The next item is evidence on the financial memorandum to the Alcohol etc (Scotland) Bill. Our first panel of witnesses is from trade bodies. I welcome to the committee Gavin Hewitt, chief executive of the Scotch Whisky Association; Campbell Evans, director of government and consumer affairs at the Scotch Whisky Association; and John Drummond, chief executive of the Scottish Grocers Federation. We will go straight to questions.
I have a few questions, the first of which is for the Scottish Grocers Federation. In paragraph 10 of your submission, you suggest that, without a minimum pricing mechanism, restrictions on promotions could lead to the closure of small shops. Does that mean that if the pricing mechanism was taken out of the bill, you would have great concerns?
Absolutely. We would have great concerns in that, if the promotional programme that is available to retailers relates only to price, in the absence of a price mechanism that will control the floor price, we could see some very deep discounting, particularly by those that can afford to do it—the supermarkets, which have deeper pockets and greater bargaining power than small shops have. Small shops would suffer, because they would not be able to run the kind of promotions that remove price as the key element of such activity.
Is it true to say that, in a sense, you are in favour of minimum pricing as a way of creating a more level playing field for small retailers?
It would certainly create a more level playing field. We are of the view that it would not make any great difference to our trade but, in the absence of a minimum pricing control mechanism, if the only promotional mechanism that is left to retailers is price, we are likely to suffer.
I have some questions for the Scotch Whisky Association, too. Thank you for your submission. To some extent, people are perhaps rather surprised by the position that you are taking, given that most of us would think that the vast majority of whisky that you produce would not be affected by minimum pricing. What percentage of whisky produced in Scotland would be directly affected by minimum pricing?
About 30 per cent of the whisky that is sold in Scotland is value brands, which sell below the indicated price—if we are talking about 40p per unit of alcohol—of £11.20.
Could you confirm that the vast majority of whisky that you produce is for export? What percentage of the whisky that is produced in Scotland is for export?
The United Kingdom represents about 8 per cent of our global market; it is our third largest market.
And Scotland?
What percentage of the UK market does Scotland represent, Campbell?
It is about 20 per cent. Our concern is that it is not just what happens here that matters; it is the knock-on effect internationally.
I will go into that. So 20 per cent of the whisky that you produce is sold in Scotland.
No, 20 per cent of UK sales are in Scotland.
My calculations suggest that about 3 per cent of what you produce will be affected directly. I will go on to ask about the international market, but I just wanted to have that kind of basic framework. The majority of your members would not be directly affected by minimum pricing. Some of the arguments that you have advanced are about jobs but, on the basis of the figures, it is hard to see how whisky jobs in Scotland would be affected.
I do not think that that is the position. Let me explain why. Given the brands that are sold in Scotland and the nature of the Scottish whisky market, it is inevitable that there would be consequences for the supply side in Scotland if a minimum price were introduced. The consequence would be for those companies whose business models involve the supply of value whisky. You might find that the supermarkets cease to stock those value brands because the branded product is sold at or near the minimum price. We cannot predict what the exact consequences would be, but we think that there would be considerable knock-on effects, particularly for those in the value brand market.
But that is a small percentage of the whisky that is produced in Scotland.
It is but, for some companies, that is their business. They are not in the export or premium malt business, so supplying value whisky is their business model. It is not a case of saying that a company at the premium end loses a slice, because, for some companies, that is their business.
The other aspect that you are concerned about is the effect on overseas markets. How did you arrive at a figure of between £150 million and £600 million?
We calculate that about 20 per cent of our export market would be at risk if minimum pricing were introduced in Scotland. We are experts in what the overseas markets do and how they treat the import of Scotch whisky. Scotch whisky happens to be the global number 1 premium spirit drink. In many markets, it is in competition with the local spirit product. In our response to the Scottish Government's consultation on the proposals, we identified certain markets where we have won cases of blatant discrimination, such as Korea, Chile, Japan and Uruguay—and I could go on. Korea, in particular, has tried to protect its local spirit product, soju, against imports of Scotch whisky. Soju is not produced beyond 25 per cent of alcohol by volume, whereas whisky has a minimum of 40 per cent ABV. Korea has deliberately tried to find ways to discriminate against imports of Scotch whisky into that market, even by suggesting a health tax.
Can you make public the modelling studies on which that is based? You are highly critical of the modelling in the University of Sheffield study, but at least that is a public report that has been peer reviewed. It seems that what you are telling us is all highly speculative.
We use exactly the same elasticities of demand that the Scottish Government uses and to which it makes reference in the report. The study by Wagenaar indicates the elasticity of demand effect—in other words, by how much volume would reduce if the price were put up. We use the same elasticities of demand as the Scottish Government, which it recognises to be good and accurate.
I will let others in.
You said that the value brands were important for some sectors of the whisky industry. You also said that value products accounted for 30 per cent of sales overall, and that 20 per cent of those sales were in the UK and 8 per cent of those were in Scotland; I might not have got those figures the right way round. Whichever way round they go, we are talking about 30 per cent of 20 per cent of 8 per cent. By my quick calculation, 0.46 per cent of the whisky production industry in Scotland is involved in value sales. That is the proportion of companies that would be affected by the minimum pricing policy. Which companies make up the less than 0.5 per cent of the industry that is dependent on the bulk production of whisky for its survival?
My arithmetic is not as good as yours, so I will not comment on the percentages, but there are companies that work exclusively in the UK market whose product is geared to the UK market and for which Scotland provides a considerable part of their UK market share. The business model of those companies is geared to the value brands—those that are being sold in the market at a price that is below the indicative price of 40p per unit.
It would be useful to the committee if we could be given the names of some of those companies. I would be particularly interested to find out for which companies the value brands are the most important part of their business model. I would also like to know whether some of the parent companies of the whisky companies concerned are involved in the bulk production and sale of vodka and cider, which are a bigger health concern in Scotland than quality whisky. It would be useful if we could have that information to look at.
It would be helpful if you could write to us on that matter.
We can do that.
I think that certain companies have already made submissions to you.
As well as raising concerns about a loss of income threatening the viability of some of the whisky industry, which we have discussed, you also indicated that the social responsibility fee would impose a further cost on the whisky industry. How does that square with the argument that some people have made that minimum pricing would put £90 million into the coffers of supermarkets and the drinks industry? Those arguments cannot both be right. Minimum pricing cannot pump money into your industry and suck it out.
On the social responsibility fee, we have no idea what will be proposed because that is still under discussion.
I was asking whether you will have extra money, as has been suggested by some members—£90 million is the figure that is being bandied about—or whether there is concern about the industry losing money and, potentially, jobs.
I do not think that we have suggested that we envisage any of that £90 million going to producers.
You talked about the situation in Korea and other countries that have tried to increase taxes and introduce trade barriers. What has been the whisky industry's success rate in challenging such barriers?
About 600 trade barriers remain in 143 countries. The matter is our top priority in securing market access. We have had huge success in challenging discrimination—primarily tax discrimination—but the difficulty arises when we get into more subjective areas, such as public health, which is the only way of justifying discrimination and overriding European Union and international trade rules.
The proposals on minimum pricing would apply across the board and not to specific alcohol products. I do not see how that can be twisted into a suggestion that Scotch whisky is a health risk and other alcohol is not.
Let me explain, again using Korea as an example. Soju is the Korean spirit, which has 97 per cent of the spirits market in Korea. Scotch whisky has, in effect, 98 per cent of the remaining 3 per cent of the market. We are a small player in a big spirits market but a significant player in imported spirits. We won a tax discrimination case in 1999 but, ever since, Korea has tried to find methods of discriminating against Scotch. One proposal, in 2006, was a health tax. If Korea were to introduce a health tax on the basis of a precedent in Scotland that had been approved by Brussels, the Commission would find it almost impossible to argue against such a proposal when it took the issue to the WTO.
