I accept that the judgment was on the tobacco directive, but the language of the court’s opinion was consistent with the language on all minimum pricing issues that have come to the ECJ. The court’s judgments have never varied and have been consistent for 30 years. Therefore, the comments—[Interruption.]
Bear with me for a minute, Mr Hewitt. I asked everyone to switch off mobile phones and other electronic equipment. That includes anyone in the public gallery.
The language that is used in this ECJ judgment is consistent with the previous jurisprudence of the ECJ. Given that the court’s position has been consistent from a case in 1978 right through to last Thursday, we are convinced that there is no dubiety whatsoever that minimum pricing is illegal in the terms that are proposed.
Is the Scotch Whisky Association clear, then, that no distinction at all should be drawn between the tobacco directive and any directive on alcohol? Are identical terms used regarding the relationship between the price and the floor price that is described and narrated in directive 95/59/EU? Are absolutely identical terms to be found in any directive on alcohol?
Mary Scanlon, do you want to return to that topic or move on to another one?
Whyte & Mackay recognises that Scotland has chronic alcohol-related issues and we want to be part of the solution. Sixty per cent of Whyte & Mackay profits are generated in the United Kingdom and we are the leading player in the supply of own-label products. Minimum pricing will have a serious impact on our business and on that of other companies.
That is a serious concern. Your submission mentions that, if Scotland imposes a minimum price, as well as an effect on jobs it will increase cross-border, internet and mail order sales. Have you done any assessment of the sales that are likely to be lost to Scotland as a result of the minimum price?
I believe that it is Sainsbury’s in Newry.
I presume that your assessment of the potential job losses from the introduction of a minimum price of 50p per unit is based on the modelling that the University of Sheffield has done on the impact that such a measure would have on consumption levels. Is that correct?
Ultimately, the decisions are made by retailers. From a consumer perspective, to have eight or nine products all priced exactly the same at £14 is not consumer choice, and the retailers would make a decision on that basis.
One of the retailers’ submissions identifies what it would be likely to do. I would hate to recommend this, but retailers would probably delist the own-brand products totally if the two types were identically priced, because their role is different from that of branded products. You should ask the retailers about that.
Correct.
I said at the outset that we want to be a positive player in looking for a solution. Various actions can be taken. The industry has taken significant initiatives on many fronts and those need to be given time to bear fruit. It is reasonable to explore promotions. I argue that, to an extent, promotions are a key driver of behaviour, so that is worth exploring. We support the introduction of a ban on selling below cost or below duty, defined as duty plus VAT. If that was workable, we would welcome that. Over and above price, there are huge issues related to enforcement and huge opportunities related to initiatives from other people round the table.
I will pick up on Mr Beard’s point about a ban on below-cost selling. The Scotch Whisky Association has advanced the idea of a ban for transparency purposes on below-tax sales, by which we mean selling below the level of the duty applying to the drink plus the VAT applying to that duty. That would give a clear basis on which action could be taken—if people tried to sell below that price. Another beneficial effect is that it would answer one of the issues that health professionals have raised. They worry about tax not being passed on by retailers to consumers and that retailers will simply absorb any increased tax. A ban on selling below tax levels or cost levels—whichever you like—would answer that issue.
I do not have that specific information with me but we can provide it to the committee after the meeting, if that would help. I can say, though, that there would be a difference between whisky, at 40 per cent alcohol by volume strength, and vodka, at 37.5 per cent.
The ECJ’s judgment last week helped us enormously in that respect, because it made it absolutely clear that a ban on below-cost sales was not illegal. Such bans are already in operation in Europe, particularly in Spain, Italy and Portugal. It is within the Scottish Parliament’s powers, if it wishes, to make provision for a ban on below-cost sales or what we prefer to call, for the purposes of transparency, a ban on below-tax sales.
It is illegal for supermarkets to compare prices and come to an agreement among themselves on cost; it is not illegal for a Parliament to decide what cost is. In effect, legislation could be introduced that defines cost. As I say, such laws are in place in Spain, Portugal and places like that. It is of course very difficult to use cost in that way but that is why I have emphasised an approach based on the excise duty and the VAT that attaches to the duty. They are extremely clear and could, for the purposes of transparency at the very least, provide a bottom level. I encourage the Parliament and the committee to look at the issue of below-cost sales.
At a consumer level, there is a fundamental difference in retail price between 40p per unit and 50p per unit.
I am not suggesting that there is not; I was merely talking about the effect of the application of the minimum price.
It would indeed be lower than the average price of low value and own-brand whiskies.
Mr Beard, you stated earlier that supermarket-brand spirits are bought by people in the lower income group. Is that correct?
I think you will find that consumption in Scotland is pretty level, whereas consumption in England is reducing. This committee is talking about Scotland.
We are shortly to receive Scottish data, so that should put your mind at rest on that matter.
There is an issue about measuring consumption and whether the data that are obtained by other methods are as accurate as the data that are based on the sales receipts from the supermarkets. People tend to state that they consume less than they actually do. It will be interesting to hear what the representatives of the supermarkets say about consumption when they come before us.
May I ask a B-list question before that, convener?
We have had a good discussion about whisky, but that product is generally marketed at a higher price than white spirits. As a physician who has worked in the field of addictions, I know that the issues that affected my harmful drinkers were predominantly connected to vodka and cider. I know that cider is a small part of the market, but how would minimum pricing affect the prices of the own-brand vodka and cider products?
Cider sales have not grown in the way that you say they have. Cider still accounts for only one in 12 drinks that are consumed. The overall market share has moved from 6 to 8 per cent, which is still small. The cider industry is not protected in the way that you suggest, either—I am not sure where the word “protection” comes from in that context. Since 1976, when excise duty was put back on cider, there has been a recognition that the supply chain costs that are involved in making cider mean that it is a more expensive drink to produce than its equivalents. I popped into a local retailer in Edinburgh and found that the price of cider was 50p more than the price of beer. Cider is not the cheapest alcohol product. If you go into a pub, you will probably pay around £3.60 for a pint of cider, which is significantly more than the price of beer. Cider has no unfair economic advantage or protection.
That still does not answer my question, which is about the effect on the proportion of your market that consists of very cheap products. I accept that there are high-quality brands of cider and perry, but there are sections of your industry that market 3-litre bottles of cider at 25p a unit. The consumption of those products by heavy drinkers is a real problem.
I can give you the information that you require. The Scottish Parliament information centre document lists the current pricing of brands of strong white ciders, and the impact on that of minimum prices of 40p and 50p. That information is available.
Before Dr Simpson asks his substantive question, Michael Matheson has—
The second part of my question was about white spirits.
We are giving evidence principally as a Scottish whisky company—more than 96 per cent of our profits are generated from whisky—but I can give a perspective on vodka, if you would like.
In eastern division in Angus, the police confiscated 319 litres of beer, 311 litres of cider, 125 litres of spirits and 185 litres of wines, alcopops and other drinks. In central division, which covers Dundee, they confiscated 1,846 litres of cider, 1,190 litres of beer, 203 bottles of alcopops and smaller amounts of other products.
If we take Fife, for example—
I will just caution you there. We are dealing with a bill—if we were dealing with an inquiry, we might consider the issue that you have just mentioned. I wish you to accept that we know about many of the causes of why people in various geographical areas and in different age groups in Scotland drink; the committee is well informed on those matters.
I am sure that it can be.
I ask you to provide the information in paper form, so that we can put it on our website for public view.
Can you give us the reference for the Home Office campaign? That would be useful.
We have looked at price pretty thoroughly, although we may want to return to some aspects of it. However, I am concerned that, in the past 10, 15 or 20 years, there has been a massive drive to use alcohol as a loss-leader and that the advertising budget for alcohol, particularly from the retailers, has been substantial; it is a huge budget, which runs at something like £200 million.
I appreciate that. I just wanted to know whether you could give us a figure for your funding.
From this year, the Drinkaware Trust is receiving £5 million from across the industry. For the first three years of its operation, it received about 85 per cent of its funding purely from the Portman Group, which probably amounted to around £2.5 million to £3 million a year. I do not know Drinkaware’s specific proposals for its work in Scotland.
I am sorry, but which chief medical officer are you talking about? The UK one? We have our own chief medical officer.
I will treasure that moment with you, Helen.
Gavin Hewitt probably wrote Helen Eadie’s question.
Mr Lees has not spoken yet. Neither has Mr Clark.
We have lined your pockets, and you have rallied.
I have other members on my B list, and Michael Matheson is ahead of you, Mary. I now ask members with supplementaries to bear in mind that I still have Rhoda Grant, Ross Finnie, Michael Matheson and Ian McKee on my A list. If you could curtail your supplementaries, it would be very helpful. You have a long day ahead of you. Michael Matheson will be followed by Mary Scanlon.
Under the Scotland Act 1998, the Scottish Government and the Scottish Parliament must ensure that they are not in breach of the UK’s EU obligations. One of those obligations is to observe the jurisdiction and jurisprudence of the ECJ, which has already ruled that minimum pricing of spirits is illegal—end of story.
That is the proposition that I put to you.
I am sure that it would be challenged.
As we know, the Government has never shared its legal advice with anyone; one can understand why. That is true of Governments of whatever hue, including preceding Governments.
My question is very short, and it is to Mike Lees. Given that Tennent’s is a premium product, how much do you expect to increase your market share if a minimum price of 40p or 50p is implemented?
My question has been slightly skewed by earlier questions. I just want to be clear. I am in no doubt that tackling alcohol problems requires a toolkit of measures but I hope that panel members understand that it is only the essential matters of price control, whether through a minimum price per unit or through a ban on discounting, that require legislation. Panel members should realise that we understand that when we focus on minimum pricing.
