Price-fixing is the wrong way to tackle binge drinking

Plans to introduce a minimum price of 50p per unit of alcohol in the North-West of England – apparently supported by David Cameron – are deeply misguided. In all markets price-fixing is a bad idea and alcohol is no exception. Problem drinkers may simply forego other goods in order to pay the higher prices. Minimum prices could also encourage drinkers to buy alcohol in other areas or switch to low-cost, “informal” sources such as home-brew or “booze cruises” across the Channel. The policy is therefore likely to be ineffective and could even prove counterproductive if alternative supply routes expand. A further important objection is that it will unfairly penalise moderate drinkers.

A better approach than minimum prices would be to focus on eliminating the ways in which the government facilitates alcohol abuse. In particular, binge drinking is in some ways a direct consequence of the welfare state. If the government offers to pay for any treatment people need, they will make the most of it. They can live dangerously, safe in the knowledge that the NHS safety net will catch them.

Such “moral hazard” can be addressed by charging those who repeatedly seek treatment for self-inflicted injuries and illnesses. The best solution, of course, would be to scrap the NHS entirely and let the private sector fill the gap. If people had to pay for their own healthcare, they would have strong incentives to adopt healthier lifestyles. The burden that alcohol abuse imposed on taxpayers would also be reduced substantially.

5 thoughts on “Price-fixing is the wrong way to tackle binge drinking”

  1. Posted 13/08/2010 at 11:27 | Permalink

    Lucy to pick you up on a few points on your excellent article. Home brew beer and cider works out at 30p a pint, so depending on strength 7.5p-15p per unit. I would also advocate the option of having your own social security fund. Rather than paying taxes to the government you invest a proportion of your income into a short term “pension” plan. Therefore if you are without work you can draw on your INVESTED savings with an insurance company’s fund manager and pay yourself as little or as much as you like.

    Politically for the Labour council in Manchester this is probably a vote loser and as people booze cruise to Liverpool and Cheshire this may end up being the first and last 50p minimum.

  2. Posted 13/08/2010 at 11:45 | Permalink

    Would paying for the consequences of life style be limited to
    the chav drinker/smokers or would it cover gays,sporting types,
    couch potatoes,gamblers ??,and several thousand other risky pursuits.
    Oh and let us not forget those who volunteer to fight in foreign
    lands.. Where does it end?

    PS Unplanned pregnacies can be quite expensive,surely abortions
    should be self funded.

    Pandoras Container GMBH

  3. Posted 13/08/2010 at 11:53 | Permalink

    Would you advocate scrapping alcohol tax also? I suspect that heavy drinkers would then be more than able to afford any extra health insurance costs. Would you also consider lower NI contribution for heavy drinkers to take into account their reduced life expectancy, hence pension costs? Compared to smokers and the obese, it is the healthy who consume most resources by living long enough to be afflicted by dementia and other illnesses of old age which require expensive long-term treatment. See for example
    Perhaps this is true for drinkers also? Contrary to popular belief, the smokers, drinkers and fatties get a raw deal.

  4. Posted 13/08/2010 at 12:30 | Permalink

    What’s missing here is any discussion of the connection between subjective rationality and addiction. Addiction alters the manner in which we take decisions, and this means that we might not be as price sensitive as government might suggest. But addiction also affects one’s time horizon such that all decisions are immediate and short term. If we paid less tax this would mean the ability to buy more drink, not private health care. We might suggest that this is a matter of individual choice, but no politician could say this and expect to get elected. Jon Elster, admittedly no libertarian, has written a lot, and well, on these issues.

  5. Posted 13/08/2010 at 12:32 | Permalink

    @NorthGoth: I take your point that alcohol abuse is not the only habit that causes illness. If we are charging heavy drinkers for healthcare, it is perhaps logical that smokers, for example, should also pay if their illness is directly related. Charging certain people, however, leads to a complicated system – no NHS at all (or at least an only partly-subsidised system) is probably most desirable.

    Regarding gamblers, what service do you recommend they are charged for? I can’t see a particularly strong link between health problems and gambling? As for the military, the consensus is probably that what we pay for in healthcare they give back in ’service to the country’.

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