Joe FitzPatrick asked how a system that affects all alcohol will disadvantage only Scotch whisky elsewhere. The issue is not that countries overseas would model exactly the same system but that they would be able to override trade rules on public health grounds and therefore use any other type of public health justification for their own trade purposes. They would not say, "We must take exactly the same model"; they would say, "The precedent of international trade rules being broken allows us to do our own type of modelling." It is not about picking up the same model; it is about the example that would have been set.
I am sorry, convener, but I have one last question.
Yes, I would like to move on.
Finland has recently increased tax on alcohol. Is there any evidence that that has had an impact on the trade in Finnish vodka, which is a premium product in some parts of the world? Have there been any trade embargoes against it?
The Scottish Government, particularly the current Administration, has always argued that the policies of the domestic Government have an effect on other Governments' attitudes on tax rates and processes. They have traditionally taken that position, but I do not know the answer on Finland.
I can give some personal experience from being in Japan many years ago. I was trying to get tax down, but the Ministry of Finance asked me why it should cut tax in Japan when our Government applies high discriminatory taxes against Scotch whisky at home.
Scotch whisky predominates in the Scottish psyche, but I offer Mr Drummond from the Scottish Grocers Federation a chance to intervene.
I will make some more mundane comments on the minimum pricing policy. There are some unintended consequences that we think would affect the small-store sector in Scotland in particular and retailers in general. One is cross-border trading. Stores in the Borders and even central Scotland could be affected by consumers skipping down over the border to buy alcohol that would not be affected by any minimum pricing policy.
I will address most of my questions to the Scotch Whisky Association, but my first question is for Mr Drummond. Do you take comfort from the fact that the United Kingdom Government is considering minimum pricing south of the border? That may alleviate your fears about white van man.
If that is the case, it will avoid the issues that I have just mentioned.
I will go back to what Joe FitzPatrick asked—I am afraid that it is about percentages again, gents. From what the Scotch Whisky Association witnesses said, I understand that various suppliers and manufacturers made submissions. In the association's view, what percentage of the products of the companies that operate in the domestic market for cheaper spirits would be whisky as opposed to other alcohol products?
I am afraid that you will have to ask the detail of the companies. I have in mind two companies in which whisky represents a significant part of their products.
In the section of your written submission that concerns domestic implications, you estimate that 400 jobs could be lost because of minimum pricing. Do you have an estimate of how many jobs have been created in the whisky industry over the past 20 or 30 years?
The history is that the number of jobs has decreased as the industry has consolidated and productivity has grown. Only last year, we saw further examples of consolidation and job losses.
How did you arrive at the figure of 400 jobs?
The job losses relate particularly to the companies we have in mind whose business model is almost exclusively in the value brands.
From what we have heard and from the thrust of your submission, it seems that the Government's proposals are targeted at cheaper drinks and cheaper whisky. Given that the Scotch Whisky Association tries hard to promote whisky as a premium brand, does the huge discounting of some fairly decent whiskies in supermarkets concern you?
The matter is for retailers and producers. You must understand that, in many cases, retailers drive the business.
I am not convinced by your contention that minimum pricing for cheaper whisky would necessarily have a knock-on effect on the premium brands that are exported. Will you convince me of that?
I do not want to overstate or exaggerate the effect of minimum pricing in Scotland on Scotch whisky sales in Scotland. Minimum pricing would affect sales, because 30 per cent of whisky is sold at below 40p per unit, so that 30 per cent would, obviously, be at risk. However, our big concern is that the overriding of international trade rules would establish a precedent that would be copycatted in other countries. That would seriously affect our exports and damage the industry and Scotland's economy.
I note from your submission and from what Mr Evans has said that you have concerns about international trade rules and that you feel that some countries might well be in breach of those rules. Has the association lobbied the UK Government to lobby the World Trade Organization on those issues?
The support of the UK Government and politicians of all parties in Scotland has been fundamental in our battle against trade barriers around the world. If a national Government does not approach the EU and the EU does not approach the WTO, a body will not go far in making a claim against other Governments. Having the Government standing behind a body is fundamental. That is why we are gravely concerned that, if a precedent against international trade were set in Scotland, the rug would be pulled from under our feet and the Government here would be unable to fight discrimination overseas.
Unfortunately, Scotland does not have a voice in the EU—it can only make representations to the UK to make representations to the EU on its behalf. I opened my questions by saying that the UK Government is talking about introducing minimum pricing south of the border. What is your view on that?
One newspaper report suggested that one Cabinet minister had expressed a view on minimum pricing. I understand that that does not reflect the UK Government's view. Other politicians are also against the proposal. The UK Government does not propose minimum pricing at the moment, but I acknowledge that the newspapers debated the subject a couple of weeks ago.
I address my first questions to Mr Drummond. Did I understand you to say that many of the small grocers whom you represent do not sell own-brand whiskies?
I did not mention own-brand whiskies, which most of our members sell. Were minimum pricing to be introduced, they would be vulnerable. A retailer decides what to stock according to demand and assumes that, if prices are similar or the same, the consumer is more likely to purchase a brand rather than an own-brand product.
You said that your federation does not oppose minimum pricing.
We have said that we do not oppose minimum pricing per se. My concern is that, if minimum pricing were not applied, no safeguard mechanism would protect small stores from the deep-discount competition from supermarkets.
However, the supermarkets will not be able to offer discounts if there is a fixed minimum price per unit.
What I am saying is that, in the absence of minimum pricing, supermarkets could engage in deep discounting.
But they do that now.
Yes, but we are allowed to have promotions in competition with the supermarkets using different mechanics that would not be available to us under the proposals in the bill.
Let me come on to that. Your submission also refers to point-of-sale advertising and advertising on window displays. Can you say a bit more about how smaller shops will be disadvantaged if such advertising is banned?
Small stores rely very heavily on window bills and promotional leaflets that are circulated and put through doors in the immediate vicinity of the store. Typically, small stores cannot afford to advertise on television or in the press or elsewhere, so they are reliant on in-house facilities such as window bills and leaflets. However, the bill proposes that alcohol promotions may be advertised only within the alcohol area of the store. On the face of it, that means that window bills will not be allowed and even promotional leaflets cannot be situated at the check-out because they will be outwith the alcohol area. Those provisions are open to interpretation and are not clear-cut, but that is the indication that we have been given. If those proposals are implemented, the larger supermarkets will still be able to advertise on television and on billboards outwith the alcohol area in their stores. Indeed, they might even step up such advertising, which would be detrimental to small stores.
So—this is probably a side issue, but I will ask anyway—would you ban the advertising of alcohol on, say, football jerseys?
That is a side issue that relates to the bigger picture. We do not have a view on that, quite honestly.
There can be nothing more visible than teams running about on telly advertising different drinks products on the front of their jerseys. You have just said that, if we want to ban the advertising of alcohol, we should ban all such advertising. I assume that such a ban would need to apply to that extent.
We would not fall out about it if that were to happen.
Finally, will you say a word about the social responsibility levy? What impact is that likely to have on smaller stores?
As has already been noted, the bill gives no detail on the social responsibility levy. We are in discussion with the Government about some options that might apply.
I also have just a couple of questions for the Scotch Whisky Association. Is the association a member of the Scottish Government's alcohol industry partnership?
We are a founding member.
Your submission says that there was no discussion with the alcohol industry partnership about the minimum pricing proposals and the Sheffield report. Are you a bit disappointed by that?
The issue facing the Government, I think, was that it did not want to discuss policy while it was being developed. Although broad discussions took place, we could not get into the detail of matters because that would have taken us into policy development, as I understand it.