The price would be £1.30 a unit before you began to suffer, and no one has suggested that level.
Is that foreseen?
I will not take any more supplementary questions, as we have to get through stuff. Rhoda Grant’s question for Mike Lees was how much he expects his company’s market share to increase with minimum pricing.
Thank you—that is helpful.
I acknowledge that the issue is complex, and we recognise the good intent behind the proposed measure. In fact, one of our members is in favour of minimum pricing. Overall, however, we are not convinced that minimum pricing will be a fair and effective measure, because although it will try to target drinks that are believed to be favoured by those who drink excessively—
Molson Coors.
Thank you all very much for a very long and extremely helpful session.
Do you have any comments on the letter from the Law Society of Scotland that was spoken about when the Licensing (Scotland) Bill was discussed and which raised questions about how to enforce the law? At that time, Fergus Ewing said that it would be punitive to go down the route of a social responsibility levy,
There are major difficulties with trying to identify problem premises in the context of the night-time economy. Licensing boards, through the new licensing standards officers, for the first time have an opportunity to monitor the performance of licensed premises much more closely. Under the Licensing (Scotland) Act 2005, boards have more powers than ever before to address issues and to close down premises that cause problems. The boards already have the vehicle of the 2005 act to address many of the issues that the social responsibility levy perhaps seeks to address.
An awful lot of premises do a great deal to ensure that they are well run, safe and good places for people to go to. They go above and beyond the minimum that might be set in a social responsibility levy. One argument is that, if a social responsibility levy was set, the minimum would be all that you would get, and it would not encourage responsible operators to go above and beyond the minimum to create the best possible environment for their customers.
I have a question on a point of detail that is raised in Patrick Browne’s submission. The submission refers to section 10(3)(b) of the bill, which refers to a social responsibility levy for expenditure
The price of alcohol has not dropped significantly in all sectors. Some evidence was produced earlier that the price of alcohol in the on-trade has increased in the past 20 years; it is the off-trade price of alcohol that has dropped considerably. Unfortunately, there is a link between the off-trade and the on-trade, in the sense that, with the rise and rise of pre-loading, prices in the off-trade are affecting prices in the on-trade. As long as there is such a massive difference between off-trade and on-trade pricing, people will be encouraged to pre-load.
There is a danger that, in concentrating on minimum pricing, we will forget the other aspects of the bill. I am sure that that is not a criticism that I could levy at the Health and Sport Committee, but it is true of the general debate.
There should be some mechanism that determines a floor price.
I did not say that. I said that there ought to be some price mechanism to control the floor price. As was mentioned earlier, something around duty plus VAT could be considered.
Perhaps I am confused. You said that you do not like any interference in the free market.
I have just suggested that there should be a definition of cost price as duty plus VAT, which would at least give us a starting point. The cost price to Tesco would be totally different from the cost price to Spar, for example; therefore, it would be impossible to agree on a cost price—competition law might not allow it. However, some form of definition by the Scottish Parliament along the lines of duty plus VAT, plus perhaps consideration of content, would give us at least an indication.
But you have already agreed that, with some of the mechanisms that you suggest, the supermarkets would win hands down, because they could demonstrate lower costs than the small shopkeeper.
My question is about minimum pricing and the social responsibility levy. It seems to me that the on-trade is keen on the minimum price but not on the social responsibility levy. There is obviously a degree of self-interest there. It has also been argued that it is safer to drink in on-trade premises.
There were loads of them; it was not just one place.
That is true.
Why are those people being served if they have been consuming substantial amounts? There is a statutory duty. Is it not a criminal offence to serve someone who is drunk?
Absolutely.
It is much simpler than that: the law exists and should be enforced. I am quite sceptical about the claim that the police do not have enough resources to enforce the law. One of our members recently indicated that over the course of three or four hours one Saturday evening they were visited by the licensing board, licensing standards officers, the Security Industry Authority and the licensing police. This is not necessarily about resources.
I can tell you that the white van man gets further north than the Borders.
Thank you, Ms Scanlon. We are—
That thanks did not sound heartfelt.
Try again.
Only one mechanism is before us today—the bill provides for minimum pricing and restrictions on promotions and promotional material. You are in favour of minimum pricing—despite everything else that goes with it, including the closure of stores—but you are concerned about the impact on small independent convenience stores of restrictions on promotional material. There is not a single Highland glen that the Tesco van does not visit regularly, but that is different from having a local hub and store. I am seriously concerned about not just the future but the sustainability of pubs and shops in communities in the Highlands, given what you are predicting.
I make it clear that we cannot ban advertising—that is a reserved matter. Promotions may serve as a kind of advertising, but there is a legal distinction between promotion and advertising.
As long as a ban applies to all forms of advertising, that is fine.
As I made clear, advertising per se is reserved.
I understand what you are saying, but certain aspects of what our stores do may fall into an area of devolved responsibility.
Our position is that the evidence in general—I am not talking about the Sheffield study, which built a model based on the evidence—clearly links price and availability with consumption. From that, it is logical to deduce that people who binge drink and drink considerable quantities of alcohol are more likely—
Yes.
Yes. That is just a deduction from the general evidence.
We have looked at work that the Joseph Rowntree Foundation has done on patterns of drinking and ways of changing behaviour. It has unpicked some of the evidence on how people drink and how general patterns of consumption can conceal interesting pockets of binge drinking among particular groups.
Yes, I have a supplementary for Mr Drummond on the threat to small communities and their pubs, which Mary Scanlon raised. My experience of visiting the Highlands is perhaps different from Mary Scanlon’s, but I know of small shops and pubs in remote communities that are really struggling to survive. People in those areas might buy the odd bottle of alcohol in an emergency, but they will normally drive to somewhere such as Fort William to stock up at Morrison’s or Tesco’s, thereby denying the local shops and pubs the custom that might be necessary to keep them going. From that point of view, I would have thought that MUP legislation that would force supermarkets to put up the price of very cheap alcohol would discourage people from making such journeys and would encourage them to buy more in local shops. In other words, it would help to keep communities going rather than put them at risk. Will you amplify that, please?
No. Our member stores in rural areas tend to be larger than the type that Mr McKee described, so we are perhaps not comparing apples with apples.
The apple of the convener’s eye.
People get worried when there is talk of setting a minimum price, for the reasons that I mentioned earlier with regard to who sets it and at what level. For the past 20 years, I have asked what the alternative is, but no one has ever come up with one that works. That is why we support minimum pricing: there is no workable alternative.
To add to Paul Waterson’s comments, duty plus VAT would affect hardly any products at the moment. It is an attractive option, but it would not make any difference.
Is your view that, in trying to address this issue with supermarkets, their rateable value should be based purely on their turnover in alcohol in the particular establishment?
So you declare what your income is for that year and you are taxed accordingly.
It is the volume.
Of course, the opposite might be true, in that hazardous drinkers who are well off will not necessarily drink cheap alcohol. Harmful drinkers are a different category; they are 7 per cent of the population, drink a lot of cheap alcohol and would be affected. I am really concerned about hazardous drinkers.
Section 9 contains what is potentially one of the biggest long-term impacts of the bill on the trade. There is a principle whereby if a board wishes to change the licence conditions of a premises, it has to convene a hearing. Representations are made at the hearing, then the board reaches a decision, which is subject to subsequent appeal, as required. Our concern with section 9 is that it would give boards a blanket power to introduce potentially major changes to people’s licences without holding hearings. As our paper mentions, the only recourse would then be by way of judicial review. Our association has had to pursue a couple of judicial reviews over the past few years. Even if we win in a judicial review, our costs are between £10,000 and £15,000.
It would be very difficult for any individual licensee to pay out £15,000 to challenge the decision of a board to introduce new conditions, even if the licensee won. Although judicial review might be an option, it will not be available in practical terms, as people will not be able to afford to pursue it.
Your first question was about the whole-population approach. It is important to think about the overall aims that the Government wants to achieve through the bill and about how people choose to purchase alcohol. The root of the concern is the question why the 40-something per cent of people—that figure was quoted in a previous evidence session—who regularly drink within the recommended number of units of alcohol should pay more for their alcohol through intervention. Why should people who buy whisky, wine or beer—it does not matter what the product is—and drink it safely and regularly within the guideline limits pay on the whole nation’s behalf?
Does that not demonstrate the fundamental difference between an alcohol product and any other product—namely, the fact that its alcohol content is a material consideration?
Mr Finnie asked why we instinctively rebel against the blanket approach or the whole-population approach. To start with, it is probably because we spend the vast majority of our time competing vigorously against each other. That is the nature of our market. There is vigorous, day-by-day, hand-to-hand fighting for market share. That is what we do. Over a period of decades, the figures bear out the fact that, through that process, we have delivered really quite good value for citizens of the country.
We should perhaps explain to those who are watching the meeting on television screens that there are glass panels between each of you in case you engage in hand-to-hand combat.
So the price of alcohol is untouchable.
Sorry, we accept that there needs to be a toolbox. I apologise, but in inferring that your position is “Don’t touch price” I was merely asking you to respond by stating whether you had any alternatives. However, I think that that point is now clear.
From a Tesco perspective, we have said that competition legislation rightly forbids retailers from getting together to discuss price. If the Government provided a safe place to have that discussion, we would be prepared to discuss what the policy could look like.
However, Tesco was alone among the supermarkets in not responding to the committee’s call for evidence. Tesco was also alone in not making a submission when it was subsequently invited to give oral evidence.
One of the important points to make is that we all operate within the legal framework set by the Parliament, whether at UK level or in Scotland, but we operate in a highly competitive environment, primarily because of competition law set by Westminster. We have said repeatedly to the UK Government that if it can provide a safe harbour for discussions on price, alcohol and other things, we would be happy to participate in them, but it has not done so yet.
