Between the needs of public health and free markets: the Scottish Minimum Alcohol pricing saga nears the end… what now?

Hazardous consumption of alcohol is a true “Scottish disease” and the Scottish Government’s legislation imposing minimum prices for the retail sale of alcoholic beverages represented a controversial attempt to tackle the problem. Four years on, the Alcohol (Minimum Pricing) (Scotland) Act 2012 (the 2012 Act) is still mired in legal controversy: however, evidence coming from the experience of a number of Canadian provinces shows that minimum unit pricing may well be the most effective tool to address the health-related and social ills arising from alcohol consumption.
Alcohol abuse represents a significant health, economic and social problem in Scotland: according to the NHS in 2014/15 there were just over 35,000 hospital stays owing to alcohol related conditions and individuals living in poorer zones being three times more likely to be admitted to a general hospital than those living in more affluent areas. Reversing erstwhile negative trends, alcohol demand in Scotland is again on the rise: recent data, published by NHS Scotland, shows that sales’ figures for 2015 were 20% higher than in England and Wales, compared with the previous year; furthermore, about 74% of the alcohol consumed is drunk off-the-premises. It was estimated that last year each adult in Scotland purchased the equivalent of 114 bottles of wine or 41 bottles of vodka. As with any other commodity, a combination of falling prices—linked significantly to in-store promotions, offered by the main supermarkets—and of easy availability of supply have been identified as among the causes for this outcome.
The magnitude of this “Scottish malaise” makes the case for policy intervention extremely compelling. Speaking on 25 May 2016, Scottish Health Minister Maureen Watt renewed the new Government’s committee to a comprehensive Alcohol Framework, encompassing more than 40 measures, some of which related to price, aimed at reducing such demand. However the Scottish Government’s legislation imposing minimum prices for the retail sale of alcoholic beverages, which represents perhaps the boldest, yet at the same time most controversial attempt to tackle the problem, is still not applicable. Four years since its approval, the Alcohol (Minimum Pricing) (Scotland) Act 2012 (the 2012 Act) is mired in legal controversy: a challenge brought by the Scotch Whisky Association led to the Act being the subject of two judgments before the Court of Session in Edinburgh as well as to the scrutiny of the Court of Justice of the European Union in Luxembourg. Following the ruling of the EU Court, handed down at the end of 2015, the minimum unit pricing rules are once again before the Scottish Courts. The Court of Session is about to give its decision on whether or not placing such limitations on the freedom to trade for liquor suppliers in Scotland, being a prima facie restriction on imports within the Union, as such prohibited by Article 34 of the Treaty on the Functioning of the European Union (TFEU), can be justified as a means of protecting “the health and the life of humans”, in light of Article 36 TFEU.
The SWA case thereforepits the demands of free, competitive and efficient markets against the protection of high levels of public health in light of the needs of Scotland’s population. How can these two apparently competing interests be made to “fit” within the broader principles ensuring genuine competition and free trade, enshrined in the TFEU? And, perhaps more importantly, are minimum pricing rules the most effective instrument to reduce public health harm among the poorer sections of Scottish society?
Minimum pricing rules, while being controversial, are not new: evidence coming from the experience of a number of Canadian provinces shows that these restrictions on the freedom to trade have been deployed in order to address the health-related and social ills arising from alcohol consumption, albeit in the context of a wider normative and economic framework where free competition and genuinely open markets are seen as worthy of protection.
Canadian experiments… and possible answers for Scotland?
Liquor control as a “provincial issue” within a federal competition enforcement structure—relying on competence rules as a means of preserving local regulation powers
This study examined the application of minimum alcohol pricing rules, as part of an all-encompassing framework for the regulation of alcohol trade, in a number of Canadian provinces including British Columbia, Ontario and Saskatchewan. It was found that in Canada striking a balance between public policy demands concerning public health and safety protection and the need to secure effective competition across the whole Federal jurisdiction was possible through the application of overarching legal principles governing the distribution of competence among authorities acting at different levels of the Canadian federal structure.
The Canadian Constitution lays out very clear rules governing the division of competences between, respectively, the Federal Parliament and the provincial assemblies: thus, while the former is competent to take action in order to ensure, inter alia, the smooth flow of commerce throughout the territory of Canada through effective competition, the latter retain the power to discipline “purely provincial matters” such as, among other issues, liquor control. On a careful reading of these principles, the Canadian courts have recognised that effective competition enforcement can only be ensured at a federal level. Nonetheless, they have taken the firm view that the application of the rules contained in the Competition Act could not prejudice the power of the provincial assemblies to regulate specific sector of the economy in the public interest. Therefore, if prima facie anti-competitive conduct is required by binding rules governing a specific economic activity in furtherance of its statutory remit and for the purpose of fulfilling a legitimate objective in the public interest, it will not attract liability under the Canadian antitrust rules, on the grounds of being “necessarily incidental to the industry (or profession)”. As a result, practices stemming from the observance of minimum prices set by means of provincial liquor control legislation are unlikely to attract antitrust liability: being designed to regulate a specific economic sector and have a genuine public interest objective, they represent a genuine expression of the legislative power, conferred to provincial legislative assemblies, to regulate specific industries.
Higher taxes or a “floor price”—what works?
Canada’s long-standing practice of imposing minimum prices as one of the regulatory tools applicable to alcohol sales can also provide an indication of the effectiveness of these measures in reducing the adverse impact of liquor consumption on public health, especially among “heavier” drinkers. Research has shown that because they tend to switch more willingly to cheaper and more alcoholic options individuals drinking harmful levels of alcohol are less likely to be responsive to generalised price hikes, such as those arising from the use of the “fiscal lever”. Minimum pricing policies can target more accurately and thus erode this type of demand on the grounds that they “exclude” from the market the cheapest options that are consumed by the more assiduous drinkers.
Evidence concerning alcohol consumption in British Columbia between 1989 and 2009, for instance, showed that a 10% increase in the floor price of a single type of liquor could lead to a cut in demand by between 14.6% and 16.1%; if the same increase was applied across the whole range of alcoholic drinks, the study indicated a loss in demand by 3.4%. Similarly, in Saskatchewan it was found that in response to the introduction of higher minimum prices (by 10%) for liquor, occurred in 2010, consumption of beer had fallen by 5.87%, demand for wine by 4.58% and for all liquor types by nearly 8.5%. Heavier drinkers were more likely to be affected by minimum pricing as the “cheapest options”, which, due to the income limits that contributed to their purchasing decisions, they tended to “switch to” in response to a price increase for their drink of choice became unavailable: thus, an increase by 10% in the minimum price for higher-strength lager was found to have led to a reduction in demand by 22%.