However, the alcohol industry partnership could have had a broad discussion on the likely impact of the introduction of minimum unit pricing.
That would have been helpful, particularly in allowing us to understand the modelling that was taking place in the background, as we could then have explained our concerns about that modelling.
A lot of the unit-pricing argument has focused on a perceived minimum price of 40p. I have seen reports that, for unit pricing to be really effective, it would probably have to be about double that. It is only at that level that the cost becomes an issue and changes people's decision making on whether they will buy even a premium product. Do you have any views on that?
We did some modelling work last year on the effect of raising the price of a bottle of whisky to around £14. The consequence of that would be a further reduction in sales of more than 25 per cent. Admittedly, I am talking about UK figures, but there is no reason to believe that there would not be the same reduction in Scotland. A price of £14 is 50p per unit. If you are suggesting that we should raise the cost to 80p per unit—which is way beyond even what the Sheffield report suggested—you are talking about a very serious impact on the sales of Scotch whisky in Scotland.
The reports that I saw were from health professionals who said that charging 40p per unit was fine but that, to have a real impact on drinking, we would need to charge a serious unit price of, they suggested, 80p.
All I am saying is that I know the effect that that would have on the sales of Scotch whisky.
You are not very complimentary about the Sheffield report. You seem to imply that a lot of its evidence does not relate to Scotland. Will you share your thoughts on that?
As the authors of the report readily acknowledge, a great deal of the evidence is not available from Scottish sources, so they do not use Scottish data in many cases. They make some serious assumptions that are wrong, and there are deficiencies in the data. Moderate consumption, which they use as a basis for calculating the effect of a price rise on moderate drinkers, is calculated at 5.6 units, although the guideline is 21 units a week for men and 14 units a week for women. We do not understand how they work out the consumption of a moderate drinker to be 5.6 units.
You mentioned Brussels. In your written submission, you say that you believe that the introduction of minimum pricing would be illegal. Is that based on your legal advice? Where has that come from?
I refer first to an opinion by the Advocate General in a recent case in Brussels that, admittedly, relates to tobacco. In that case, the Advocate General addressed the defence that France, Austria and Ireland used against the minimum pricing of tobacco, under article 30 of the treaty before the Lisbon treaty. The Advocate General made it absolutely clear that, even if it had been an issue of minimum pricing in terms of the open market rather than the tobacco directive, she would have ruled that that was not a defence—that is, that the public health exception could not be used to set a minimum price for tobacco. There are long bits of European jurisprudence indicating that using a health exception to justify minimum pricing has been ruled illegal and has not been allowed. It can be done on public health grounds but we believe that, if you are going to override international or EU trade rules, you must show that minimum pricing specifically—not all the rest of the package of measures—is proportionate and necessary by itself to address the public health issue in Scotland.
I am pretty sure that I remember the First Minister telling us in Parliament that the introduction of unit pricing was not targeted at premium products such as malt whiskies. You seem to be saying that he is wrong and that it will have a major impact on a premium product. Am I correct in that assumption?
I repeat what I said earlier: overriding international and EU trade rules by establishing minimum pricing in Scotland would have a devastating effect on our overseas exports.
Before I call Derek Brownlee, I will allow Linda Fabiani to ask a very quick question.
I have two very quick questions, which are based on what I asked earlier.
Be very, very quick.
I have had time to think over some of the witnesses' answers. On the estimated loss of 400 jobs, the value of whisky sales has increased substantially over the past 20 to 30 years. However, you say that, even though there was an increase in the value of sales, there were still job losses because of consolidation and so on.
The value of sales has been demonstrated in our exports, where we have substantially increased the value to Scotland. I do not think that the value from Scotch whisky sold in Scotland has increased; I think that it has been going down quite dramatically. Most of the cost of whisky is now tax; more than 70 per cent of the cost of a standard bottle of whisky around the £10.50 mark is tax.
So the value of sales has not had any added value for shareholders.
There has been virtually no added value to the Scotch whisky industry in terms of Scottish sales.
Right, but it is more than just Scottish sales: it is overall sales. Export sales must have a value for the shareholder.
No, not for the particular companies that we have in mind, which are involved in the value brands in Scotland and whose sales are directly related to that segment of the market.
Does your estimate of 400 job losses relate entirely to whisky?
The Scotch Whisky Association is looking at the situation purely from the point of view of whisky.
Given that you are providing written submissions on other matters that we have discussed, could you quantify your estimate?
Perhaps you could confirm that to us in writing—that would be helpful.
I thought you were talking to me, convener, and that that was my last question.
No.
My question is for Mr Evans. Returning to the issue of newspaper comment on the UK Government's policy on minimum pricing, have you had confirmation from the UK Government that it is not considering introducing minimum pricing either now or after the next election, should it win?
I can go only by what we have read in the newspapers, which is that the Prime Minister said that he does not favour minimum pricing. I understand that the Treasury does not favour it, that the Home Office is yet to be persuaded on it and that the Secretary of State for Health, having said that he was looking at it, somewhat qualified that statement. I think that it is quite clear that minimum pricing is not part of the current UK Government's picture at the moment. I understand—in fact, I know—that the Opposition is on record as being against minimum pricing. I therefore think that it is not part of the UK equation at the moment.
But you have not had any confirmation from the UK Government in that regard.
I have had some confirmation from officials, but I have not spoken to any Cabinet ministers.
This question is aimed at the SWA. You state in your submission that you do not believe that minimum pricing is legal under European law and you think that it is contrary to international trade regulations as well. Has the SWA taken a view on whether the minimum pricing proposals are competent under the Scotland Act 1998?
We have some views on that. I would certainly encourage the Parliament's committees to investigate that aspect.
I ask that question because of what the situation would be if the bill was passed. I appreciate that the bill has been certified as competent both by the Government and by the Presiding Officer, but of course that is not the only hurdle that, within the framework of the 1998 act, a bill needs to overcome in order to be competent. Let me fast forward a few months to when the bill is passed. It seems to me that a challenge under the 1998 act would probably have to be made before the bill comes into force. A challenge under European law would take some time and, if I am correct, the bill would have to come into force, with a challenge being made some years down the line. Have you considered the timing of challenges? For example, if the bill was challenged under European law, for roughly how long do you think its measures would be in force before a judgment was finally given one way or another?
There is an issue of notification. Our advice is that the Scottish Government would be obliged to notify Brussels, probably not of the proposal to introduce a minimum price—although that is a moot point—but certainly of the proposal of a minimum price. Following notification to Brussels, it would be open to the 26 other member states to consider whether the proposal was challengeable. There is a three-month window, which the Commission can extend to six months. If the Commission decided that the proposal was not acceptable, the Scottish Government would have to take note of that, because the Scotland Act 1998 makes plain that it cannot act contrary to the UK's EU obligations.
If I understand you correctly, the challenge under European law would be around the principle of a minimum price rather than around whether the price was 25p, 70p or 40p.
I understand that there is clarity about setting the price but that there is also a grey area. That suggests that notification of the principle, too, is required.
In other words, a challenge might come not when Parliament passes the bill but when ministers make an order under section 1.
Of course, if Brussels is not notified but should have been, the whole thing collapses.
I offer Mr Drummond the opportunity to intervene.
I do not wish to do so on this issue.
Does the Scotch Whisky Association recognise that, although there are different views in the health profession and among those responsible for law enforcement about the significance of price in contributing to harm caused by alcohol, price has a role in that regard and that the price and availability of potent alcohol are an issue? This week, the role of caffeinated alcohol such as Buckfast tonic wine, which is not covered by the bill but is clearly associated with harm in various forms, has been highlighted.