Yes, but that case involves an exchange rate, which is not the case between Scotland and England. I just put that in as background information. Ian McKee has a supplementary question.
The panel’s members have the information on sales of alcohol; above all others, you know what your sales are. It would be very helpful for us to get much more detailed information on sales of alcohol to low-income groups. We have not been able to get that information, which is relevant to one of the major arguments in the discussion about MUP.
Indeed. It would be helpful to know what your sales of alcohol have been like over the past five years, because what people tell surveys is different from what actually goes through your tills. The information about your sales could be added together so that we did not disclose individual sales figures to your competitors. We would probably know more from that information than we could get in any other way.
I will pick up on Ian McKee’s point about the market share figure of 2 to 2.5 per cent that is in the evidence. That refers to the fact that, between Asda and Sainsbury’s, we have about 2 per cent of the grocery market in the Republic of Ireland but we have no stores there.
Is alcohol not therefore a clear driver to get people away from their local corner shops and into the supermarkets?
In this case, the price differential is driven by two issues. One is the differential in duty and taxation levels between Northern Ireland and the republic; the other is the differential at times with the euro. The figures show that some people will travel, and our point is that, if you create a different pricing regime in Scotland, there will be cross-border trade and people will travel quite some distance to take up the deals.
I will build on Mr Grant’s point. The Co-op operates a number of community stores. Alcohol is part of the offer in those stores, but only a proportionate part of the offer. Taking a blanket approach to alcohol through minimum pricing might put at risk a number of the smaller stores that serve places where the socioeconomic mix is low income. Either the alcohol sales would move away or people would maintain the same alcohol mix but the stores would be less profitable because we would be selling less fresh food.
How could I resist? Before you follow up, Dr McKee, I apologise to the witnesses for the sunlight in the room. Mr Taylor, I am afraid that in this highly sophisticated building you just have to move your seat—there is no blind or anything. You can sit closer to Mr McElroy—I am sure that you will not fight.
That was not my question. My question was about the percentage of cheaper alcohol that is purchased by low-income groups. The Sheffield report says that, at the moment, 16 per cent of the average basket of the moderate drinker is cheap alcohol. The point that I have been trying to make throughout these evidence sessions is that a better-off person such as I am does not buy any cheap alcohol. I have never bought it and I have no intention of buying it. However, as Mr McNeill was saying—I know that quite a lot of the Co-op stores will be in less well-off areas—people on lower incomes will purchase proportionately more cheap alcohol even if their spend is not great. You do lots of work on what groups A, B, C, D and E purchase and how they purchase it—that is crucial to your marketing. You have better information than anyone else on that, but we cannot get access to it.
Morrison’s can get that information through sample sizing but we cannot track it through individual sales in that way. The only way in which we could do that would be through monitoring repeat credit card usage, which would not capture some of the low-income groups to which you refer. Particularly at the moment, a lot of people are paying in cash and it is hard to track sales to individuals.
Is it possible for you to give us an idea of national consumption levels, as a percentage of sales in your stores throughout Scotland, or in whatever way you display such information, without breaking the figures down into socieconomic groups?
The Nielsen data would give you the overall figures. All our companies provide data confidentially to the likes of Nielsen, IGD and others. That would be the best method of getting that information.
Did I say that?
There are far too many unknown elements in the equation to make any properly tangible or meaningful comment. For example, the minimum price itself is a matter for Government and we will not find out what the level of duty will be until we hear the budget in a couple of weeks’ time.
I appreciate that, as such things are unknown, it would be wrong to ask for a precise figure but, surely, as a general principle, adopting minimum unit pricing for alcohol would mean a significant increase in income for supermarkets.
Bearing it in mind that time is moving on, I will ask two brief questions. First of all, though, in response to Mr Grant’s comment that people vote with their feet, I point out that as a resident of Inverness I would have to walk 100 miles to get to my nearest Sainsbury’s. That is not always an option.
Heavens!
They pay quite a bit.
Well—
That was a helpful expansion of your answer.
What else does the Clubcard tell the supermarket? Other than being a way of saying thank you, does it provide other information?
What else can it be used for? What data do you get from Clubcards? I appreciate that the market is competitive. I have two loyalty cards, and I want to know what you know about me. Do not tell them if you know, Mr Grant.
So the data give you an idea of trends and successes.
We know what the customer has bought and when, which enables us to understand them so that we can reward their loyalty by offering them things that we know they like or introduce them to new things. It is part of quite a complicated but mature relationship with individual customers, who know that they are trusting us with their personal data. We treat those data carefully and confidentially and they receive a reward for trusting us with it. In effect, there is a loyalty relationship: if a person is not a consistent customer of a supermarket, they will get a little reward, but not a meaningful reward. That happens because, between us, we struggle for market share and loyalty against constantly switching customers.
I was not criticising the Clubcard. I have one—and a Nectar card for when I am in Edinburgh. My point is not to justify or question the loyalty cards; my point is that, if all the measures in the bill go through, you are smart enough to be able to find other ways to maintain your market share of alcohol sales. For example, if you find out that a customer buys a certain pie every time they buy a bottle of wine, you can offer a free pie with every bottle of wine. I hope and assume that you would resort to other approaches that enable you to maintain your market share, such as Mr Paterson’s offer of giving customers a fiver off their shopping if they spend a fiver on alcohol. That seems reasonable to me in the circumstances. Is that fair?
Yes, of course. Thank you.
We must move on. The thought of pies makes me think that we have been sitting here for far too long. Pies and wine might be a bad combination, but not when we are still sitting here at this time of the day. I am aware that, believe it or not, some members have to speak in the aquaculture debate this afternoon. It is fishy.
Focusing on price, as we have been doing, sometimes misleads us into thinking that price will be the solution to our problems. One thing that has really influenced my thinking is a report for the European Commission that showed that alcohol is more affordable in other EU countries but that consumption has declined. Having said that, I was interested to read in Morrison’s submission about the possibility that illicit stills and home brewing could become a phenomenon in Scotland. To what extent have those issues featured in the witnesses’ thinking?
I will pick up the question on the St Neots project because I am proud of the project, which is the product of work involving all the retailers in a group called the retail of alcohol standards group, which I have chaired since 2005. I am not making a party-political point, because all the companies that are represented here have made a huge contribution to what is an exciting project. It is a way of engaging specific communities in tackling their alcohol problems.
Some of the supermarkets in Scotland have already started such initiatives in certain local authority areas.
We have such a project in Fife.
David Paterson raised the issue of safe harbours, which is important. The Government needs to be able to address all stakeholders on such an important issue in Scotland. In that regard, I am concerned about serious and organised crime. Last night I watched a programme that I had recorded from the “Don’t Get Done, Get Dom” series, which showed examples of the colossal market that exists for vodka. I envisage white van man coming into the huge conurbations in Scotland. How can we tackle that issue? What do the supermarkets do to ensure that their products are safe? It was patently clear from the programme that the products are not safe. The proposal for a minimum price does not deal with product safety. Because of the phenomenon of white van man and the involvement of serious and organised crime, the measure could have unintended consequences.
I made the point that, love us or loathe us, we are fairly responsible custodians of the sale of alcohol in comparison with some of the elements at the wrong end of the market that could be introduced as unintended consequences of minimum pricing. If the policy sets a level of minimum pricing that tends towards prohibition of alcohol, the tendency will be for criminal elements to be introduced to the market. We know what happened during prohibition—organised crime became involved. A distinct link between the level at which the minimum price is set and the involvement of organised crime is unavoidable.
Mr Grant made the point that we are responsible and meet high challenges in order to sell alcohol. My point relates to the proposal for a social responsibility fee. We have concerns about a blanket tax on licensees that does not recognise the good work that is being done and is not fault based.
We have noted that from previous evidence.
Have people been shopping later?
There has been a bit of a shift. We had not quite thought about the change to 10 am, which has had an impact on certain groups. Many young mums do the shopping after dropping the kids off at school, and they now cannot buy alcohol as part of a weekly shop that is done at that time of day. We had not envisaged the effect on carers, who might shop for three or four people and deliver the groceries through the day.
The select committee was quite clear. Its report is unequivocal when it says:
Pricing clearly has a role to play in people’s choices when they buy alcohol. If the price of a product is tripled or quadrupled, there will be a change in behaviour. Many of us argue that there is already an intervention, although I appreciate that it is not one within the Scottish Government’s power as it reserved to the Exchequer in Whitehall. I refer to duty, which influences the price of a product, as does VAT.
If no other witnesses want to comment, I will allow other members to ask a supplementary question.
Mr Hewitt, your position is absolutely unambiguous, which is sometimes to be commended, but I would like to know why you are so clear, when the entire ECJ judgment relates to article 9.1 of Council directive 95/59/EU, which deals with tobacco. Why are you absolutely clear—you expressed no equivocation at all—that a ruling on directive 95/59/EU applies to directives on alcohol?
I wholly accept that the language is consistent and is quite clear in declaring minimum pricing on tobacco to be illegal, but the scope of the judgment is, nevertheless, explicitly directed to directive 95/59/EU.
That is exactly what I said. The judgment relates to the tobacco directive, but the language of the judgment can be taken out of that judgment and applied to minimum pricing in other areas. The consistency of the language in ECJ jurisprudence is considerable. The court has used the same language in all the cases that have previously come before it.
We have not done an explicit study, but there are enough precedents to suggest that it is a serious problem for Scotland. I will give examples in a moment, but I can summarise it by saying, in the context of wine, for Calais, read Carlisle. The committee will see the retailers later this morning, and you might want to ask them how well stores do on the Northern Ireland border with Ireland. I believe that one retailer’s biggest store for the sale of alcohol throughout the UK is just across the border.
