Wednesday, 13 January 2010

Costs and benefits of alcohol

Over at The Spectator, Alex Massie has been taking apart the notion that alcohol "costs" Scotland £3.65 billion. Meanwhile in England, the Conservative party has announced its alcohol strategy. As Taking Liberties reports, this strategy is based on the belief that alcohol "costs" the UK £20 billion a year.

As Alex says, these figures are based on little more than guesswork. The fact that the Scottish estimates, in particular, have risen dramatically in a few short years makes one suspect that they are based more on politics than mathematics.

We are victims of Government-Sponsored Study Inflation. In 2001 a study for the Scottish Executive argued that drink cost the country about £1bn a year; in 2004 another report estimated the cost at £1.1bn before, in 2007, yet another claimed that hangovers and bar-room brawls and liver disease and all the rest of it cost £2.25bn. Chicken-feed in comparison to this year's numbers. 

So here too we can suppose that you can do the sums any way you please and that, consequently, it probably helps to decide what you want the result to be before you begin the whole sorry process.

Some of the supposed costs are so intangible as to be unmeasurable. How, for example, is one to quantify the financial cost of "family breakdown" or "grief"? Of the £20 billion alcohol allegedly costs the UK, £4.7 billion - almost a quarter - comes from the "emotional impact suffered by victims of alcohol-related crime". But if we are to start putting a price on misery, what price do we put on joy? As Alex says:

The hundreds of millions of pounds it says are lost through "pain" and "grief" is nowhere balanced by the equally arbitrary figures once could concoct for all the (life-long!) joy and contentment alcohol brings. To say nothing of its positive impact on the birth-rate. (Happy, boozy pregnancies almost certainly outnumber booze-related premature deaths. This must be worth billions in the pro-drink column. These are the workers of the future!)

Factor in the social cohesion - to use a favourite piece of government-speak - provided by public houses and the happiness-inducing impact of a dram at home and it seems to me that the ruinous impact of drink has, unsurprisingly, been vastly over-stated.

If emotional costs are ultimately unmeasurable, we can certainly quantify the economic benefits. The £20 billion estimate is regularly mentioned by politicians, but the document that gave us that figure also gave us this little nugget, of which we hear almost nothing [PDF]:

The alcoholic drinks market is valued at more than £30bn per annum, with around one million jobs estimated to be linked to it. Excise duties on alcohol raise about £7bn per year and, like other sectors, the industry pays local and central taxes.

Even if we take the £20 billion "cost" seriously, it is immediately outweighed by the £30 billion we gain. To put it another way, if alcohol control policies succeed, for every £2 we save, we will lose £3. 

Faced with these hard economic facts, most public health professionals will huff and puff before saying that the issue is not about money, but about health. They would say that saving lives is more important than saving cash. Fair enough, and if they want to make that argument, they should do so, but let's not pretend that alcohol is a drain on the economy. It isn't and it never has been.


a.welch said...

The same logic is used by the anti smoker groups. I have always found this little footnote says so much on how they can twist things to fit their agenda.

Update on Smoking Costs to Society
"Taxes paid on tobacco manufacturers’ profits and their employees’ revenues were voluntarily excluded from our analysis, since the tobacco industry’s profits would have been transferred to other sectors in the absence of this industry.

Similarly, tobacco workers would have worked in other sectors, and we have no reason to think that they would not have paid equivalent taxes."

Angry Jasmine said...

Agreed. The benefit to consumers must outweigh the cash cost, or else they wouldn't do it. Let's assume £3 benefit for £2 cost, for sake of example.

Now, of the cash cost, three quarters is tax (as against half the cost of other goods, to tie in with Ann W's point). And, to be fair, let's assume for every £2 spent, the state or the NHS has to spend 50p patching people up.

So benefit to drinker = £3
Benefit to taxpayers = £1
Materials, labour Cost = 50p
Extra public services = 50p

What's not to like?
PS, looking on the bright side, a couple of days ago the 'cost' of alcohol to England was stated to be £55 billion, so £20 billion is heading in the right direction.

PPS, your link to Taking Liberties doesn't work.

Christopher Snowdon said...

Well said. I've fixed the link. Taking Liberties changed it during the day.

Eric Crampton said...

Looks like a Scottish version of the same method that BERL used in New Zealand. I'd be surprised if a reasonable fisking didn't bring costs down to about a billion pounds or less. What's the current alcohol excise tax take in Scotland?

timbone said...

It's a carbon copy of anti smoking propaganda isn't it. Just like tobacco, revenue on alcohol far outweighs any costs incurred as a result of the very low percentage of those who habitually abuse it - much lower than those who habitually abuse tobacco!!

Dick Puddlecote said...

If you want economics, talk to an economist about value of booze to society.

"The value to the person purchasing the alcohol of purchasing the alcohol must be higher than the amount they spend on purchasing the alcohol. If it weren’t, then they wouldn’t purchase the alcohol now, would they?

The BBC tells me that this number is £38 billion a year."

And that was 5 years ago.