It would be perverse to suggest that price does not have some effect on consumption. However, we do not accept that price necessarily leads to harm—that equation does not exist. There is no literature to justify the contention that raising the price will address harm. We are second to none in backing the Scottish Government's wish to address harm caused by alcohol and alcohol misuse in Scotland, but we do not believe that setting a minimum price, which is a blunt instrument, across the board will do that, although it will affect consumption.
For the general public, who see potent alcoholic drinks on sale for a price lower than that of bottled water when they visit supermarkets, for example, it can seem perverse that retailers are able to sell alcohol at less than the cost of production. Do you think that there is a role for Government—either the Scottish Government or the UK Government—to address the question of alcohol that is sold for less than the cost at which it is produced?
My members would agree that there is a concern, but the Competition Act 1998 means that that cannot be addressed by the producers and retailers. There has to be an environment in which it can be addressed; if we acted otherwise now, we would be in contravention of the Competition Act 1998.
The Scotch Whisky Association has said that we will support the end of loss leading, if I may describe it as that. We have put on the table a ban on sales below tax as a starter for discussion and as part of a range of measures that we have talked about in relation to trying to tackle the problems.
Mr Drummond, you are outnumbered two to one, but now is your chance.
I was going to make the same point as Mr Evans—I support his view. Selling alcohol below cost price is irresponsible, and we like to think that SGF members are responsible retailers in all that they do, in challenging customers in age-restricted sales and so on.
As it is tax based, such a policy approach would have to be adopted by the UK Government. Would that address your concern about cross-border evasion of a minimum price policy, which would clearly be possible under the current proposal?
If the policy applied across the UK, it would certainly negate problems with cross-border trading.
The Scotch Whisky Association has referred to the international trading aspects and the issues that you have had in dealing with discriminatory tax regimes that overseas Governments have imposed to exclude Scotch whisky. If there was a proposal at UK level that was based on a floor price of duty plus VAT—as Mr Drummond suggested—would that create the same problems for you in dealing with the risk of discrimination against Scotch whisky products in international markets, or would that fiscally based approach avoid the creation of a precedent that would be used against Scotch whisky exports?
The concept of a floor price of tax plus VAT, or a similar local tax, would not cause us problems and would not have the same consequences as a minimum price per unit of alcohol.
In other words, as long as the approach taken is consistent throughout the United Kingdom and compatible with international competition expectations and requirements, both the Scotch Whisky Association and the Scottish Grocers Federation could support a price intervention to address the irresponsible retailing of alcohol. Is that correct?
Yes.
Yes.
Yes.
I would like to follow that up, although it is perhaps more an issue of policy than one that comes from the financial memorandum.
I am not clear about the meaning of the phrase—I cannot see its relevance. I assume that products would be made available for sale in every retailer that wanted to sell them. I do not understand the reference to restriction.
Does the Scotch Whisky Association have a comment?
No.
Before I move on to the costs to the economy, I have a question on differentials. The Government's explanatory notes, which you will have seen, give a helpful indication of the likely impact of setting the minimum price at 40p. There is quite a differential between the on-licence prices that would be set for pubs and so on and the off-licence prices. Paragraph 8(f) says:
That does not concern us. The trend is that consumption is moving from on sales to off sales, which is driven by many factors in addition to the price of alcohol. The generic issue is home entertainment—the advent many years ago of video, followed by DVDs and so on. The trend over the past 20 or 30 years has been for more people to drink not in pubs but at home. That is a general trend—obviously, it is not the case in all sectors.
It is for the Scotch Whisky Association to say whether it thinks that the trend will be reversed. After all, minimum pricing would mean that the price of a measure of whisky would be 38p, a vodka and tonic would be 55p and a pint of lager would be £1.13.
No pub would offer such prices. A higher price has been established, and prices in pubs will remain at that level.
I guess that that is for others to say. You made the point, Mr Drummond, that the impact of minimum pricing is that it would change the whole nature of how the retail industry prices alcohol.
Yes.
Why would there be different impacts on the off-trade and the on-trade if the statutory minimum of 40p per unit were to be applied? Why would that change the way in which any business sold alcohol?
The on-trade already has the opportunity to sell vodka at 38p or whatever and a pint at £1.13. Apart from the very large pub chains such as Wetherspoons that do special offers from time to time, most pubs sell drinks at higher prices than the figures that you quoted.
I turn to how the off-trade sets prices. Is there scope for price setting to have a neutralising effect? Could the overall cost of some alcohol be reduced? I am thinking of not discounts or promotions but general reductions in the overall price of premium brands or whatever. If the margin or differential is less important to the retailer and overall costs level out, surely minimum pricing will have little impact on reducing consumption.
That could well be the case. I have heard people from certain quarters saying that they intend to sell everything at the minimum price. That bears out your comment about reductions on certain products. The measure will offer more of a level playing field for large and small operators in the off-trade.
What discussions has the Government had with you, as the representative body, on that valid point? Has it sought your views?
We have been in regular contact with Government officials. Most of the arguments around the bill have been debated.
I will move on to the cost that could well come to the public purse and the impact on the Scottish economy, and will follow up on the comments that Mr Evans made. In your modelling of the impact on the economy, you looked at 50p per unit. As you know, the Government has been looking at 40p per unit. I do not know whether you did modelling for 40p per unit. Given what you said about the potential reduction in exports, has the Minister for Enterprise, Energy and Tourism been representing the industry in discussions within the Government?
Currently, it is not the Minister for Enterprise, Energy and Tourism who looks after the Scotch whisky industry; it is the Cabinet Secretary for Rural Affairs and the Environment.
I will rephrase the question then. How has Mr Lochhead been speaking up for the industry?
I think that you will want to interview Mr Lochhead and ask him how he has been doing that.
You are the industry. I am trying to get your view. The significance of the industry to Scotland cannot be overstated. It was quite telling that when the Minister for Transport, Infrastructure and Climate Change met the Governor of California, he gave him a bottle of whisky to congratulate him on climate change reductions. The industry permeates lots of different areas. Do you know whether the cabinet secretary has been making representations about the impact on the industry and the knock-on effect on the economy?
I do not believe that he has been.
I do not know whether you have the financial memorandum in front of you. I am looking at table 3, which shows the financial value of harm reduction as a result of a 40p per unit minimum price and discount ban. It indicates that the cumulative employment costs that would be avoided over 10 years are £267 million. That is what the Government says the benefit of the measure will be. Is your estimate of a reduction in whisky exports of £600 million the figure per annum?
Yes.
So, we should compare a benefit of £267 million over a 10-year period with a reduction of, broadly speaking, £6 billion to the Scottish economy.
Yes.
I remind the committee that we have a second panel to come. I will allow Malcolm Chisholm in if he is very quick.
This is important. I am being allowed to ask only one question. The witnesses will agree, I think, that their main argument is about exports. I and others are sceptical about the arguments that they put. It is important for the debate that the modelling studies that I assume they have done to come up with the figure of £600 million in potential export losses are made publicly available. That would be in their interest, because otherwise people will say that they are scaremongering. People have suggested other motives, too, which I will not repeat at present. Can you produce those modelling studies, so that we can continue the debate on the basis of evidence? You have, unfairly in my view, criticised the Sheffield study, which at least is in the public domain and is peer reviewed. You are coming up with figures without presenting us with any modelling studies. If you cannot present them, people will, quite rightly, be sceptical about what you are saying.
We will do that.
I want to clarify two points.
Be very quick.
David Whitton asked about discussions with the Scottish Government. Is the Scotch Whisky Association saying that the Scottish Government, or any of its officers, made no attempt to discuss the financial impact with it? There was no attempt at communication around the financial impact.