I was thinking of another example. It is a huge problem. I do not think that it is as much about individuals driving down to Carlisle as it is about organised crime, white van man, illicit sales and people who are already selling tobacco illegally on council estates in the central belt. My point is supported by evidence from Sweden, where there is a monopoly on alcohol but, somewhat bizarrely, it has only a 57 per cent market share.
No, it is not. Our assessment is based on the fact that own-label products would increase in price overnight—in our example, by 37.5 per cent to £14—whereby they would arguably be at precisely the same price as leading brands. The own-label product that we supply is of excellent quality but, given the choice of the leading brand at £14 or own label at £14, arguably, consumers would choose the brand. Indeed, I believe that the retailers will not give consumers that option.
That is helpful. Whyte & Mackay says in its submission that introducing a minimum unit price of 50p would lead overnight to an “astronomical” 37.5 per cent average price increase on unbranded products. How much would the ban on selling below duty and VAT that Mr Hewitt suggested increase the price of Whyte & Mackay’s unbranded products?
Given your concerns about potential job losses as a result of the bill, I think that that information would certainly help us to understand the impact of this other proposal on your business and jobs in your sector.
I am very happy to provide it.
That would be very helpful.
It is early days. There will be someone with three.
Indeed. The Scotch Whisky Association’s submission says that competition law prohibits a move to ban below-cost or below-duty sales. Is that because people simply do not discuss the cost of manufacturing drink products? Can we in the Scottish Parliament amend the law to overcome the problem or are we unable to deal with it ourselves?
What I am trying to get at is how we ascertain cost. We can easily establish duty and VAT, but cost is more difficult to work out. As I understand it, your submission suggests that commercial confidentiality and competition laws would prohibit a ban on below-cost sales.
The marketing of own-brand products is driven by the retailer. The products are branded as Tesco own label or Sainsbury’s own label. The main purchasers are people who are loyal to the individual retailers. Subjectively, I believe that the main purchasers are primarily consumers on lower incomes. During the recession, there has been an overall shift in the purchase of fast-moving consumer goods towards lower retail priced goods, whether alcohol or other products. The reasonable assumption is that the main purchasers of own-brand spirits will be consumers who are on lower incomes.
Not quite. I think there might be some confusion between certain white spirits at 37.5 per cent ABV and certain darker spirits at 40 per cent ABV. Let us say that today’s price is £10.18. Applying the 40p per unit minimum price would take the retail price to £11.20, which in itself would be an increase of 10 per cent. The figures that I have quoted, which start from the same base of £10.18, show that a 50p per unit minimum price would mean a 37.5 per cent increase to £14.
But you have done no modelling to see exactly what might happen in that situation.
No. I know the effect that it has on whisky, but I have not done modelling in relation to other drinks.
Are you aware that people in the lower income bracket have about three times the incidence of alcohol-related disease that the rest of the community has?
That is certainly the case, although issues relating to society, culture, upbringing and housing are far more relevant to that than is the price of alcohol. As I have said, I am not convinced that the introduction of a minimum price would solve the problem, given that people could go to Carlisle to purchase alcohol or order it via the internet. We are supportive of initiatives that involve an output that has a genuine chance of success. However, I do not think that the input of minimum pricing will achieve its stated aims.
You have taken evidence on the Sheffield study, and some of the conclusions that have been drawn from that study have muddied the water. It is interesting to note that, although the alcohol debate has been gaining considerable coverage, alcohol consumption across the United Kingdom is already declining. Price might have a role to play in that, but I do not think that it is the totality of the solution.
That is interesting because I think that the Sheffield study, which has been a key part of your evidence, did not take a Scotland segment as part of its research. That is strange, given that the study is related to Scotland. It is dangerous to be selective and to use UK data on one occasion and Scottish data on other occasions, especially as the Sheffield study, according to its author, is actually a weather forecast.
And yours.
I will do the B question first, as it involves pricing.
I should tell the witnesses that we have a little code in this committee.
I would caution you about that. The committee is well aware of the spectrum of reasons why people consume alcohol, and the sociological factors that are involved. We have taken evidence on those issues in relation not only to the bill, but to other issues.
I am not sure that that answers my question, which was about the effect of the proposed policy on the cider industry. However, what you said about jobs was helpful.
Michael Matheson has been named in dispatches.
Were the figures from Tayside Police split between beer and cider, or was there a composite beer and cider category?
Why not Tayside?
Okay.
One will find particular evidence in particular situations. Two years ago, during the February half-term season, the Home Office ran a campaign throughout the UK to intervene directly in street drinking by children. Various drink products were collected—and we must take the sample size into consideration—but the percentage of cider in comparison with all the other alcoholic drinks that were captured was in line with the product’s national average share.
I have got myself on the B list now—it is a rare moment. I want to ask about Drinkaware, the alcohol education charity. We are talking not just about examining minimum pricing and related issues, but about informing the public—particularly the young—about alcohol. You say that you have received an increase in your funding recently. Do you have a certain amount to spend in Scotland? Can you advise us what contacts you have with schools and so on?
The Portman Group helped to create the Drinkaware Trust, but the Drinkaware Trust is an independent charity, so I do not represent Drinkaware. It is a charity that is funded entirely by the alcohol industry—
Am I still on the A list?
You are still on the A list. However, I warn the committee that it is 10.41 and we have another two panels of witnesses to hear from. Short questions would be useful, as would short answers, if appropriate. We have yet to have questions from Helen Eadie, Ross Finnie, Michael Matheson and Ian McKee—so, you see where we are. You can be here until 3 in the afternoon if you like, but I will not be.
Sure. The message has been agreed by all chief medical officers.
The question was definitely directed at Mr Hewitt.
Not yet.
You get ready for it, then. We are coming to the end—you will have to let people know that you have been here, even if it is just by coughing. Mr Lees is next, however.
Given that the rise in the price would increase the revenue to the industry, that would offset the other aspects. Do you agree that the fall in consumption would be offset by the increase in price?
We do not really know. We have to model it and see what regime we end up with.
You can see how someone like me thinks that it is a bit perverse of the industry not to want the measure. It will put more money in industry pockets.
This might be a B-list answer.
Let me put it simply, with concise answers relating to Whyte & Mackay and own-label whisky. If those brands are delisted, double zero is zero.
Could I—
Mr Hewitt spoke about the possibility of minimum pricing encouraging further trade barriers in other countries. He said that if minimum pricing was introduced and it was viewed as a breach of European competition law and World Trade Organization rules, that could be used by other countries as an argument for introducing trade barriers against whisky. That is based on the idea of a breach, but there has been no ruling to say that minimum pricing for alcohol is such a breach. How can you say that if minimum pricing is viewed as lawful at both WTO and EU levels and does not constitute a breach, it will inevitably and automatically result in further trade barriers against whisky?
I thank Mr Matheson for bringing us back to the legal issue. The ECJ has already ruled that minimum pricing is illegal, in a case in the Netherlands in 1978. The ECJ has followed that precedent consistently for the past 30 years. The ECJ has ruled on the issue of minimum pricing for alcohol, especially spirits. I said that if, perchance, the European Commission accepted that an exception from the European and, therefore, the world trade rules could be made for the sake of public health, a precedent would have been set by Scotland—the first country to do so—with the consequences that I set out to Mrs Eadie.
Let me be very clear. If the European Court of Justice ruled that minimum pricing, as introduced here in Scotland, was not illegal or a breach of EU competition law, how can you argue that that would be used as an argument for introducing trade barriers against whisky?
That is the proposition that I put to you.
All right. The consequences are that our markets overseas—the places where we have had success in removing the discrimination against Scotch—would use the precedent of that exception, which could be made only on the basis of public health, to introduce further discrimination against Scotch. I used the example of Korea, which would say that Scotch whisky has higher ABV than Korean soju and is, therefore, more dangerous to health than soju. Legitimately, Korea could place an extra tax on any drinks over 30 per cent ABV, which would mean that Korean drinks were not taxed. The consequences would be that we would lose a substantial part of the market. As I said to Mrs Eadie, we calculate, based on very firm evidence, that we would lose £600 million a year.
Korea might impose a health tax anyway.
Before Mr Clark answers that question, I would be pleased if I could get the questions right. Rhoda Grant asked Mike Lees how much he expects his organisation’s market share to increase with minimum pricing, whatever the minimum price would be set at. Ross Finnie asked questions across the spectrum about whether economic arguments matter more than health arguments and about the robustness of the economic statistics, so we will leave them until the end. I think that he made the point, as Ian McKee did, that the Sheffield report was being rather set aside even though it has been substantially peer reviewed in prestigious scientific documents. Mike Lees was asked why Tennent’s is in favour of minimum pricing. I think that the line that Ian McKee took was that pubs should do well out of the proposals because they have been losing a lot to off-sales.
I will echo Ross Finnie’s question to the Portman Group. When Ben Read of the CEBR gave evidence on 24 February, he stated that he had
To what? I am sorry.
I said that what has been proposed could be the thin end of the wedge. If the bill is passed, perhaps the price could move years down the line from, for argument’s sake, 50p a unit to £1.50 a unit or whatever.
I will be honest and say that we have not specifically extrapolated a share gain with minimum pricing, as we see minimum pricing as one of a number of variables that would affect consumption. Those variables include brand image, consumer choice, and what the retailers decided to do in setting prices and promoting products. Therefore, I cannot give a specific answer to your question. However, I would say that competition would increase but we would still be competitive relative to other products and other categories. Obviously, a minimum price of 40p would have an impact on us in the off-trade but it would not have a massive impact on the on-trade, and our business is 50:50 between the two markets. We will gain share through different things, such as the brand, its health impact and its image for consumers. Many variables are therefore involved, of which price is only one. Price affects the level of consumption, but that is relative when we are competing with mainstream products in the same group.
