A minimum price is a legally imposed price floor that must be set above the market equilibrium to have any effect. In most cases, the reason for setting a price floor is to ensure that suppliers receive a price that is considered fair, but in the case of alcohol the intentions are different. The setting of a minimum price would in fact be to solve the market failure of demerit goods – where too much of a product is consumed because of information failure in the economy. In Figure 1.0, the effects of a minimum price setting can be seen on a diagram. If the price is set at P2, there will be excess supply equal to Q3-Q1. This is because the above equilibrium price causes demand to contract and supply to expand.

If an ideal world consisted of nobody binge drinking, a minimum price setting would certainly go some way to delivering such perfection, as is seen by the contraction of demand in Figure 1.0. However, the stopping of excessive consumption could not be guaranteed, as consumer behaviour is not always accurately portrayed by the theoretical model that is a demand and supply diagram. Tim Martin, founder of JD Weatherspoon raised a point to consider when being interviewed by the BBC on the topic. He suggested that consumers would be more than willing to go abroad to binge on alcohol in a country where a minimum price is not in place. This raises just one example of a floor in Figure 1.0. The theory behind the diagram presumes that consumers are restricted to a domestic market where the minimum price is in place – which they not. If consumers are able to get on a ferry for the weekend and travel abroad to get excessively drunk for pleasure has the problem of a demerit good been fixed? It would appear not. However, on the other hand, a review of international research published last year by Bangor University found that the most effective measures in reducing binge drinking were “increasing price and reducing availability”. This would suggest that even if there are problems with minimum pricing as illustrated above, it would certainly go some way at least to reducing the problem – and in the opinion of the researchers, its actually the best way.

In order to fully assess the effectiveness of minimum pricing as way of reducing binge drinking it seems necessary to consider other methods in order to deduce whether it is the best method or not. An idea alcohol critics put forward for consideration as a way of reducing binge drinking is the banning of alcohol marketing. They say that cut-price deals and ‘cheeky advertising’ make people drink more than they otherwise would. It is certainly true that if fewer people are exposed to marketing of a product, then demand should theoretically go down or the entire concept of marketing would be essentially flawed. However, considering the economics of such a decrease in total demand is somewhat concerning. If the demand curve were to shift left, the result of a decrease in overall demand, then the price level would in fact fall. This surely begs the question that for those people who don’t rely on adverting to encourage them to drink, binge drinking in fact becomes even easier as they pay less to participate in the activity. It appears, on the surface, that this idea is completely the opposite to the idea of minimum pricing and in theory, it is much weaker in solving the binge problem. On the other hand, in practice, one might argue that the fundamental problem of a demerit good is tackled better with less production of alcohol as demand in total falls and so too is over-consumption of a dangerous good.

Indirect taxation is a form of government intervention that directly targets demerit goods and the negative externalities they produce in society. They are taxes on expenditure and are another way in which binge drinking could be curbed in society. In the March 2011 budget, a 25% rise in the duty of strong beers (above 7.5% alcohol) was added whilst a reduction of 50% to the duty of weak beers (below 2.5%) was made. Whilst the British Beer and Pub Association said at the time that there should be less focus on increasing the price of beer, and more on the price of stronger drinks, it certainly made some progress in reducing the demand for one type of alcohol. The results of indirect taxation are similar to that of a minimum price and the same problems apply such as the idea of people going abroad or indeed, it could be argued, if to a consumer, alcohol is an inelastic good, price will make little difference so the tax would fail in achieving its primary purpose. This is in fact the major problem with alcohol: it appears as though Great Britain has, over the years, reached a point in society where drinking excessively is considered the cool thing to do – especially amongst the younger generation.

There are a number of ways in which the damaging activity could be limited without changes in any sort of price– especially to target younger individuals who are introduced to alcohol far too early. Unfortunately, the changes to society would only really occur in the longer term. Depending on whether the intention is to reduce binge drinking in the longer or short term, the effectiveness of such measures relative to minimum prices is either better or worse. One example of how a societies habit could be changed is through a scheme where the government issues advice to parents about drinking in front of their children. It is said that parents who drink freely and excessively in their homes with the children present, increase the risk of their children becoming immoderate drinkers later on.

Whilst there are clearly plenty of options available in order to curb excessive drinking in the UK, in conclusion, it would appear the most sensible is a minimum price. Price is a limitation that few can avoid and it was said in recent study that setting a minimum price of 30 pence per unit would prevent 300 deaths a year, When set at 40 pence that figure rises to 1,000 deaths saved so there is clearly a positive correlation between the minimum price per unit and the reduction in deaths caused by excessive drinking – suggesting it is effective. There are, of course, potential flaws with minimum pricing, such as a price increase not being as affected as any number of studies imagine. If consumers do wish to drink excessively then it is the sad truth that they quite simply will – alcohol does seem to be price inelastic. It goes without saying that the only means by which consumers can be forced into drinking less, is by the law and an increase in the legal drinking age could go some way to solving problems in the younger age groups but it would do nothing tackle the numerous individuals who drink excessively above the age bounds of a legal drinking age. In addition, Alcohol Concern said recently that it would be ‘politically impossible’ to raise the drinking age. Fundamentally, to reduce binge drinking, alcohol consumption has to go down and naturally, a minimum price would cause this. Therefore, it is by far the most effective means, certainly in the shorter term.