I think that Mr Whitton asked what discussions took place in the alcohol industry partnership—there was no discussion there. We were asked to contribute to the regulatory impact assessment, on which we submitted a paper.
Okay, thanks for that. People said that they supported the idea of being able to sell a bottle of whisky for the cost of duty plus VAT. What would that price be?
I would have to find out the exact cost, but it would be about £8.
Thank you.
If you can confirm the exact cost, please do.
I will give you the exact figure.
I will leave the final word to our witnesses. Do you wish to make any final comments?
I emphasise that, despite our strong opposition to the proposal for minimum pricing, we support the Government's wish to address alcohol-related harm and alcohol misuse in Scotland and we are highly supportive of many of the other proposals in the bill.
I emphasise my earlier point: the absence of a price mechanism to control the floor price of alcohol could cause serious damage to small retailers on whom communities throughout Scotland rely to do a reasonable job in offering goods.
I thank our witnesses for sharing their expertise and giving practical evidence that will help the committee in its deliberations.
Meeting suspended.
On resuming—
Our second panel of witnesses is from the Scottish Government bill team. I welcome to the committee Gary Cox, the head of the licensing team; Alison Douglas, the head of alcohol policy; Marjorie Marshall, the economic adviser for the public health and sport team; and Alison Ferguson, the policy manager of the licensing team.
The witnesses have obviously heard some of the previous discussion. The whisky industry called for the introduction of a compromise system of duty plus VAT. Why would that not have the health impact that minimum unit pricing will have?
We considered that option when we developed the policy that led to the bill, but there are a number of problems with it. The first is that the current alcohol duty arrangements are based not directly on the ABV—the strength—of the product but, to a certain extent, on the type. At the moment, whisky is taxed unfairly in comparison to vodka, for example, and beers are taxed unfavourably in relation to ciders of similar strength. The fundamental basis for the proposal is flawed.
Presumably, that depends on the tax. If the tax increased, there would be a return to the public purse, which could be invested in alcohol reduction programmes. There would be a change in consumption and a public return that could be invested in supporting harmful drinkers.
I will ask Marjorie Marshall to comment in a bit more detail, but the fundamental difficulty with the taxation arrangements is that there is no requirement for retailers to pass any tax increases on to the consumer. There have been reports—and we have seen evidence—of retailers absorbing tax increases, transferring them to other products or transferring them back to producers. A Government may choose to increase tax, but that is not always passed on to the consumer and, therefore, does not necessarily affect the price.
Forgive me, but I thought that we were talking about a statutory provision that would prevent anyone from selling alcohol below duty. That is the point of considering it as an alternative to minimum unit pricing.
The difficulty is that the minimum price created would be so low as to have no impact on public health.
The Government gave some consideration to a statutory provision that would prohibit alcohol being sold below duty, as the policy memorandum says. However, the issue is that, if tax was increased—I am not talking about the level of the tax increase but about ensuring that alcohol could not be sold for less than duty—what you have just said would be irrelevant because the tax would reach a level that had an impact on consumption and the money could be invested in helping to reduce harm through Government programmes.
You are correct that, if the taxation regime was based on alcohol content and if there was a requirement for that to be reflected in the price to the consumer, additional revenue would accrue to the Exchequer and could be used to support people with alcohol problems.
The Scottish Grocers Federation said that there was a possibility that the approach that the Government is taking could level out pricing across the different alcohol products sold in stores. That does not appear in any of the Government consideration or modelling, but the federation said that there had been a number of discussions with it. Why does the possibility not appear anywhere? I presume that the Government does not think that it would happen.
Today the Scottish Grocers Federation seemed to take the view that the price of a large number of products would automatically drop to the minimum price for the strength of alcohol concerned. We have received no indication from alcohol manufacturers that prices would level off in that way.
To be fair, the federation did not say that prices would automatically fall to the minimum level—it said that the price of some alcohol that is currently sold at an increased margin might level off. Retailers might decide to do that when the price of other alcohol increased, as they were getting their profit in other areas. There might be a change in how alcohol is sold, such that net consumption does not change.
I am not entirely sure about the point that Mr Drummond was making about prices levelling off. During that discussion, there was an allusion to the price of alcohol that is sold at on-sales premises. Mr Drummond agreed that there would be a reduction in the differential between off-sales and on-sales and referred to the large increase in off-sales that has taken place over the years and the deep discounting at off-sales premises.
I appreciate that, but is not the whole thrust of the Sheffield report that introducing minimum pricing will lift the floor of the current cost of alcohol? The report models the impact of such a change. However, the market is much more sophisticated than that. In the explanatory notes, you say:
What you describe is part of what we anticipate will be a sophisticated response on the supply side. To be fair to the Sheffield modellers, they were not asked to look at the supply side—they were asked to look at the impact on consumption and health and the societal benefits of minimum pricing. We do not have access to a lot of industry data—it would be nice if we did—and cannot second-guess the supply-side response. You are correct to say that the market is sophisticated. Even the industry representatives who have given evidence may not be able to tell you exactly what the supply-side response will look like.
Let us be fair on both sides. We now know that supply-side elements, which are a massive component of the debate, are not being taken into consideration. Therefore, is there not a margin of error in many of the assumptions about the impact of minimum pricing that are before the committee?
On the impact, clear evidence shows that consumption responds to price. At the population and individual levels, people respond differently, but a wealth of theory and empirical evidence shows that people respond to the price of alcohol and that a clear link exists between consumption levels and harm. The modelling of the benefits and the response builds on well-established theory and empirical evidence. A model has been used because we have no empirical evidence, as the policy is new.
Table 2 in the financial memorandum, which is entitled "minimum price & discount ban: impact on consumption and spending", shows the effect of a minimum price of 40p per unit, which is the Government's illustrative figure, on harmful drinkers—I presume that you really want to affect them. Let us take as an example a harmful drinker whose main alcoholic drink is cheap bottles of wine—I see you raise your eyebrows. The Government estimates that such drinkers will spend £137 more per year—that is £2.60 a week more—and that consumption will reduce by 8.7 per cent. We just discussed the estimated minimum price of a bottle of wine, which is £3.75, and the range of choices on the supply side. Given that the measure could have no impact on more than 95 per cent of all the wine that is sold in Scotland, is it questionable for the Government to present almost as fact the statistic that I cited?
As you said, the minimum price of a bottle of wine will be £3.75. However, harmful drinkers are much more likely to drink cheap cider or cheap spirits. The modelling showed that about two thirds of the really cheap alcohol, which is sold at way below 40p per unit, is drunk by harmful drinkers.
That is bought in the off-trade.
Yes.
What proportion of harmful drinkers buy drink in the on-trade?
Harmful drinkers buy most of their alcohol in the off-trade.
I have a final point about redoing the modelling and the impact on the off-trade. You say that you want to focus on the more typical drinks for harmful and hazardous drinkers. The Government's policy thrust is to deal with domestic Scottish hazardous and harmful drinkers and the typical drinks that they consume. However, you discounted as discriminatory alternative measures that have done exactly that—focused on the type of drink that is consumed. What has been said seems contradictory.
It is important to realise that what people—particularly harmful drinkers—drink has changed over time. Peter Rice, who chairs the Royal College of Psychiatrists in Scotland, says that people drank super-strength lager 20 years ago but that they have moved towards white ciders and cheap spirits because those drinks give them the most bang for their buck. That is part of the anecdotal evidence that shows that people switch their consumption. Clear research evidence shows that harmful drinkers respond to price. As Marjorie Marshall said, two thirds of cheap alcohol is sold to harmful drinkers. The policy does not target particular drinks, but it identifies drinks that are cheap for the volume of alcohol that they contain. Those drinks happen to be white ciders and cheap spirits.
