After the Government opened its consultation on Minimum Unit Pricing (MUP) of alcohol this week, the TaxPayers’ Alliance can now expose how the introduction of the policy would land taxpayers with a bill in excess of £650 million a year.
The Impact Assessment document produced by the Home Office itself includes an admission that the policy would likely cause a drop in revenue for the Treasury of £200 million in lost receipts from Alcohol Duty.
But buried in the document is a reminder that MUP would have an impact on inflation because sales of off-trade alcohol are taken into consideration for the Consumer Prices Index (CPI).
Since April 2011, the CPI has been used by the Government for the indexing of benefits, tax credits and public service pensions, so the unintended consequence of MUP would be a startling increase in the cost to the taxpayer of those significant items of government spending.
The Impact Assessment reveals the inflationary impact of the policy, based on figures provided by the Treasury, using an HMRC model assuming implementation in 2014-15:
“Implementation of a minimum unit price at any level will increase prices and therefore inflation. As shown in Table 4 the impact of a 45p MUP is estimated to be a +0.2 percentage points, based on the weight of off-trade alcohol sold in the Consumer Prices Index.”
These items are set to cost a total of £227.4 billion in 2014-15, but with +0.2 percentage point increase in CPI, a further £455 million would be added to the cost.
The Impact Assessment suggests that the inflationary effect of MUP could in fact be even larger:
“There are a number of uncertainties about these estimates, as there are likely to be further offsetting effects on inflation if the prices of more expensive alcohols are increased to maintain differentials with cheaper alcohol.”
But even if the increase in CPI is limited to +0.2 percentage points, combined with the loss of receipts in Alcohol Duty, the annual cost to the taxpayer of a 45p MUP would be £655 million.
Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance, said:
“We already knew that forcing retailers to charge more for alcohol would result in higher prices for customers.
“But now we have the Government’s own figures showing that the cost of this ludicrous policy will be borne by taxpayers in higher welfare costs and reduced duty receipts.
“The Government may have only just announced the consultation on Minimum Unit Pricing but the quicker they call time on this policy, the better.”