Do drinkers pay their way?
3 September 2015
SUGGESTED
Healthcare
Government and Institutions
4 September 2015
Lifestyle Economics
15 November 2024
There is a persistent belief that drinkers are a burden on the British taxpayer. In the narrative of ‘Booze Britain’, Accident and Emergency departments do little else but patch up the victims of drunks and it is often claimed that taxpayers foot a bill of around £20 billion a year to deal with the effects of alcohol-related violence and ill health.
The £20 billion figure originated in a report produced for the Cabinet Office in 2003. It was not, and was never intended to be, an estimate of the cost of alcohol to the taxpayer. It included all sorts of ‘societal’ costs, such as lost productivity, that are not borne by government and it did not attempt to offset legitimate costs to the government with taxes on alcohol received by the government. Moreover, it was written at a time when alcohol consumption and alcohol-related crime were at significantly higher levels than they are today.
In new research published by the Institute of Economic Affairs today, I look at the full costs and benefits of alcohol consumption to the government in England. It is clear that there are costs to the health service, police, judiciary and welfare systems but their combined total comes to less than £4 billion a year. This is not a trivial amount of money and it is not unreasonable to expect drinkers to foot this bill through additional taxation, but alcohol duty brought in £10.4 billion in England last year. In other words, drinkers are not only paying their way, they are subsidising non-drinkers to the tune of over six billion pounds each year.
The figures break down as follows: the cost to the NHS is £2 billion, the cost of alcohol-related crime is £1.6 billion, and the cost of welfare payments to those who do not work as a result of alcohol-related conditions is £300 million. These figures are not greatly different to those found in previous research. The difference is that other studies build up their estimates by putting a monetary value on emotional distress, premature mortality, lost output and other social consequences. There is nothing technically wrong with including these wider costs in an economic calculation so long as they are clearly presented to the public as non-governmental or non-financial costs, but it is quite wrong to present them as if they were bills that have to be paid by taxpayers.
Whether by accident or design, this misunderstanding takes place all the time. For instance, the Centre for Social Justice prefaced their report on alcohol and drug misuse by stating: ‘Alcohol abuse costs taxpayers £21 billion a year’ and Sarah Wollaston MP asked the House of Commons rhetorically in 2012 ‘What about taxpayers? The cost of the [drinking] epidemic is out of control. It is at least £20 billion’.It is also not unusual for temperance and public health campaigners to compare the £20 billion societal cost estimate with the £10 billion revenue the government receives in alcohol duty. The implication is that drinkers do not pay their way and alcohol taxes should be higher, but it is an apples and oranges comparison. There is no connection between the hard cash received by government and the costs of emotional distress and lost output that make up much of the societal figure.
Rather than talking about drinkers being a burden on taxpayers, we should remember that drinkers themselves are taxpayers – and rather heavy taxpayers at that. Almost incredibly, British drinkers pay 40 per cent of the EU’s entire alcohol tax bill. This amounts to far more than any plausible estimate of the alcohol-related costs to public services. The reality is that the government could halve all alcohol duty tomorrow and drinkers would still be subsidising teetotallers.
Download Alcohol and the Public Purse by Christopher Snowdon here.
The £20 billion figure originated in a report produced for the Cabinet Office in 2003. It was not, and was never intended to be, an estimate of the cost of alcohol to the taxpayer. It included all sorts of ‘societal’ costs, such as lost productivity, that are not borne by government and it did not attempt to offset legitimate costs to the government with taxes on alcohol received by the government. Moreover, it was written at a time when alcohol consumption and alcohol-related crime were at significantly higher levels than they are today.
In new research published by the Institute of Economic Affairs today, I look at the full costs and benefits of alcohol consumption to the government in England. It is clear that there are costs to the health service, police, judiciary and welfare systems but their combined total comes to less than £4 billion a year. This is not a trivial amount of money and it is not unreasonable to expect drinkers to foot this bill through additional taxation, but alcohol duty brought in £10.4 billion in England last year. In other words, drinkers are not only paying their way, they are subsidising non-drinkers to the tune of over six billion pounds each year.