You are going into complex modelling. If you wish to supplement your answers in writing, please do so.
I have a specific question on the modelling. The financial memorandum mentions the amount that has been paid to the University of Sheffield for the work that it has done so far. Will the extra work that the Scottish Government has asked for from the university cost more, or will it come within the envelope of the money that has already been paid? What is the extent of the remodelling that the University of Sheffield has been asked to do?
We have asked for an additional piece of work, partly in response to some of the criticisms around the availability of Scottish data. The researchers will rerun the model with data that were not available when the original modelling was carried out. With such pieces of work it is inevitable that new data are always about to be published and will be available just around the corner, but one cannot keep waiting for them to come out every three or six months. However, we have an agreement under which the researchers are currently rerunning the model with updated Scottish health survey data, updated Scottish crime survey data and some commercial data that we have purchased.
Will any of that information be available to our committee before the bill progresses?
Yes, it is certainly our intention that the revised modelling will be available from the University of Sheffield reasonably soon. That will kick off the next stage in the process for us and we will ensure that the committee receives the report as soon as it is available. As Marjorie Marshall said, the researchers are rerunning an existing model, so the process will be quicker than when the first report was being developed.
We look forward to receiving that.
I think that the Scottish Parliament information centre has been told that the report will be available in mid-March.
We asked the associations what the financial implications would be of a minimum price per unit of 25p, 50p and 70p to try to get a low, middle and high range rather than focus on 40p.
On the positive economic impact of the proposals, table 3 in the financial memorandum suggests that the cumulative benefit in respect of employment costs over 10 years will be £267 million. Is that correct?
That is correct.
I understand that the £267 million figure is based on a minimum price per unit of 40p. As the panel will have heard, the Scotch Whisky Association's best judgment about the economic impact on exports is that Scotland will lose £600 million annually. Does that not blow out of the water any potential benefits for Scotland's economy as a result of the bill?
The basis of that assumption is that an action taken by the Scottish Parliament could result in action being taken against Scotch whisky around the world. However, our starting point is that—as the Scotch Whisky Association argues very effectively at the moment—Scotch whisky is currently sold internationally in a context in which it is disproportionately taxed in its domestic market. The second point is that minimum pricing is entirely fair in its effect on every type of alcohol. The policy treats every product in the same way because it is based on the alcohol content of each product rather than differentiating between, for example, whisky, cider or beer. Therefore, in principle, there should be no basis on which other countries can single out Scotch whisky and treat it differently from how they treat their domestic products. The fundamental principle of minimum pricing is that all products are treated fairly on the basis of their alcohol content.
Is it the Government's estimate that the measure will have zero impact on international trade?
It is difficult to know whether other Governments may attempt to use the measure as spurious grounds for protectionist action. However, the Scottish and UK Governments will continue to support the SWA in fighting such cases internationally. There is no reason to believe that they will be any less successful than they have been to date in that regard.
We have heard a lot about potential minimum prices. Has the Government made a final decision on what the unit price would be?
No decision has been made. We chose to set out in the bill the principles and formula for determining the minimum price. As you will know, we propose an affirmative regulation-making power to set the price. As Marjorie Marshall mentioned, we are asking the University of Sheffield to rerun the model. The results of that rerun will enable us to consider with our economists and lawyers some of the issues on the specific prices that were modelled. Coming to the Parliament with a specific price involves our working very carefully with the lawyers and the economists to get something that we are happy with and that is robust.
You said in your opening remarks, Mr Cox, that the driver for the bill is to reduce consumption and harm. Ms Marshall said that consumption responds to price—we could use the pricing of cigarettes to show that. Table 1 in the financial memorandum shows that, for a minimum price of 40p, the change in consumption would be -5.4 per cent; and, for a minimum price of 70p, the change in consumption would be -20 per cent. If the Government is trying to implement a health-driven measure and you want consumption to respond to price, does it not follow that you should think of introducing a unit price that is more like 70p rather than 40p?
We cannot consider only public health when working out what the minimum price might be; we must take other issues into account. For example, the minimum price must be proportionate and must not interfere unreasonably with the market. If we consider only the public health aspect, you are right that the higher the price, the more dramatic the impact on consumption and harm. However, as I said, there is a careful process to go through with lawyers and economists to find a price that will be proportionate and reasonable and still have an impact on public health.
Is the driver to reduce consumption and harm?
Yes, it is.
If that is so, surely you go for the highest unit price that you think can be borne to achieve that aim. You will have heard the earlier evidence. I have seen reports that people in the medical profession say that, if the Government is serious about the matter, it should consider a unit price of 80p, because that would make people think twice about whether they should purchase alcohol of the type that you describe.
You are right that the higher the price, the bigger the reduction in consumption and harm, but we must go through a careful process. We cannot just pick a figure out of thin air, which I think is what some commentators have done. When we come back to the Parliament with a draft regulation proposing a specific price, we will provide a regulatory impact assessment, show the working of how we arrived at that particular price and explain to the Parliament the rationale for proposing a specific price. However, as I said, that work is happening in parallel with the bill process.
Some people might say that you have picked a figure out of thin air at the moment, but I will not ask you to comment on that.
I will touch on that briefly, convener, in the absence of my lawyers—we brought economists today, given that we were coming to the Finance Committee. About two weeks ago we discussed in detail with the Subordinate Legislation Committee the issue to which Mr Whitton referred. Our lawyer gave a very full explanation at that meeting of the issues involved in setting a minimum price. If I may, I refer Mr Whitton to the Official Report of that meeting. If the committee wants a fuller explanation, we can write to you.
I apologise for not having seen the Official Report of that meeting. If the Government's lawyers have explained, that is fine; I can check the Official Report.
There is no hard evidence of illicit sales, or people going to a shop down south. That is conjecture. It would depend at what level—
I hate to interrupt you, but if you go to Glasgow Barras on any Sunday and speak to Glasgow City Council's trading standards officers, you will find that they raid the Barras regularly and arrest people for selling cigarettes, for example.
The price differential between a legal packet of cigarettes and an illegal one is substantial. I was going on to say that the financial incentive for people to operate illegally, or indeed, to drive to Carlisle to do their weekly shop, depends on the minimum price. A 40p minimum price would provide a very limited incentive for people to do that, either on their own behalf or to supply others.
The converse of that is that if we went for a 70p minimum price, for example, and it became very painful, the scenario that Mr Drummond painted might become more likely.
It gets more likely the higher the minimum price.
Why has no limit yet been set on the social responsibility levy?
We are discussing with the licensed trade and retailers how that should work. During the consultation we asked for suggestions for how the framework for a social responsibility levy might work, and the responses we got tended to be of the "yes, we agree with it" or "no, we don't agree" type. From that, we took the view that it would be better to involve the licensed trade in the development of the policy and to thrash out the options so that we can get a social responsibility arrangement to which it feels able to sign up. That was quite a deliberate approach; we did not want to dream up a scheme and thrash it out later. Our experience of working with the licensed trade has taught us that we usually get a better result if we involve it from day one.
You heard Mr Drummond say that he does not think that it should be a blanket levy, but that those who offend should pay the price.
A number of options are being discussed, as you can imagine.
So that suggestion has not been ruled out.
Nothing has been ruled out. We want to discuss it with the trade and get to a point where we have some options that we can then present to ministers. As you can imagine, discussions that involve the pub trade and the supermarket sector bring out huge differences of opinion, and some particular agendas are in play. Our job is to try to make sense of all that and come up with something workable.
David Whitton talked about the impact on consumption of various minimum prices, from 40p to 70p, and he seemed to be arguing for a level of 70p. What would the profile of the impact on consumption and health of drinkers be? Who would be drinking less? Who would be hit first?