That deals with Michael Matheson’s question about why you are in favour of minimum pricing. We tend to forget that you have pubs as well.
We are Scotland’s leading brewer and have been around since 1556. We sell one in three pints and are a significant player in the market. Personally, I have been in the business for 32 years. We are committed to Scotland and we welcome sensible moves to ensure that alcohol is enjoyed appropriately. However, we recognise that there is an issue because a minority of consumers in Scotland abuse alcohol. We welcome the fact that the Scottish Parliament has a role to play in addressing that.
Let me tackle the very fair question that Mr Finnie asked. First, we are opposed to only one aspect of the bill—minimum pricing. We are broadly supportive of all other aspects of the bill. The Sheffield report shows that the effect of constricting promotions is comparable to that of minimum pricing. I do not need to develop further the arguments about why we oppose minimum pricing, although I echo John Beard’s comment that we are at the forefront of industries in Scotland that want to address alcohol abuse here. However, let us address what alcohol abuse is: 80 per cent of the alcohol consumed in Scotland is drunk by 30 per cent of the people. That is where the harm is; it is not across the community, although I accept that there are examples where that is a problem. We need to address harm and get at that 30 per cent, but minimum pricing may not be the answer.
We were asked to give evidence on behalf of Whyte & Mackay, which is precisely what we have done. Part of the committee’s task is to weigh up the economic argument versus the health argument. From our perspective, we are dealing with chronic abuse by a minority, but we are trying to solve it with a sledgehammer for the majority. I am not convinced that that will work, and I am not sure that the bill is clear about which demographic it is targeting.
Which one of your members is in favour of minimum pricing?
The second panel of witnesses represents the licensed trade and consumer groups. I welcome Liz Macdonald, senior policy advocate at Consumer Focus Scotland; John Drummond, chief executive of the Scottish Grocers Federation; Patrick Browne, chief executive of the Scottish Beer and Pub Association; Paul Waterson, chief executive of the Scottish Licensed Trade Association; and Paul Smith, executive director of Noctis—the voice of the night-time economy. I am intrigued.
I have a question for Patrick Browne. We have not looked very much at the proposal in section 10 for a social responsibility levy on licence holders. I note that Mr Browne gives quite a lengthy response on that in his submission, in which he quotes Fergus Ewing, who is now one of the Scottish Government ministers—being hoist by his own petard is perhaps the way to describe that. Will Patrick Browne explain why his association is against a social responsibility levy?
There seems, to me at least—perhaps it makes a bit more sense to parliamentarians—to be a contradiction in the language. It is difficult to understand how something can be attributable indirectly. We are concerned that, if that wording remains, the scope of a social responsibility levy could be broadened and it could become something that is much wider than is perhaps the current intention. We wanted to highlight that wording to try to get some clarification or even assurances from the Scottish Government when it gives evidence.
I am sorry to be rude, but should alcohol therefore be regarded as an entirely normal product that may be likened to others in a free market?
That is a crucial part of the argument. We are not in a free-market situation. We are bounded by legislation. The people who are represented by the members of the previous panel sometimes forget that. Under the Licensing (Scotland) Act 2005, we have licensing objectives, and everything should relate back to those objectives. That is why the issue of minimum pricing must be the cornerstone of our efforts in this area. We must get some form of base price in place so that responsible operators are aware of where the boundaries are.
I want to clarify the Scottish Grocers Federation’s position on the matter. From what Mr Drummond has said in response to Ross Finnie’s questions, I take it that the federation is not in favour of a mechanism that interferes with the free market around alcohol. I confess that I do not see there being a free market for the very reason that Mr Drummond outlined—it is a licensed product. We have also heard from Mr Waterson that it is not a free market because of the way in which pricing operates. What we seem to have, especially in the off-trade, is a free pricing system in which people can sell alcohol literally as cheaply as they like. Are you in favour of that approach? Should there be no limits whatever on the pricing of alcohol?
What should that mechanism be?
We have done no modelling whatever; we have just taken comments from members, which I am trying to reflect in a consensual way.
Goodness me. You have a gold star.
I am delighted to say that Rhoda is not going to name the place.
You can argue about whether those people were drinking in pubs or drinking before they came out and how many drinks they had in the pubs. The trouble with the legislation is that if you ask 10 different people, they will give you 10 different definitions of a drunk. It is very difficult for the police to know whether someone got drunk in a pub and was served more alcohol. They might have been drinking before they came in. The pub might be the last place that they were in.
There is a general realisation about the figures on where the alcohol is coming from. That is a statement of fact. The amount that is being drunk in public houses is not really the problem. We have managed over a long period to stop a lot of the problems in pubs.
It is a question of the social responsibility levy, convener.
Now there is a surprise.
Did it not? Sorry. Thanks for the question.
Has the licensed trade done any work to predict the effect of the bill as a whole on small pubs, and hotels with licences in remote areas?
So you have not focused on binge drinking; you have just focused on overall consumption.
If there had been an evidence base for that, I would have been interested in it, but there is not.
Ian McKee has a supplementary.
The position that you describe is fairly understandable, but I do not represent only stores in rural and remote areas. My earlier comments still apply.
Was there a difference between what your members in rural areas said and what your members in urban areas said? Was there a divide?
We move from apples to a question by Michael Matheson.
If there is an increase in duty, many retailers, especially the bigger ones, will simply not pass it on. They will say to the people from whom they buy their wares, “You’ll pay that. We won’t put it on,” so the price remains the same. They have the power in the market to do that because they buy massive amounts. Small operators have to pass on duty increases; they cannot absorb them in the way that supermarkets do. In other words, an increase in duty means that the difference in price between the two parts of the business becomes greater. It is as simple as that. After the most recent increase in duty, there were duty-buster adverts, in which retailers openly said that they were not adding the increase. An increase in duty plays into the hands of the big operators. Having a floor of duty plus VAT would not work because alcohol is a loss-leader for the big retailers anyway, so all that they would do is take the duty plus the VAT and add a penny to it to make the price.
I take from your comments that if any format other than minimum pricing—the duty-plus-VAT approach, for example—was introduced, all that would happen is that the supermarkets would absorb the costs.
Yes.
The small shops, in the main, could not absorb it. Is that broadly the case?
Mr Smith, did you want to say something?
We are paying far more for services than any other businesses; garages are the only other businesses that are, to a certain extent, rated like us. Public houses are rated in that way and the figure is 9 per cent, which is a massive burden on us.
There are other elements, but if they are selling alcohol, they should be rated in the same way as others who sell alcohol. The rates would be about 9 per cent of the alcohol element. If we want to base their rates on the alcohol part, that would be fair enough.
The assessors know our income, which is split between food and alcohol, but the rateable value basically works out at 9 per cent of our turnover.
So it still would not be—if it was volumes of alcohol rather than—
You mean cash in the till, not volume of alcohol.
I have two quick questions, or at least I hope that they are quick. The first is for Consumer Focus Scotland. The evidence that we have received from you is a shortened version of the big report that was produced, which was much more definitively in favour of minimum pricing. In this shorter version you have, if I may say so, drawn back a little bit. I have two questions for you. First, the last page of your submission raises significant concerns about low-income groups. Are you surprised that the Government has not asked the University of Sheffield to study the effects on different income groups? I ask that question in particular in the light of the CEBR report, which contains a graph that shows that a 40p minimum price would affect the consumption of only the lower three income deciles. Everyone with an income greater than the lower three deciles would therefore not be affected by a minimum price, so your concerns about lower income groups are well expressed.
On the first point, in relation to low income, you commented on the difference between our earlier paper and the evidence that we have given to the committee. In the earlier paper we spelled out the pros and cons of a minimum price. One of our concerns—it is an obvious concern for a consumer organisation—is the impact that minimum pricing would have on low-income consumers, and we have drawn attention to the possible impact on those on moderate incomes who happen to drink the cheaper products. However, it is not quite as simple as that. I know that you have already had a lot of evidence from the health lobby about how low-income communities suffer the greatest ill effects—there are much higher rates of liver disease in deprived communities, for example—so you also have to bear in mind the fact that people on a low income stand to benefit from reduced levels of social harm caused by alcohol.
I will pick up on Helen Eadie’s point about section 9, which begins:
Yes, it is helpful to have that point on the record so that the Government can answer it.
We probably agree with that. On a consensual note, I think, we conclude this evidence session. Thank you very much for your evidence. I appreciate that it has taken a long time, and that you waited a long time before we started.
That is what you are saying. I am sorry, but we have weasel words about being very responsible and caring and all the rest of it, but when push comes to shove, your argument is, “Don’t touch price.”
Our argument is that the simple mechanism of a minimum price would have a disproportionate impact on certain socioeconomic groups. We are saying that a whole-population approach to tackling issues with 20 per cent of the population is a blunt-instrument approach.
I wholly agree with that. In earlier evidence, Mr Gavin Hewitt of the Scotch Whisky Association promulgated that the unfairness in the tax system is that it is ad hoc and applies to different products differently. However, he suggested to the committee that it would actually be better if the tax was based on units of alcohol. Although that would not have exactly the same impact as a minimum price, alcohol taxation would then be almost identical in its effect. I am not clear that that would be good news for the supermarkets.
Our publicly stated position on duty is that we ask to be involved as an industry in a discussion on rationalising duty to see where harms could be corrected. Plainly, if that was simply a method of achieving minimum pricing by proxy, that would not be the right thing to do, because that would just take us back to a blanket approach. The policy should target particular groups at particular times and particular products in a way that nonetheless leaves us free to do what we do every day of the week, which is to compete in a relatively free market. I accept that the market is highly regulated, but in terms of the economic fundamentals it is essentially a free market. That is part of what we do, because it is part of our entire mission to deliver benefits to consumers.