Relying on minimum pricing has also been shown to have direct effects on alcohol-related mortality: in British Columbia, in the years between 2002 and 2009, a generalised increase in the minimum price by 1% was estimated to lead to an immediate, substantial and significant reduction in “wholly alcohol-attributable” deaths–i.e. deaths that find their “underlying cause” in the alcohol consumption–of 3%. It was also shown that an increase by 10% on the price of spirits had led to an immediate reduction of mortality of 35.25% overall an increase by 10% on the price of spirits and a lagged reduction in years 1 and 2 following the same increase in the price for cider and coolers (i.e. mixed drinks).

Back to Scotland—what now for the Alcohol (minimum pricing) (Scotland) Act 2012?

The enactment, in Scotland, of rules setting minimum prices for alcohol sales represents a courageous and radical attempt at addressing the social and health ills arising from high levels of alcohol demand in a nation where this phenomenon is clearly on the rise. Yet, at the same time it raises important questions as to whether the concern for protecting open and “efficient” markets, where price competition is especially prized, prevail in all cases, even when the member states have exercised their right to regulate in areas belonging to their competence and in respect of which the EU has a very limited role, for genuine reasons of public interest and on the basis of sound scientific evidence. The Canadian experience of similar measures points to the effectiveness of floor prices as a means of reducing “harmful alcohol demand”, compared with a generalised tax increase. It is now up to the Scottish Court of Session to be “courageous” and consider whether this is the time to move away from the “safety” of fiscal measures to embrace the “brave new world” of price controls as tools of “genuine” public interest regulation.

This blog post is a summary of a study conducted by Dr Arianna Andreangeli on the following theme:
Making markets work in the interest of public health: the case of the Alcohol (Minimum Pricing) (Scotland) Act 2012.
The study benefitted from a small research grant awarded by the Royal Society of Edinburgh (RSE) in December 2015, as part of the RSE Arts and Humanities Funding programme.
The principal investigator is grateful to the Royal Society of Edinburgh for its financial support; she would also like to thank the Faculty of Law of the University of Toronto, Ontario, Canada, for providing a stimulating environment where this research could be fruitfully carried out.