At 40p?
As the minimum price goes up, who will be affected first?
The price affects everyone's drinking.
I am asking about consumption.
An increased price affects all groups, but it affects different groups in different ways. That is an important point to make about the Sheffield study. An allusion has been made to people's responsiveness to price changes, and a well-recognised meta-analysis by Wagenaar, from which we quoted, has been referred to. That study considered the responsiveness to price changes of different drinking groups, but not the complicated behaviour of people who drink heavily. The Sheffield study considered that behaviour. Such people switch behaviour and move between different types of drink in response to the changing prices of products.
Derek Brownlee was next to ask a question, but does Malcolm Chisholm want to ask a quick question first?
I want to get my shot at some point. I do not mind when that is.
You are on the list.
I apologise for starting off with a question that might sound a bit parochial. The area that I represent includes the Borders and Dumfries and Galloway, so you will understand that cross-border dynamics are of particular interest to me. We understand that, if the provisions come into play, people who shop weekly in Dumfries might not decide to shop in Carlisle because they want cheaper wine, but there is already significant cross-border traffic, particularly in the Borders area and Dumfries and Galloway. In areas where cross-border shopping is bound to be more of an issue, has the impact on retailers on the Scottish side of the border been considered? I appreciate that I am talking about a narrow area and a specific part of the country—people in Aberdeenshire, say, will not drive to Carlisle to get cheaper wine.
As Alison Douglas said earlier, the likelihood of people travelling to buy alcohol will depend on the minimum price. We have not considered that matter in precise detail, but it is clear that we will need to address it when we come back with a specific price and a more detailed impact assessment.
I will not labour the point, but it would be helpful to those of us who cover that geographical area if greater thought was given to the impact there. The issue is more likely to have an impact on that part of the country.
The point that you make is similar to that which was made when the Smoking, Health and Social Care (Scotland) Bill was being considered in the previous session. It was said that we would perhaps suffer because people would travel to England to have a fag and a pint.
With respect, my point is slightly different. The smoking legislation relates to public places; my point is about off-sales as well. People will be buying things for consumption later.
The Licensing (Scotland) Act 2005, on which some of the provisions are built, applies to internet sales. Any premises that carry out internet sales in Scotland would be subject to the same licence conditions. Obviously, the provisions do not apply to internet sales in the rest of the UK. Until other countries have similar promotion arrangements in place, there would be that difference.
So nothing in the bill would prevent a retailer of whatever kind from setting up premises anywhere in England and selling on the internet at a price below the minimum price in Scotland.
Nothing in the bill addresses that. The retailer would be subject to the Licensing Act 2003, as it applies to England.
That seems to be a major loophole. Has the Government raised the issue with the UK Government or thought about how it might be addressed? It seems to drive a coach and horses through what you are trying to achieve.
We have raised the issue with the UK Government, through the Department of Health and other colleagues. We keep in constant touch with the UK Government, and we will be happy to report back to the committee on that.
In answer to Mr Whitton's question about setting the price, you said that the price would be set after consultation with "economists and lawyers". Why do lawyers need to be consulted? Are you concerned about the legality of a minimum price?
Lawyers are involved with any legislation or regulation that comes to the Parliament. That is part of the normal process. The approach that we take to setting a minimum price and making draft regulations will be no different from the approach that we take in respect of any other regulation.
On page 11 of the financial memorandum you said:
I do not think that we have data that break down that figure further. We have self-reported health survey data on people's levels of drinking, but the difficulty is that we know that people consistently underreport how much they drink. That is why it has been so important and useful to get hold of the data from industry sales in Scotland, which we recently published. We think that those data give a far more accurate representation of how much alcohol is consumed in Scotland. They show that, on average, drinking levels are 25 per cent higher here than in England and Wales. There are genuine difficulties in getting accurate estimates of how much particular groups or sub-categories drink.
On whether there is a particularly Scottish problem, as opposed to a UK problem, in the policy memorandum you said that
If the witnesses want to consult further and write to us, that would be helpful.
If the committee is interested, we can consider the issue in the context of comparing the new, more Scottish report that we will get from the University of Sheffield with the original, English report. I am not aware of large differences between Scotland and England, but there are differences in patterns of drinking and in the type of drink that is consumed. We tend to consume more spirits, proportionally, than English consumers do. In response to your question about affordability, I am not aware of a significant difference in that regard.
Table 3 in the financial memorandum breaks down drinkers into groups. Using the societal value, it is clear that the bulk of any benefit relates to the smallest group—the 270,000 harmful drinkers. We all understand that a section of society is drinking to excess—we can see it on any Friday or Saturday evening in many towns—and that there are serious health issues for people who drink to excess. But I wonder whether we are in danger of making similar mistakes with alcohol policy as have perhaps been made in relation to other substances in that, by trying to influence behaviour, we overstate a case.
The effect of alcohol on Scotland and on the health of Scottish people has not been exaggerated. We have been improving the evidential basis that is informing policy. The trend in hospital admissions is increasing, with a record figure of 42,000 last year, and it is estimated that one in 20 deaths in Scotland is alcohol related. At population level, 51 per cent of men and 40 per cent of women in the Scottish health survey reported drinking above either the daily or weekly sensible drinking guidelines. I accept the member's point that only a small proportion of Scots drink at harmful or dependency levels, but large swathes of Scots drink at levels that will, over time, be damaging to their health. That is borne out in the health trends. We have the fastest growing rate of liver cirrhosis in western Europe.
I do not want to labour the point, as it is not exactly what the committee is looking at, but a lot of the financial consequences that you are modelling depend on the classification. You are unable to say, for example, whether 80 per cent of the 1 million people in the mid group are towards the lower end or whether they are evenly spread throughout. There is a significant section of the population that, if you are right about the health costs, you need to be able to influence through pricing, and I am not entirely sure that pricing will influence that number of people unless you can also produce more health evidence. There are two aspects: we all recognise that tobacco consumption has fallen not just because of pricing, but because of broader health messages that have successfully penetrated into society.
It might be worth making the point that the bill covers only a small number of the actions that the Scottish Government is taking on alcohol. The alcohol framework has 41 actions, and with every week that passes we seem to add yet another one or two to the list. Although a lot of attention has focused on the bill and minimum pricing in particular, ministers are conscious of the fact that the policy must be multifaceted and work over the long term to create culture change. However, as we have seen with tobacco, legislation can play an important role in helping to raise the profile of an issue with the public and drive behaviour change.
Can you remind us briefly why you conclude that the introduction of a minimum unit price for alcohol will increase the earnings of alcohol industry but reduce the revenues to the Exchequer?
Who would wish to answer that one?
I am getting it.
The volume of sales will go down but the price will increase.
So in effect there will be no increase in the duty take because the duty is fixed.
That is right—less alcohol will be sold.
The money that accrues to the Exchequer is made up of two parts. The first is VAT take, which will increase as there will be an increase in the base cost, but there will be a reduction in duty because the number of units sold will reduce.
I understand that the legal position is that the Scottish Government would have to compensate the Treasury for that lost revenue. Have you had discussions with the Treasury on how you would do that?
The statement of funding is a technicality that we have to include in the financial memorandum. Any discussions on any money changing hands would happen between Scottish Government finance and the Treasury, and we are not aware that the Treasury has contacted finance about that.
Would it not be for Scottish Government finance to contact the Treasury, given that we are talking about a Scottish Government measure?
The Treasury is aware of the bill and the proposals in it. It would be for the Treasury to contact the Scottish Government.
You do not think that the onus lies with the Scottish Government as the body that is bringing forward the legislation.
No.