I hope that I have not missed out anyone in turn because I was distracted. We will hear from Mr Taylor then Mr McElroy.
I just want to pick up briefly on the issue of a whole-population approach. As we heard earlier this morning, consumption has potentially plateaued—to use the term that was agreed on earlier—across Scotland. As Mr Grant has mentioned, we are not against using price per se or against considering whether the Exchequer’s role in setting duty, as was discussed earlier, might be to impose duty plus VAT as a transparent mechanism below which promotions could not occur.
Yes, we will hear from Mr McElroy and then from Mr Paterson.
I would like to comment on the man-in-the-white-van point—the cross-border trade point. As I have prepared for this meeting over the past couple of weeks I have probably taken a journey similar to that of committee members. I started off thinking that cross-border trade would probably be a fairly insignificant part of the picture. I wondered to what extent people would take action by driving to avoid a higher price in one place. The evidence from our Newry store, which is in the same sort of strategic position as the Asda store at Enniskillen, was that, for a while, it was our top-performing store across the entire estate, merely because it was just across the border. People were coming 100 miles to shop there and you could not park anywhere in Newry. People were parking in lay-bys a mile up the road to get their alcohol. That is a fact—it happened.
Another factor in cross-border sales between Éire and Northern Ireland is the strength of the euro versus the pound. There is another economic factor at work in that case.
I have two supplementaries. First, I declare an interest in that I have small shareholdings in two of the companies represented on the panel, Morrison’s and Tesco. Those are not in my declaration of interests, because they were deemed too small in relation to my total investments and the companies’ capitalisations, but at this stage in the questioning I should declare them.
So, the first question is about the impact on the socioeconomic groups at the lower end of the scale, whom you say will be impacted by a higher price for alcohol but who have the worst health.
My question is whether you are doing the same to small shops. You are creating a price differential for alcohol that encourages people to go to the supermarket, where they then also buy their groceries. If there were no differential, they might buy their groceries in their local corner shop and keep those local shops going.
You jumped in there, Mr Grant. I am not scolding you, but Mr McNeill and Mr Taylor are still waiting.
If I could follow up on that, convener, that would be my A question, so you could take me out of the list.
We could provide the committee with some data on that, but it is probably not as detailed as you might expect. We cannot track individual customers and we do not have a loyalty card; we can look only at what is in the average basket. For example, the average spend among customers who buy our Smart Price cider is £20 to £22, with an average of 16 products in the basket. The top 16 products in that basket are all Smart Price products and include coffee, bacon, toilet rolls and bread. That is the way in which the majority of alcohol is purchased in our stores—fewer than 1 per cent of transactions are alcohol only, although that is still a concern to us. Will that shopper be on a low income? We do not generally know, but the fact that they are buying so many value lines suggests that they might be on a lower income.
In our experience, customers buy alcohol as part of a mixed basket. If the committee is focused on how we challenge the problematic and dangerous drinkers, we must understand how people are using alcohol, which is where important measures such as bottle labelling, shelf edge activity, Drinkaware and so forth all come to the fore. How people use the alcohol is the crucial element in the equation.
May I follow up on my supplementary? You said that you would let me do that, if you remember.
I suppose that it is possible to regard the ability to set our own price for our customers as a matter of principle.
A matter of principle. Thank you.
The Co-operative reinvests its profits in the societies and members who trade with us, but we are concerned that in many communities we might be putting the store itself at risk, which, as a consequence, would impact on profits.
I will see what I can do.
Well, it took us 10 years to get Asda there, but if you can get there, that would be even better.
That was on the tip of my tongue.
Perhaps I can pick up the point about the correlation between promotions and price. The simple view is that the more promotions there are, the more sales there are. However, evidence in our submission suggests that that does not always follow and that people choose products for different reasons. For example, we show evidence for sales of white wine in Scotland over the past three years, and at the points at which the most number of products were on promotion, which was September 2007 and October 2009, sales were relatively quite flat. However, for a product such as Scotch whisky, it looks like there was a closer correlation between promotion and sales, because sales rose at the same time as the number of brands on promotion rose—but that was in the lead-up to Christmas. It can equally be argued that that is when the brands compete for market share and try to get people to choose their product rather than somebody else’s. Like much of this debate, the evidence on promotion and sales is quite complex; it is not as straightforward and simple as saying that more promotions means more sales.
Correct. I have not seen any evidence to suggest such a correlation. Alcohol consumption as a whole is plateauing in Scotland. I accept that, potentially, there could be a shift between the on-trade and the off-trade, but we are not seeing an overall change in sales. People may therefore continue to buy, even if there is no promotional activity.
Thank you. I will just go on to my second question.
Yes.
They will suggest promotions to us and work with us on them. We will sometimes fund part, they sometimes fund part and we sometimes agree to share if they are launching a new product or trying to revive an old favourite. It is part of a complex marketing conversation between us. There are clear rules now under the grocery suppliers code of practice from the Competition Commission, which provides rules of fairness around how we trade with our suppliers and what we can ask from them and what they can ask from us. However, promotions are often done at their instigation, because they look at market share just as we do.
Thank you. That is helpful. If anyone knows about promotions and sales, it has to be you guys.
We will operate within the legal environment that Parliament sets out. That is why it is important that, when the bill’s provisions are being considered, all the potential unintended consequences are considered.
We understand what the customer has bought.
We will ensure that you get it, because we—I think that I can speak on behalf of the retail of alcohol standards group—are very keen to engage Scotland. We have found engagement slightly more difficult in Scotland than south of the border. I am clear that we must not let that prevent us from setting up suitable projects in Scotland. If any committee member wants to express a direct interest in having something start in their constituency or area, or wants to examine the feasibility of that, I can tell you that we are committed to seeing whether we can get things going. That will require the interest and participation of everyone on an equal basis; no one party can do it to the others, if you like—the approach is collaborative rather than being a police thing. I make that offer. Please approach us, because we would love to get something solid going in Scotland, for the reasons why we are all here in the first place.
I would like to move on. David Paterson has a point to make about illicit alcohol production.
No—we have not seen a significant impact on sales as a result of the shift to selling alcohol only at specified times.
I concur. Shopping patterns have changed following an initial period. I am not sure that there has been any reduction in consumption as a consequence. There was a fair bit of confusion on the part of some licensing boards about Sundays. It fell on in-store colleagues to communicate the messages to customers about the change.
A couple of the issues that I wanted to cover have already been raised by other members.
I am not sure that I would use the term “relaxed”. We have said to Government that we are a responsible retailer of alcohol, and if the Government can provide a safe and legal place to have a discussion about what the policy could look like, we would be willing to engage in that discussion.
You will be aware that the House of Commons Health Committee recently issued a report on alcohol, which covered the issue of minimum pricing. In paragraph 278 on page 103 of that report, that committee states, in relation to minimum pricing:
With all due respect, the position that is asserted to be Tesco’s position on minimum pricing in the House of Commons select committee’s report is that “Tesco is in favour”. Is that correct, or is it wrong?
We have said to Government that we are willing to have a discussion with it about what a minimum price policy could look like, as long as it provides a safe place to have that conversation.
So you—
I will move on to my other questions.
Pricing is part of a complex mix of relationships that impact on the consumption of alcohol. We need to be careful about simply focusing on price and unintended consequences. Pricing is certainly part of the mix, though.
We are aware of such issues, about which we have heard lots of evidence. The committee takes into account all the evidence that comes before it, concluding with the evidence from the cabinet secretary, before writing its report.
Item 3 is oral evidence on the bill. We have three panels before us, and committee members will be glad to hear that I intend to have five-minute rest breaks in between each panel, which will help witnesses as well.
I would like to ask Whyte & Mackay about its statement on jobs and minimum pricing, but first I will ask Gavin Hewitt about the Scotch Whisky Association’s press release last week. I think that the association now contends that minimum pricing is not competent within the European Union. We have spent a lot of time deliberating on that. Will Mr Hewitt clarify whether minimum pricing is or is not competent under European Community rules?
Our clear position is that minimum pricing is illegal under EC rules. That position was reinforced by last week’s European Court of Justice judgment, albeit that the case related to tobacco. The ECJ judgment made absolutely clear the court’s position on minimum pricing and was consistent with the court’s jurisprudence over 30 years. Since the first case on minimum pricing was raised in 1978—in a case relating to the pricing of spirits in the Netherlands—the court has ruled against minimum pricing and has never varied from that opinion for 30 years. The reason why minimum pricing is illegal is that it is not the least trade-restrictive measure available to address the issue.
There is no alcohol directive, whereas there is a tobacco directive. The narrow issue that the court addressed was the application of the tobacco directive and the legal provisions on tobacco that were introduced in Austria, France and Ireland. However, the language that is used in the court’s judgment—it refers to the need for least trade-restrictive practices and for other measures—makes it absolutely clear that its view on minimum pricing is consistent.
We do not actually have a judgment in relation to alcohol.
There is no directive on minimum pricing on alcohol.
I think that we will just have to leave that one for now.
So you argue that own brands would no longer be popular and, as a result, consumption of them would drop.
I want to be clear about how you got to that point. Is it your contention that retailers would delist own brands, or that they would continue with own brands but consumption of them would drop because they would be comparable in price to branded products?
So the job loss figures that you have arrived at are based largely on the presumption that retailers would delist own brands.
I welcome the fact that Whyte & Mackay recognises that Scotland has chronic alcohol-related issues—I think that that is what you said. It is clear from Whyte & Mackay’s written submission that you believe that that must be addressed. In a lot of the evidence that the committee has received so far, price has been highlighted as one of the major factors that drives alcohol consumption. I am therefore interested in your view on whether any measures should be taken to address the price of alcohol to deal with what you described as a chronic issue.
