If I could affect one reform to our education system, it would be economics should become a mandatory subject in the National Curriculum. Two reasons – economics is by its very nature a libertarian subject, and, secondly, it would save me lots of time untangling misunderstandings that would never occur in the first place if people who ought to know better had replaced their ignorance of economics with some basic knowledge of it.
A recent study from the University of Sheffield alcohol research team and the Institute of Alcohol Studies is a case in point. This study purported to show the alcohol industry was economically dependent on heavy, harmful, dependent drinking. The study claims the heaviest drinking 4% of the population is responsible for 30% of all consumption and 23% of all industry revenue. The numbers break down as follows – those drinking above guideline levels are estimated to account for 68% of total alcohol sales revenue in 2013/14; 81% of off‐trade revenue and 60% of on‐trade revenue. This represents 77% of beer, 70% of cider, 66% of wine and 50% of spirits sales value.
If all consumers reduced their consumption to within guideline levels – 14 units a week – alcohol sales revenue would plummet from £35bn a year (2014 figures) to £22bn – a decline of 38%. To mitigate this loss, the authors say the alcohol industry would need to raise prices substantially, for example by £2.64 for a pint of on-trade beer or £12.25 for a 70cl bottle of off-trade spirits.
The sub-text of this is the industry’s claim to be in favour of moderate consumption is insincere because it’s so highly dependent on excessive consumption. The purpose of this study is to demonstrate if consumers drank “moderately”, defined as no more than 14 units a week, they would be faced with unrealistically high prices if the industry was to maintain its profits at the current level. So, the researchers calculate how much the industry would lose from people drinking less and then work out how much prices would need to rise for profits not to fall.
Here’s where their basic ignorance of economics kicks-in. They don’t look at profits or even at turnover. Instead they assume consumer spending equals industry income and then slice off 38% because this is what they estimate sales would fall by if everyone suddenly drank no more than 14 units a week. The howler that’s being committed here is £35bn is not the industry’s money. More than £10bn of it goes to the Treasury in alcohol duty and other taxes, and billions more go to off-sales retailers and to pubs, clubs and restaurants. And what is left, about £10bn, is not all profit. Most industries make a net margin of between 7% and 10% and so the loss to the alcohol industry’s profits would be only a fraction of what these researchers claim. And this is before we calculate the cost savings to the alcohol industry that would result from producing less product.
So does the alcohol industry stand to lose if heavy drinkers all became moderate drinkers? Insofar as heavy drinking is associated with early death, and moderate drinking with extended longevity, the answer is no. If people drinking 50 units or more a week (harmful drinkers) all became light drinkers consuming 14 units a week they would all live longer. The alcohol industry would get the same revenue from them but over a longer period. Since it is unlikely this state of affairs would happen overnight – that any move towards drinking less, but drinking higher quality products would be an evolution – it’s clear the alcohol industry has no conceivable economic interest in the premature death of its customers.
There is therefore no conflict of interest between the industry’s support for moderate consumption and industry profits. Indeed, brand owners do not want their brand values undermined by irresponsible use of their products.
A total of 21% of UK adults are teetotal while a further 58% drink at or below the low risk guideline of 14 units a week. That’s 79% of people who are at no risk, or next to no risk, from alcohol. The remaining 21% drink at or above 14 units, but only 4% above 50 units a week. The alcohol industry cannot possibly determine the distribution of its products between different consumer demographics – that is a consequence of millions of buying decisions made by consumers on a daily basis. What is equally clear is the industry has nothing to fear from its customers drinking moderately and living longer. Only temperance lobby researchers without even a basic understanding of economics seek to define the alcohol industry as a conspiracy against the public interest.