Okay. That is interesting.
There is precedent with the anti-smoking legislation. Not dissimilar levels of money could in theory have been recovered by the Treasury, but that has not happened.
That is helpful.
I am not able to answer that question today. As I said to Mr Whitton, a process lies ahead. As we go through that process with lawyers and economists. Ultimately, ministers will have to take a decision. When going through the process, our job is to present ministers with as much information as possible about the impacts of a specific price, not only on health and criminal justice harms and the economy, but on industry and other considerations.
I asked not what the price would be—clearly, that process is still to come—but what criteria you would apply to determine whether you were interfering unduly in the market.
With respect, I cannot answer that question today.
Who will be responsible for making the judgment?
I am happy to write to the committee on that point.
I remind the committee that we are receiving evidence from officials. Some of the questions would be better posed to the minister.
That may be the case. I am simply keen to understand the advice on the economic and financial aspects of the measure that officials are giving to ministers; we are aware of the health aspects. If responsibility for providing advice on market impacts does not lie with Mr Cox, I would be interested to know whether it lies with another department of Government, for example.
As you would expect with a bill of this nature, it is a joint effort between us, public health colleagues, the food and drink industry division, economists, lawyers and a range of other people. We will go through that process and provide advice to ministers.
I do not want to test the definition too tightly, but one of my colleagues asked witnesses from the Scottish Grocers Federation and the Scotch Whisky Association about the proposal for a floor price based on duty plus VAT. The Scottish Government's rebuttal of that proposal included a reference to restricting the market. The witnesses were asked whether they understood what the Scottish Government meant when it said that the proposal would restrict the market unduly. Are officials in a position to comment on that aspect of the market impact of the measure that is proposed?
The point that we were seeking to make in the policy memorandum was that such an approach would create a very low minimum price of around 20p per unit. When we match that with the Sheffield report, it is difficult to see what impact, if any, it would have on public health. For that reason, the argument that the measure would have an impact on public health is diminished.
I understand the public health argument; my question concerned the point that was made in the memorandum about restricting the market.
It comes back to the issue of proportionality. In our view, if there is little or no public health benefit, there is no proportionality with regard to interference in the marketplace.
In other words, a demonstrable public health benefit is a basis for interference in the market and the absence of such a benefit is a basis for not interfering.
I do not have the precise figures in front of me. However, if memory serves me well, the figure that was quoted in the press was 5,000 incidents over about three years, which is about 2 per cent of the total number of incidents in Strathclyde during that period. That is a small proportion, which is not entirely dissimilar to the figure for fortified wine as a percentage of total sales in Scotland. The conclusion that Buckfast or any other particular drink is fuelling crime or violent crime is something of a leap and does not seem to be borne out by statistics.
As was said earlier, your judgment is that low-price ciders and spirits contribute to alcohol-related crime and harm but Buckfast does not.
She did not say that.
The relationship between alcohol consumption and crime in Scotland is clear but complex and—
I think that we are straying into other committees' work. Do you have a final question, Mr Macdonald?
I just want to understand whether there is a concern in that respect.
About Buckfast in particular?
Yes.
We have not seen any international research evidence that the combination of caffeine and alcohol is linked to violence.
Or harm.
Or harm.
We have had quite a long session. Linda Fabiani has a final, very quick question.
I have been waiting half an hour to ask a question, convener.
On you go, Malcolm.
I apologise. Malcolm Chisholm will ask a question.
Given the time, I will not detain the witnesses; in fact, my two questions have already been asked. However, my only concern about the financial memorandum was the statement of funding policy. I presume from your comments about the smoking legislation that that is a formality and that you do not expect any penalties from the Treasury to be triggered.
For the smoking ban, the reduction in duty to the Treasury was estimated at between £15 million and £30 million. The Scottish Government finance directorate has not been asked for that money. We estimate that a 40p minimum unit price combined with a discount ban would result in a £12 million reduction in duty, so we are well within the same ballpark.
I was going to ask about your response to the Scotch Whisky Association's comments, but you have substantially answered that question.
Again, I apologise to Malcolm Chisholm.
Oh, let Jeremy go first or he will go in the huff.
As Linda Fabiani would say, my question is in two very short parts. [Laughter.]
If the witnesses think that the questions they have been trying to answer have been complicated, I must tell them that what I have to do is even worse.
If it helps, the two parts of my question are directly related to tables in the financial memorandum.
Just to clarify, are you talking about the increase in sales?
Yes.
It is the value of sales, so it is the price—
It is the total value of sales in the population. I am looking at how much more the group that is categorised as harmful is expected to be paying.
Yes.
That being correct, and if the thrust of minimum pricing is to up the off-sales costs—meaning that both the volume and the price would go up—we would expect the differential between off-sales and on-sales in the harmful category to be the most. However, it is the least.
That is because that group of drinkers do the most complex switching behaviour between different types of product and between on-sales and off-sales.
Thank you. In effect, that is the point that I was trying to make earlier. We heard from the Scottish Grocers Federation, which summed up the situation. At the moment, people in pubs have the flexibility to sell as they wish. As we can see from examples (f), (g) and (h) in paragraph 8 of your tables, the increase has no impact on on-sales. The minimum price for a dram of whisky would be 37p, with a vodka and tonic at 55p. A pint of lager would cost a minimum of £1.13.
Can you clarify which table you are referring to?
It is in paragraph 8 of the explanatory notes. I am referring to sub-paragraphs (f), (g) and (h).
It would be helpful if the witnesses considered that further and wrote to us. We will let you have the detail—it was a detailed question. If you do not have the answer now, it would be good if you could write to us.
On table 3, under paragraph 67, I am interested in how you estimated the cumulative impact. Earlier in the memorandum, in paragraph 45, it says that the annual health costs are estimated by the Government to be £405 million. The 10-year health costs, if we do not do anything, and if we do not factor in any increase in trend, presumably come to £4 billion. The cumulative health benefits from a 40p minimum price and discount ban would be £115 million. The Government says that the policy will have a big impact, yet that £115 million of savings comes to less than 3 per cent of the health costs. At 2.8 per cent of health costs benefit, that is not a big impact at all. Are those figures correct?
Do you wish to answer, or—
The quick answer, if there is one, is that the £405 million is from a separate study. It is not directly comparable. It comes from a cost-of-illness study, which shows a cost of alcohol misuse. The two studies used a lot of similar data and literature, but they are not directly comparable.
These are very detailed questions.
I am concerned about that last reply. One of the footnotes to the explanatory notes refers to the
Yes: that figure comes from that report, but the savings that you are quoting from table 3 come from the Sheffield modelling.
Does the Scottish Government have any comparable figures? I am not sure why you would put figures for which there is no comparable basis into a financial memorandum. I think that the figures are comparable, anyway.
This is a question of great detail, which could perhaps be followed through. I am sure that the clerks will make contact to ensure that Mr Purvis can get an answer to his question.
I would never let you down, convener.
The question will be in three parts.
No, just one—a long one, though.
The SWA has not given us any direct information on that. As you might imagine, companies that make cheap supermarket whisky could be affected by minimum pricing. I would hazard a guess that those distillers also make cheap vodka, so minimum pricing might have a bigger impact on their production in that area.
We have had conversations with a number of different supermarkets and heard different responses to the question whether minimum pricing would mean that supermarkets would no longer continue to sell own-brand spirits. It is something of an assumption to conclude that all supermarket own-label or value brands would disappear.
I draw this section to a conclusion; I see that the witnesses wish to make no final comments. The committee has sought information on a complicated pattern of variables and unknowns, and we appreciate the inbuilt difficulties in the nature of your work. I thank you for your evidence; if you wish to supplement any aspects in writing, please do so.