Lifestyle Economics Blog

Farewell minimum pricing, we barely knew ye

The European Court of Justice has today ruled that minimum pricing for alcohol is illegal if less restrictive measures, such as tax rises, can serve the same purpose of reducing alcohol consumption. A little background is required to understand why the ECJ sided with the Scotch Whisky Association against the Scottish government in this case.

EU case law makes it quite clear that it is illegal for member states to set a minimum price for a product. European courts have consistently rejected minimum prices on such products as tobacco and fuel. They regard minimum pricing as an anti-competitive policy that constitutes a barrier to trade. ‘Quantitative restrictions on imports’ are illegal within the EU and minimum pricing is seen as a quantitative restriction. In the case of alcohol, it prevents those member states which can produce alcohol cheaply from exercising their commercial advantage. The European Commission took the trouble of reminding the Scottish government about this back in November 2012. Why, then, did the SNP allow the case to go all the way to the European Court of Justice? Why did the Irish government confirm its commitment to this apparently doomed cause only last week?

The answer lies in a growing belief that ‘public health’ policy is above the law. This is not an entirely vain hope. In its battle with the Scotch Whisky Association, the Scottish government put its faith in Article 36 of the Treaty on the Functioning of the European Union (TFEU) which lists a whole string of worthy aims for which the ban on quantitative restrictions can be ignored, including ’the protection of health and life’.

The list of possible exemptions to the ban on trade restrictions is so extensive as to make a mockery of the EU’s commitment to free trade. The ‘protection of health and life’ extends not only to humans but to plants and animals. It exempts not only public health, but ’public morality’, ‘public policy’ and ‘public security’. It also includes ‘the protection of industrial and commercial property’. In other words, trade restrictions are banned unless they can be shown to benefit health, morality, safety, security, property, humans, animals or vegetables. Even the dullest lawyer can find a way of appealing to one or more of those special cases.

For the Scottish government and minimum pricing, the theme was health. Minimum pricing is supposed to improve health by raising the price, and thus reducing the consumption, of alcohol. Real world evidence for this is thin on the ground, but the European Commission accepts that there is prima facie case for accepting that it might be true.

There is a hurdle, however. As the European Commission explained to the Scottish government in 2012, you only get an exemption under Article 36 if there is no better way of achieving your policy objective - preferably one that doesn't erect barriers to trade with your EU neighbours. In the case of alcohol, higher taxes are the obvious (if unpopular) alternative.

Taking its cue from minimum pricing’s supporters in the ‘public health’ lobby, the SNP claim that minimum pricing is more effective than tax rises because it targets the heaviest drinkers by raising the price of the cheapest drinks. This is where they came unstuck. As the ECJ notes in its ruling today, it is the rich, not the poor, who drink the most alcohol and it is the rich who are most likely to exceed the government’s drinking guidelines. In sum, it is those who can afford to drink the more expensive alcohol brands who drink the most. A tax would increase the price of these more expensive brands. Minimum pricing won’t. Therefore the ECJ has concluded that there is at least one better way of achieving the stated objectives of the Scottish government than minimum pricing. If so, there can be no exemption. Minimum pricing is illegal in the EU.

The Scottish parliament doesn’t have the power to increase alcohol duty, but that is no concern of the European Court of Justice - the United Kingdom is the member state, not Scotland. The SNP could always lobby for higher taxes in Westminster but it is doubtful whether the Chancellor is in the mood to listen. Earlier this year, George Osborne lowered beer duty and froze wine and spirits duty in an attempt to create a feel-good factor. He is unlikely to risk making himself unpopular with the country in a doomed attempt to placate the Scottish nationalists.

All told, today’s announcement is an early Christmas present for Scottish drinkers. The ECJ has rejected minimum pricing and the SNP cannot raise prices through taxation. Nicola Sturgeon could fight on in the Scottish or UK courts but the odds are now stacked against her. Millions of pounds of taxpayers’ money have already been spent lobbying, campaigning and fighting for this regressive and unproven policy despite repeated warnings that it contravenes EU law. Humble bloggers like myself and Tim Worstall have been pointing out its illegality for years. Today, we were proven right. Having got themselves in this hole, surely now is the time to stop digging.

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