A Rational Approach to Alcohol Taxation



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Economic Affairs

IEA calls for 9p flat rate of tax on alcohol to fix illogical system

  • Excessive drinking creates costs to public services which the government can recoup through alcohol taxes, thereby making drinkers internalise the costs. However, in Britain, the alcohol duty regime is excessive and illogical. Not only do revenues from alcohol duty far exceed the costs to public services, but units of alcohol are taxed at dramatically different rates depending on what type of drink they are in. The tax on a unit of alcohol ranges from 7p to 34p.

  • A flat rate of 9p on every unit of alcohol sold would raise approximately £4.6 billion (at current rates of consumption), totally off-setting the external costs of drinking to public services. Alcohol would continue to earn the government additional revenue in the form of VAT on the product, VAT on the duty, and other taxation on the alcohol and hospitality industry.

  • A 9p/unit tax would pay for all the costs incurred to 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 (inlcuding VAT on the duty). Alcohol duty evasion, currently valued at £1.8 billion per annum, would likely fall as a result of the lower price of beer, wine and spirits.

  • A 9p/unit tax would ensure that alcohol duty is a tax on alcohol, not an arbitrary tax on fluids. EU regulation currently prohibits this system of alcohol taxation. Outside of the EU, Britain will no longer be constrained.

Author Chris Snowdon wrote for The Telegraph following the release of this report.

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Head of Lifestyle Economics, IEA

Christopher Snowdon is the Head of Lifestyle Economics at the IEA. He is the author of The Art of Suppression, The Spirit Level Delusion and Velvet Glove; Iron Fist. His work focuses on pleasure, prohibition and dodgy statistics. He has authored a number of papers, including "Sock Puppets", "Euro Puppets", "The Proof of the Pudding", "The Crack Cocaine of Gambling" and "Free Market Solutions in Health".