The figures break down as follows: the cost to the NHS is £2 billion, the cost of alcohol-related crime is £1.6 billion, and the cost of welfare payments to those who do not work as a result of alcohol-related conditions is £300 million. These figures are not greatly different to those found in previous research. The difference is that other studies build up their estimates by putting a monetary value on emotional distress, premature mortality, lost output and other social consequences. There is nothing technically wrong with including these wider costs in an economic calculation so long as they are clearly presented to the public as non-governmental or non-financial costs, but it is quite wrong to present them as if they were bills that have to be paid by taxpayers.
Whether by accident or design, this misunderstanding takes place all the time. For instance, the Centre for Social Justice prefaced their report on alcohol and drug misuse by stating: ‘Alcohol abuse costs taxpayers £21 billion a year’ and Sarah Wollaston MP asked the House of Commons rhetorically in 2012 ‘What about taxpayers? The cost of the [drinking] epidemic is out of control. It is at least £20 billion’.It is also not unusual for temperance and public health campaigners to compare the £20 billion societal cost estimate with the £10 billion revenue the government receives in alcohol duty. The implication is that drinkers do not pay their way and alcohol taxes should be higher, but it is an apples and oranges comparison. There is no connection between the hard cash received by government and the costs of emotional distress and lost output that make up much of the societal figure.
Rather than talking about drinkers being a burden on taxpayers, we should remember that drinkers themselves are taxpayers – and rather heavy taxpayers at that. Almost incredibly, British drinkers pay 40 per cent of the EU’s entire alcohol tax bill. This amounts to far more than any plausible estimate of the alcohol-related costs to public services. The reality is that the government could halve all alcohol duty tomorrow and drinkers would still be subsidising teetotallers.
Download Alcohol and the Public Purse by Christopher Snowdon here.
14 thoughts on “Do drinkers pay their way?”
Comments are closed.
SHARE
An aspect of alcohol consumption that seems to keep being left out is the benefits of moderate consumption. Although the effects are not very well studied – little account is taken of diurnal variation, nor of the accuracy of self reported values, for instance. However, most studies show benefits to males and females of all age groups. For men, the benefits tail off around anywhere between 20 and 35 units per week (yes, that is above the ‘recommended’ level).
The main reason for the net benefits (which are maximised at an overall odds ratio of ~0.8) seem to arise from the protection from cardiovascular diseases, which continue to be the main causes of death (depending on the taxonomy used for causes of death such as cancer, which is actually many different diseases).
That 20% reduction in risk is comparable to the impact found for statins on cvd.
The report says (referring to revenue from alcohol taxes): “We do, however, include taxation
placed specifically on alcoholic beverages, namely alcohol duty and VAT
levied on alcohol duty (but not VAT levied on the product itself, which we
assume would be levied on alternative products in the absence of alcohol).” This is spurious reasoning since VAT would also be levied on alternative products in the absence of alcohol duty.
what it is saying is that VAT on the duty is really part of the duty (ie an alcohol tax) but VAT on the product price minus the duty is a tax that is charged on all products (except things that are zero rated) and thus is a non-discriminatory tax
Philip – that makes little sense. The argument is that money spent on duty (and on the VAT on that duty) can’t be spent elsewhere (which is true). However, if there was no duty so that the money could be spent elsewhere, then (in most cases) VAT would be levied on that alternative spending. Therefore, the difference in revenue to the government due to alcohol duty is purely down to the duty itself, not the VAT levied on that duty.
true – I was thinking of the price distortion rather than the difference in revenue.
HJ,
It depends what question you’re trying to answer. If the question is ‘how much do drinkers pay in alcohol-specific taxes?’ the answer is £12 billion.
If the question is ‘how much extra tax does the government get as a result of alcohol duty, which it wouldn’t get if alcohol duty did not exist?’ then the answer is… we don’t know. There’s no way of telling how people would spend the money in that scenario – some would be saved, some would be spent on food, some would be spent on VAT-able goods.
