Saturday 3 December 2016

£52 billion cost of alcohol? The garbage keeps coming

The Public Health England alcohol report is so bad it would be hard to make it worse but the Guardian has managed it...

Alcohol-related crime, lost output and ill health costs UK £52bn a year 

Treasury urged to set minimum pricing to reduce alcohol-related harm as research finds cost to taxpayer is twice old estimate

No doubt the government is being lobbied to bring in minimum pricing, but apart from that every word of this is untrue. There is no new research in the PHE report, there is no £52 billion estimate, and the cost of crime, lost output and ill health do not come close to that amount.

The review was undertaken by Public Health England (PHE) and leading academic and medical experts on alcohol. It found that the true cost of alcohol-related harm, which had usually been cited as £21bn a year across the UK, has been “generally underestimated”.

The overall economic burden is due to be between £27bn and £52bn in 2016 (1.3%-2.7% of GDP), the researchers said.

This a rough approximation of what the PHE report says but, as I explained yesterday, the PHE report is riddled with misinformation.

The authors do indeed say that estimates of the external costs of alcohol range from 1.3% and 2.7% of GDP. In fact, there are only two estimates that are ever cited, both of which are more than a decade old. The most commonly cited study is a 2001 report for the cabinet office by Rannia Leontaridi which is the source of the £21 billion figure. This equates to roughly 1.3 per cent of GDP and PHE reference it correctly.

Leontaridi's estimate is often portrayed as the cost of alcohol to the taxpayer, but - as she made clear clear in the text - it is actually a combination of costs to public services and costs to individuals, including drinkers themselves. Moreover, some of these are 'emotional' costs, ie. non-financial. For example, she includes £12 billion as the cost of alcohol-related crime but this includes £4.7 billion of ‘emotional impact’ costs, £1 billion of lost productivity, £2.5 billion of costs borne by victims and £1.5 billion spent in anticipation of crime (eg. insurance, security systems). None of these are costs to the taxpayer.

Leontaridi's study is fine so long as you understand what she's measuring. Unfortunately, it has been willfully misinterpreted for the last fifteen years.

The other estimate that is occasionally cited is £55 billion. This must be the figure PHE are citing when they talk about 2.7 per cent of GDP, but it is impossible to be certain because they give no reference for it. The PHE report is so inept that it wouldn't surprise me if the authors don't know where it comes from.

They can almost be forgiven their ignorance. The source is so obscure that I doubt even many alcohol researchers have ever read it. It comes from a 2006 rapid review by the National Social Marketing Centre. It's never been in the public domain but I got the NSMC to send me it when I was writing The Wages of Sin Taxes a few years ago and I have put it online today so you can see what I'm talking about.

It's a shame that the NSMC report isn't better known because it contains moments of unintentional hilarity. My favourite bit is when include the UK's entire annual expenditure on'sports & fitness related products' and 'fat and low calorie food' as costs of obesity.

It is difficult to determine the proportion of expenditure on sports and fitness and on diet foods that can be attributed to obesity or fear of obesity. However, overall fitness and in particular a desire to lose weight or maintain weight loss may be a driving factor in the decision to join a gym or purchase diet food.

In 1999, the total value of the market for sports & fitness related products in the UK was estimated at £6.3bn (FCO 1999). Adjusting for inflation and country, this equates to £6.31bn across England in 2005. The market for reduced fat and low calorie food was estimated at £5.2bn in 2000, with an estimated growth rate (in cash terms) of 17.4% between 2001 and 2003 (Mintel International Group Ltd 2003). This equates to an annual growth rate of 8.4%. Adjusting for country, this means the market for diet foods is estimated at £6.70bn for England in 2005. Thus total household expenditure on sports and fitness and diet foods is estimated at £13.1bn across England in 2005.

This gives you a flavour of the whole report. Any study that portrays £13 billion of sports equipment and Diet Coke as a cost of obesity should not be taken too seriously.

The NSMC's cost of alcohol estimate isn't much better. It arrived at a figure of £48-50 billion but at some point this was upwardly adjusted for inflation and has been cited as £55 billion ever since.

Included in the NSMC figure is £8 billion that drinkers spend on alcohol! Their rationale, such as it is, is this:

The cost of alcohol consumption in England is £32 billion, approximately one third of total household expenditure on food and drink and about 6% of total consumer spending. Drinking of more than the guideline levels accounts for about 25% of all alcohol consumption. Heavy drinking men consume 2.5 times the mean level of male alcohol and heavy drinking women consume 4.5 times the mean level of female consumption. This means that families with one or more heavy drinker are likely to spend a high proportion of disposable income on alcohol. Estimating these costs as 25% of expenditure on alcohol amounts to £8billion.

If that doesn't make any sense to you then are you are thinking clearly. There is no justification in economics in including any part of private expenditure on a product as being a societal cost. Private expenditure is always exceeded by private benefits. You can't count one without counting the other.

And why stop at 25% of alcohol expenditure? Why not go wild and include it all? (Sure enough, when they get to their estimate of the cost of smoking, they include 100% of expenditure on tobacco.)

For reasons that I cannot understand at all, they then add £3 billion to their estimate for the tax paid by drinkers on 'excess alcohol'. This is wrong for so many reasons. Firstly, it's a transfer, not a cost. Secondly, it's private expenditure by drinkers. Thirdly, it's a Pigouvian tax that offsets external costs, it doesn't add to them. Fourthly, it's double counting because the tax is already included in the £8 billion of expenditure they've already (inappropriately) included.

Most of the rest of the NSMC estimate consists of 'intangible' (ie. non-financial) of £16 billion and private costs to individuals, including the drinker (£23 billion) and the authors are upfront about the fact that the study is not of external costs.

We have taken as wide a societal perspective on costs as possible. The costs primarily fall on individuals/families, although these are more difficult to measure, sometimes because of lack of any contact with formal agencies. 

So there we have it. A ten year old rapid review which includes costs that shouldn't be included and which is explicitly not an estimate of negative externalities.

And yet this is how the Guardian presents it...

Doctors are urging Philip Hammond to raise the price of alcohol to tackle the “scourge” of drink-related harm after it emerged that crime, ill health and lost productivity cost up to £52bn a year, far more than previously thought.


The review was undertaken by Public Health England (PHE) and leading academic and medical experts on alcohol. It found that the true cost of alcohol-related harm, which had usually been cited as £21bn a year across the UK, has been “generally underestimated”.

No one who has read the NSMC publication would suggest that it underestimated anything. PHE's claim that cost-of-alcohol estimates are too low is based on a lie, as I said yesterday. The PHE report says:

Few studies report costs on the magnitude of harm to people other than the drinker, so the economic burden of alcohol consumption is generally underestimated.

This could not not be less true. I seriously doubt whether the authors have read either of the studies they are obliquely referring to. They count every legitimate cost 'people other than the drinker' and then pile on a bunch of ineligible costs to both drinkers and and non-drinkers to arrive at a greatly inflated figure. 

In any case, there is no new study and no new estimate. Insofar as the Guardian's £52 billion figure has a source (PHE do not use this figure), it does not say what the Guardian thinks it says.

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