The report says the cost of alcohol to the government (such as health, police, criminal justice and welfare) totals £3.9bn a year. Meanwhile, revenues from alcohol taxes total £10.4bn.
Public health campaigners often say alcohol places a £20bn burden on British society every year – but the IEA says this figure is ‘extremely misleading.’
It believes that even if alcohol duty was halved, the government would still receive more in tax than it spends dealing with alcohol-related problems. This backs its 2013 recommendation to halve all UK alcohol duties to bring them in line with other European countries.
Distinction between cost to society, and cost to taxpayer
The report investigates a 2003 report produced for the Cabinet Office, which produced the £20bn cost to society figure quoted today.
However, the IBA report’s author, Christopher Snowdon, makes a distinction between costs to society as a whole (which may include financial and emotional costs to individuals and businesses), rather than the costs to the government and thus the taxpayer.
“There is nothing wrong with estimating the gross cost of an activity to society or the economy, but neither tells us how much the activity costs the taxpayer and the inclusion of private costs gives a wholly misleading impression,” said Snowdon. “Despite this, figures have frequently been portrayed as if they told us just that.”
Therefore, comparing a £10bn tax revenue figure to a £20bn societal cost estimate is “an apples and oranges comparison,” he added.
“Lost productivity costs, for example, are borne by individuals and possibly by businesses. Most of the cost of crime, such as damage to property, is borne by individuals (sometimes including drinkers themselves). There is an externality or ‘social cost’ here but it is not one that is borne by the government.
“Only the direct costs to the NHS, police, judiciary, prison service and benefits system are true costs to the taxpayer.”
Snowdon’s £3.9bn figure is broken down as follows:
“Stop pretending drinkers are a burden on taxpayers. Drinkers are taxpayers and they pay billions of pounds more than they cost the NHS, police service and welfare system combined.”
Report author Christopher Snowdon
- Alcohol-related crime: cost of £1.6bn. This covers the cost to the police and criminal justice system.
- Alcohol-related health problems: cost of £1.9bn. This includes hospital admissions and accident and emergency attendances.
- Welfare payments: cost of £289m. This refers to payments made to those unable to work because of mental or physical ill health related to alcohol.
Reducing alcohol taxes
“Our estimates suggest the net cost of alcohol to the state is minus £6.5bn, which is to say that drinkers subsidise non-drinkers to the order of £6.bn a year. The government could halve all forms of alcohol duty and still receive more in tax than it spends dealing with alcohol-related problems.”
In fact, Snowdon believes the £3.9bn figure is more likely to be an over-estimate than an under-estimate.
According to the IEA, 40% of the EU’s alcohol tax bill is paid by British drinkers.
“We have previously recommended that all alcohol duties in the UK should have halved to make them less regressive and bring them closer in line with duties in other European countries,” said Snowdon, referencing his report from 2013.
“Based on alcohol sales in 2013/14, a halving of each duty would generate a total of £5.2bn, though it would be more if lower prices led to higher sales.
“Regardless of whether more alcohol was sold under a lower tax regime, government revenues would comfortably exceed government expenditure on alcohol-related problems.”
The IEA is registered as an educational charity and is independent of all political parties. The full report, “Alcohol and the public purse: Do drinkers pay their way?” can be found here.