The same could be said of any tax. It could be said of some portion of the alcohol duty itself. You could say that drivers don’t really pay £190 for a tax disc because the money would be spent on VAT-able goods if it wasn’t spent on road tax. It seems to me that you can go round in circles forever when you start thinking like that
The rationale for including VAT on the alcohol duty isn’t so much it would never be clawed back by the government otherwise, rather it is that it is part of the alcohol-specific tax. If alcohol wasn’t targeted for moral/health reasons, it would still have VAT charged on it, but it wouldn’t have additional VAT charged on the sin tax. The VAT on the alcohol duty is therefore part of the sin tax.
@Chris Snowdon – the question is indeed ‘how much extra tax does the government get as a result of alcohol duty, which it wouldn’t get if alcohol duty did not exist?’ if you are arguing (as you are) that drinkers are net contributors because of their alcohol consumption. It is indeed, perfectly possible to make educated estimates of the tax revenue if money were spent on other things or saved – you just haven’t done it. Therefore my point is entirely valid and your objection seems to me to be entirely spurious. It is the EXTRA tax versus the cost to taxpayers that is the whole point that your paper is discussing.
It can’t be done and I wouldn’t do it even if I could because it’s a silly idea which is never applied to other forms of taxation, and rightly so. Nobody claims that people don’t *really* pay x amount in income tax or y amount in car tax on the basis that some of the money would be taxed otherwise. You could do down that road in ever decreasing circles.
The fact is that there are costs the government has to pay as a result of alcohol and there are taxes placed on alcohol to pay for them. I don’t include VAT on the product (as opposed to on the duty) because that would be charged as a general sales tax even if the product was not associated with costs to public services.
@Chris Snowdon – It’s a perfectly possible and reasonable – and the only sensible – thing to estimate if you really want to look at the extra revenue gained from alcohol duty compared to the costs incurred. Your claim that “it can’t be done” is nonsense – it is perfectly possible to estimate, but not to calculate precisely.
Nobody has ever claimed that alcohol duty is hypothecated – it was you who chose to compare the two and if you do so it would help if your methodology were logical – which it currently isn’t. Your comment that “you could go down that route in ever decreasing circles” is simply a throwaway line that you cannot justify with reference to any logic.
@Chris Snowdon – You may not have noticed that (above) Philip Booth has admitted that what I said is true and that when he made his comment he was thinking of the price distortion rather than the difference in revenue. So both Philip and I disagree with you. Time to admit you were wrong, may I suggest?
actually, I then became rather uncertain myself after I wrote the comment which is why I asked Chris to continue the debate. I shall continue to think about it
Let’s say I drink a bottle of wine and the cost that I impose on the government is £1. Then, surely the government should impose on me a £1 charge – not £1 plus VAT. The purpose of the charge is firstly to bring into line marginal social costs and benefits (which may, by the way, be different from average social costs and benefits – a subject not discussed in the paper) and secondly to ensure that the revenue is there to pay the costs. It seems to me irrelevant that the government would have received the VAT if that £1 had been spent on something else – perhaps not quite irrelevant but straining the point. Effectively we are saying that the government not only wants compensation for the cost of drinking but compensation for the tax foregone if the drinker had spent that money on a VATable consumer good. By the same argument, the government should charge me VAT when I give money to charity or pay speeding fines. I can see both sides of this though: on the other hand, the social cost of drinking involves VAT revenue foregone because if the person were not spending the money repaying the social cost he would have spent money on something that was VATable. But that seems to presuppose a right to the government to necessarily receive taxes that I would not concede.
@Philip – Alcohol duty is not a hypothecated tax. Nevertheless, Chris Snowdon decided to look at the additional revenue gained by the government from fuel duty versus the additional costs (to government) associated with alcohol consumption. If he is going to make this comparison, then on the revenue side it is necessary to look not only at the revenue they receive due to alcohol duty but to subtract from this revenue they would be receiving anyway but don’t receive from other spending because people spend the money on alcohol duty instead. Only by doing this can the net revenue impact to government be calculated and from this the net cost (or surplus) of alcohol consumption.
@Philip – Just to add to my previous comments. The argument that Philip now presents is a moral one – fair enough. However, I was not commenting on the moral argument, merely the actuarial one.