I should perhaps say to witnesses that if they want to provide any additional information they should do so in writing to the committee clerks to ensure that it gets into the public domain.
I now have two, if that is okay.
May I ask my second supplementary, convener?
Yes. I sense confusion, so I am starting a B list of members with supplementaries to run alongside my A list of members with substantive questions. The next on the A list is Richard Simpson. Bear with me, Richard.
Who would buy own-brand products? Who are they marketed at and who are the main purchasers?
I have a supplementary question on the alternative to minimum pricing that Gavin Hewitt and the Scotch Whisky Association have proposed—they have a strong view on duty and VAT. I understand the argument that Mr Hewitt advances for transparency, but I want to be clear that we are comparing apples with apples and pears with pears.
I use 40p per unit, you said 50p per unit. We are in the same ball park, but you wanted to stress the impact of a 50p per unit minimum price.
In the case of whisky, as Mr Beard says, the average price of the low value and own-brand products is in the region of £10—although some whiskies are sold more cheaply than that. A floor price of tax and VAT would not affect the sales of whisky, but it would affect the sales of other products that are pushed in supermarkets.
It would be a floor price, but that price would be lower than the current average price that Mr Beard quoted.
I was interested to hear your point about having a floor price of excise duty plus VAT. Before you made that proposal on behalf of the Scotch Whisky Association, did you do any formal modelling exercise to look at its effect in various areas? If so, could you send the committee more details?
We have not done that, but the position of the Scotch Whisky Association has always been that tax is an issue that is decided by Government, that drink should be taxed according to alcohol content, and that there is a case for a serious review of the duty structure within the UK relating to the taxation of alcohol. Our position on the issues around duty plus VAT flows from that.
That is my subjective conclusion.
That is as may be, but this is the Health and Sport Committee, and I am interested in the health aspects of the issue. We know, from previous evidence, that about 1,250,000 people in Scotland drink either hazardously or dangerously, which demonstrates that alcohol consumption is a health issue as much as it is a justice issue. Do you agree with the proposition that raising the price of alcohol will lower consumption and therefore help the health situation in Scotland?
You are on my A list, so you can have an A and a B question. Tell me which is first, though.
The cider industry is a predominantly English industry, with some operations in Wales. Therefore, the introduction of a minimum price would not cost jobs in Scotland; the impact would be across the border in England and Wales.
There is an acceptance that there are major sociological factors that lead people to use alcohol as a coping strategy. If the aim of the committee and the bill is to deal with alcohol harms, more effort should be addressed towards dealing with the harm aspect rather than the overall consumption of alcohol because, in the main, alcohol is consumed responsibly by most people in England, Wales and Scotland.
I want to know about the effect on the market share of the cheaper brands; the document does not include information on that.
Those products represent less than 10 per cent of total cider sales. If that part of the industry disappears, 10 per cent of the cider market will go. That is how small that part of the industry is, and it has a declining share of the market.
Does anyone want to respond on that?
I want to respond to Mr Price’s comments on what I said about price. The overwhelming majority of evidence that we have received from experts in the field identifies two key factors that drive alcohol consumption: price and availability. That is the context in which I referred to price. I am not sure whether Mr Price thinks that price has no part to play in alcohol consumption; I certainly believe that it has a part to play.
Your figures are specific to Tayside, but mine are specific to Fife, and to England.
Yes, that would be useful. Other material that the committee would like to consider sometimes emerges during an evidence session—and you will perhaps be pleased to know that you are not coming back to us. We will put that evidence in the public domain so that anyone who is interested in the debate can see it.
First, I will explain what the Portman Group is and what our code of practice covers. We are the social responsibility organisation for UK drinks producers. We have eight member companies, which collectively account for the majority of alcohol that is sold in the UK. Our primary concern is to ensure that drinks producers market their products responsibly. We do that through operating a code of practice on the naming, packaging and promotion of alcoholic drinks. That code of practice applies not only to our eight member companies, but across the entire producer industry. We have an independent complaints panel and an open and accessible complaints system, so anyone can make a complaint about any product or promotion that they think is in breach of our code. That complaint will be ruled on by the independent panel. The panel’s decisions are published and if a product’s packaging is found to be in breach of the code, we have a sanction whereby we can ask retailers to stop stocking that product until it has been amended to comply with the code.
I think that what that establishes is that the Portman Group does not have any control over advertising and is not responsible for that. However, you are responsible for labelling, which is an important part of the marketing. The last time that I went round a supermarket, the labelling was still patchy. We do not have clear, substantive labelling. I see from the various documents that you gave us for today’s meeting that the intention is that we will have such labelling, but I wonder how quickly that will occur. I would like you to comment on that.
Your last point was about whether we have a purely reactive rather than proactive system of controlling marketing communications. Although the systems are complaints driven, both the Portman Group and the ASA, through its sister organisation—the Committee of Advertising Practice—operate advisory or pre-vetting services so that companies can get advice on their products and on promotions and advertisements before they are run.
Perhaps we can find out through another route about Drinkaware’s work on the education front in schools and so on.
I have a supplementary question on this issue.
Okay, but I must then allow Helen Eadie to ask her questions. She has been extremely patient.
My supplementary question is very short. David Poley talked about labelling highlighting the dangers of drinking during pregnancy and cited wine as an example of a drink for which that is not done. However, I understand that, in France, it is mandatory to advertise on all labels the fact that drinking while pregnant is harmful, so I am confused about why you mention wine being a problem, as most of the wine comes from France. Why would it be an issue, and why could we not get up to 100 per cent labelling?
In respect of the pregnancy message, the French legislation allows for the use of a logo, which is applicable globally, because there are no language barriers and so on. The difficulty with the rest of the information that the Department of Health wants to put on the label is that it is UK specific—it is the advice from the chief medical officers about the number of units per day that one can drink safely or at a low risk to oneself. Because a UK unit is different from a European unit and because the chief medical officers’ advice is not the same as the medical advice in other countries, that information is not applicable in other countries.
Okay. Fine. I just did not want to get my chief medical officers muddled. Do you want to move on to your next question, Rhoda? Oh, no—sorry. It is Helen Eadie.
That is okay, convener. I will have a word with you afterwards.
You know what they say: it takes a lang spuin to sup wi a Fifer—but not this morning.
I thank Helen Eadie for her question.
Now, now—naughty, naughty. I can see that a scone break is approaching. [Interruption.] Helen Eadie is all right—she is sconed up.
Is it inelastic?
As Mary Scanlon says, price elasticity is a factor.
I dispute none of the figures that Helen Eadie cited, because we have presented them to the Finance Committee and other parliamentary committees. I will explain our concerns, which go back to legality. A Scottish proposal for minimum pricing would have to be acceptable in Brussels and would be challengeable in the European Court of Justice, as a Scottish Government lawyer explained in a previous evidence session. If, perchance, the proposal were acceptable—I say that it is illegal and will not happen—we can see clearly from our experience abroad, and given how much we sell abroad, that countries that are trying to protect their markets from the penetration of Scotch whisky would use the precedent of a breach of the normal EU and international trade rules to apply forms of discrimination against Scotch whisky, which would mean that we would lose exports.
One of my concerns is that, if minimum pricing proceeds, money will go into the pockets not of the Exchequer but of commerce. However, I know from our briefing papers that producers might not benefit to the same extent as retailers would—in fact, producers might benefit much less. We will hear evidence later from the retail sector, but what are panel members’ comments on that? Our briefing papers show, for example, that a minimum price of 25p, with a discount ban, would result in a total of £72 million for the industry. At the other end of the scale—a 70p minimum price per unit, with a discount ban—the amount going into the pockets of commerce, rather than to the Exchequer, could be £288 million. I invite members of the panel to comment. Will you directly benefit or will the money go to the retail sector?
Various numbers are floating around. The issue will be about what regime is put in place, if one is put in place. Tennent’s lager will still have to compete with other mainstream lagers.
You were asked what the international consequences that you have trailed would be if the European Court of Justice ruled that it is competent for the Parliament to introduce minimum pricing. We will not agree about whether it is legal or illegal—we will start from the proposition that it is legal.
If Brussels and the ECJ accepted minimum pricing as legal—
We are moving beyond where we are now.
No, such a tax would be illegal. It would be challenged and challengeable in the WTO.
The Government has secret information, which it will not share, that minimum pricing is legal. As Ross Finnie said, you are absolutely sure that it is not legal. If the bill were passed with provision for a minimum price for alcohol, would the Scotch Whisky Association challenge the legislation at European level?
I have a brief question for Mike Lees. His company came out in support of minimum pricing; why? What is the rationale behind a company such as Tennent’s taking what appears to be a different position from that of other similar businesses in its sector?
Can I add a question about the particular price too? If the minimum price were to be 60p, 70p, 80p or 90p per unit, would the attitude of Tennent’s still be the same?
That is the way to do it. Hello, Mr Clark. You have been famous for not saying anything at all.
Mr Clark’s organisation says in its written submission:
I am representing the Society of Independent Brewers, which has 450 members throughout the United Kingdom, 27 of which are in Scotland. We represent the vast majority of small brewers in Scotland.
Nobody is suggesting that at the moment, but we do not know what will happen in future.
Yes.
The concept of a social responsibility levy was first raised in the Scottish Parliament back in 2005 during the deliberations on the Licensing (Scotland) Bill. Parliament initially included it in that bill but then removed it, I think at stage 3, hence the words from the minister, as he now is.
If somebody is charged with and convicted of a contravention of the Licensing (Scotland) Act 2005, it is reasonable to expect them to pay some form of levy. However, to apply a levy throughout the trade would simply be unfair on responsible operators.
