlecote Says:

    Superb piece! It’s incredible that this info is so alien to the public that they look at you oddly if you point it out to them. The culture of mendacious lobbying has got to the point where lies are accepted as fact, and facts laughed at when they are asserted.

  2. Dave Page Says:

    One solution to the problem of alcohol-related violence and crime which I do think is a reasonable attitude, is the decision of one PCT and police force to have the facilities inside a hospital A&E department on a Saturday night to charge people with being drunk and disorderly (or assault etc.) if their consumption requires intervention by the NHS…

    Of course, this doesn’t cover other cases such as alcoholics stealing to fund addiction etc., but it’s not unreasonable that the immediate consequences of inflicting your alcohol consumption on others be more serious.

  3. Gareth Epps Says:

    A very interesting piece and an area where I would tend to agree with Liberal Vision.

    What does seem to have happened is a split in the relative costs of drinking different forms of alcohol, which is what the anti-alcohol lobby has exploited and spun. So supermarket prices have stayed relatively static, whereas the price of a pint in a pub has gone through the roof, consistently, over a long period of time.

    Given that responsible pubs throw the obviously intoxicated out, I’d welcome a debate on how libertarians deal with this dichotomy, while lobbying Government to ignore the false claims highlighted in this piece.

  4. Duncan Stott Says:

    While this is interesting, I’m not sure it’s meaningful. The human liver’s ability to process alcohol doesn’t rise in line with earnings or inflation. So regardless of whether alcohol gets more or less expensive compared to RPI, the rise in affordability due to earnings rises means that more of us can afford to consume too much alcohol for our bodies to handle.

    It may be that average prices have become even more affordable than alcohol prices, but that doesn’t mean alcohol isn’t more affordable.

    If people can’t afford to buy enough alcohol to destroy their liver, that automatically impedes alcohol induced liver disease. That is why public health campaigners want to see alcohol get more expensive.

    That doesn’t settle the argument between personal liberty and public health. All I’m saying is that from a public health perspective affordability of alcohol in absolute terms does have a direct effect on alcohol induced health problems.

    (My position is that I support minimum pricing, but would rather see it done through the tax system. What I would really like to see is the alcohol industry lose its monopoly over the legal recreational drugs market.)

  5. Chris Oakley Says:

    I refer Duncan to figure 5. There is nothing “automatic” about this complex subject, except in the minds of zealots and ambitious politicians. I do respect your right to advocate affluence taxes as I pointed out in the article but have some difficulty reconciling liberalism with that approach.