I echo Mr Waterson’s comments. A general or blanket levy would be seen as unfair and unreasonable. Although we are opposed to a social responsibility levy generally, if any such levy were implemented, it might be acceptable if it were fault based and levied against those who transgressed the law.
That is a fair point.
My question is essentially directed to Mr Drummond, but I welcome comments from other panel members.
We certainly did not intend such an inference to be drawn from our submission. We understand totally why the Government wants to introduce a minimum retail price and other measures to control the consumption of alcohol. We share the view that some people misuse alcohol and that there is a problem.
The sale of alcohol cannot be treated in the same way as the sale of other product groups because, for a start, it requires a licence. Alcohol is a licensed product, so we are well aware that alcohol is different. However, in terms of the mechanics of trading, a free-market situation should generally apply.
As a consumer organisation, our normal position is that markets that work well result in competition, fair prices and so on. It might seem surprising, therefore, that we believe that it is sometimes justifiable to intervene in the market, but that is the position that we have taken in this case. We have done so because of the scale of the evidence of the social costs of alcohol and its effects on individuals and communities. The scale of the harm that is caused by alcohol appears to be directly related to the fact that the price of alcohol has fallen significantly in real terms.
Perversely, that is an argument in favour of minimum pricing being used to set a floor.
That was a general comment. In the specific case of alcohol, we would welcome some pricing mechanism to control the floor price.
Your written submission raises concerns around minimum pricing. What modelling have you done to evaluate the impact that your definition of cost price would have on the free market?
I, too, am finding it difficult to follow the thread of your argument. I would be grateful if you could help me. Speaking purely about minimum pricing, in paragraph 5 of your written submission you say that the measures in the bill would have a damaging effect on small retailers in particular. However, in paragraph 6, in speaking about the advantages, you say:
They are indeed our members. Mr Williams is an active member and I am well aware of his opinions and views. However, as I said earlier, I am trying to reflect all our members’ views. Although some are in favour of minimum pricing, the majority are against the principle of Government intervention in that aspect of trading, which I must reflect. I have detected that our members would be willing to accept some kind of price mechanism in order to prevent the difference and disparity that exists between the activities of supermarkets and the activities of the businesses that members of the federation run.
In the absence of minimum pricing, that would be the case, but I am arguing for some other kind of price mechanism to help to control that.
You think that another price mechanism would protect the small shopkeeper from such depredations.
There might well be such a mechanism, along the lines that I described in relation to determining a floor price. I am sorry if that sounds contradictory. Perhaps we need further discussions.
I appreciate that you represent a spectrum of opinion and that you are trying to summarise it, which perhaps puts you in a difficult position in some respects.
I will forgo that.
I meant that the city or town is not being named and shamed, because what you experienced probably happens in lots of places.
Absolutely—but they are not always in that state when they arrive in the place. They might have one or two drinks and then they are drunk. We work with the authorities to stop that, but it is a difficult situation. People coming out late, having drunk at home beforehand, is a relatively new phenomenon, and it makes our job difficult. Nobody is saying that the situation is perfect.
If your members implemented the law as it should be implemented, those people who pre-load at home would stop doing it because they would be refused entry into the nightclubs and pubs for being drunk. Even if they come in, appearing to be sober, to buy one drink, you cannot say, “Well, they obviously got drunk on someone else’s premises, so we are entitled to sell them as much as would get them drunk.” If the law was implemented and policed properly, surely it would put a stop to people pre-loading, if they wanted to socialise. It would also encourage more people to go into pubs and clubs at night, which many are put off doing at the moment.
I want to move on from enforcement, although I must admit that I put my toe in that water, too. We are really talking about whether people are pre-loading.
It would be better if there were enough police to sit and watch what the pubs are doing, but there are not enough, to be frank. They are out on the street, trying to corral people who are very drunk and falling about, and to get them into taxis and home so that they do not do themselves damage.
The chief constable of Strathclyde Police is on record as saying that he wants more people to drink in pubs because he believes that pubs are a better-controlled environment. Are you seriously saying that, if we pay doormen to prevent people who are drunk from coming into our pubs and those people wander into a place three doors up, both places should pay a social responsibility fee? That would be totally unfair.
I think that what we are saying is that, if the specific premises could be identified, the social responsibility levy could be imposed on them. Do you agree that that would be appropriate? Your good members would not have the fee levied on them, and it would discourage the others who were not so good.
Although my question is directed at the Scottish Grocers Federation, it also applies to pubs throughout Scotland. If I can move things up to the Highlands and Islands—
Okay. Could I address your comments, please?
We are equally concerned. It is still not clear what is meant by advertising and promotional material, despite the fact that we have asked Government officials to specify that. We must live with that, but it is unsatisfactory at this stage of proceedings.
I understand.
At the moment, rural public houses are in a difficult situation. Many villages have lost their shops, are losing their post offices and will now lose their pubs. In Britain, 53 pubs close each week; in Scotland, the figure is probably two or three. There are a number of factors, but there is no doubt that the biggest is price. The costs that are associated with running pubs are high, but prices are going down. You do not have to be Einstein to work out what happens in such situations, when pubs are trying to compete. If we want to hold on to the community centres that pubs often are, we need to attack the problem of loss leading and alcohol being sold cheaply.
In its submission, Consumer Focus Scotland mentions three times that there is evidence that introducing a minimum price would have an effect on binge drinkers. Given that the Sheffield study did not look at the effect of minimum prices on ages, income groups or binge drinkers, do you have evidence that may be helpful to the committee in that respect? I have not seen any.
That is the case even though you have predicted that minimum pricing would have an impact on binge drinkers.
Can you help me to understand the issue further, in terms of pounds and pence? You have said that alcohol is sold as a loss-leader at present. If a system of duty plus VAT was introduced, and the retailers added 1p, as you suggested they would, what would be the cost of a bottle of something that is presently a loss-leader? What difference would it make to the amount that a person would pay for that product?
I would have to get you the figures for a system of duty plus VAT. It would not work in principle, because retailers would simply add a penny so that they could still use alcohol as the carrot to get people in. That is the problem, and it is irresponsible behaviour: the retailers are effectively saying, “There is a serious problem with the way we drink in Scotland, so let’s exploit it.” It is now exploited to the extent that it is out of control through pricing in that way, which is difficult for us as responsible operators to take in.
That is helpful. I turn to the section of the SLTA’s submission that sets out some of your concerns about a social responsibility fee, to which you have already referred this morning.
Almost uniquely, pubs and other on-trade premises are rated on turnover—it is unusual and is based on historic practices. Our rateable values—I will try to simplify the matter a wee bit—are usually about 8 or 9 per cent of our total turnover, whereas other types of shops are rated on square footage and rental evidence, which means that very often, from what I can gather, supermarkets’ rateable values are around 1 or 2 per cent of their turnover. Supermarkets should be rated in the same way as we are—on their alcohol sales only. That would bring in tens of millions of pounds for the Government coffers to offset policing costs and a lot of other things, which would be especially beneficial at present.
That is news to me—it is extremely interesting.
Thank you. That is helpful.
Can I come in on that?
You are next anyway, so you can come in on that point and go on to your next question.
Just for clarification, are the rates for the on-trade calculated on the volume of alcohol sold or the amount of money that goes through the pub? What are they based on?
It is the turnover of the pub.
The financial turnover?
The total turnover.
That is interesting. There would, of course, still be a differential with supermarkets, because their selling price is a lot cheaper, but their volume is a lot higher.
Sorry, I say volume, but I mean the turnover of alcohol, so it would be the supermarket’s turnover in alcohol sales through the tills. That is what its rateable value should be based on.
Yes.
If we say that, it is not exactly what we mean. We mean that if the minimum price is set at 50p when it comes into force at some point in the next few months, we do not want it to be £1.50 at some point in the next year or so.
I think that the majority of the public health specialists said that the price should be 60p per unit.
Paul Smith has made clear his position. Time presses. Helen Eadie will ask the last question to this panel of witnesses and then we will have a little break.
The danger of proposing a measure as controversial as minimum pricing is that a range of issues that are equally important do not get the focus that they should get. In that context, I turn again to Patrick Browne’s paper, which discusses the variation of conditions for premises licences under section 9. My concern is that a proposal has been put before us about which the paper says:
The point is well made. The point about the right to appeal is a good marker to put down with regard to whether the measure is compliant with the European convention on human rights. There should be a right to a fair hearing if there is a variation. You are saying that variations could be made unilaterally.
My understanding of the provision is that it would allow a board to impose a blanket change of conditions throughout all premises in its area without having to hold a hearing. The board would meet and choose to add certain conditions to everybody’s licence, and it would proceed on that basis using that provision—if the bill is passed.
That is an interesting point to put to the Government.
I declare an interest: my husband is a member of a licensing board.
In general, I do not see who benefits from blanket conditions. Issues with individual premises need to be dealt with individually. Having blanket conditions would mean that a whole lot of premises that are doing a perfectly good job would be loaded with unnecessary burdens that really should not be placed on them. Individual problems should be dealt with individually.
The witnesses on our final panel represent the major retail sector. I welcome David Paterson, who is the Scottish affairs manager at Asda Group; Tony McElroy, who is the corporate affairs manager at Tesco; Richard Taylor, who is the director of corporate affairs at Wm Morrison Supermarkets; Nick Grant, who is the head of legal services at Sainsbury’s; and John McNeill, who is the Co-operative Group’s regional chief officer for Scotland, Northern Ireland and the Isle of Man. I declare an interest: I have shopped in all your shops.
I will make one minor comment in parentheses. In general, written submissions help committee members to discern witnesses’ positions, which helps to concentrate questions. I am therefore bound to say that I am a little disappointed that Tesco, which is a major contributor to the debate because of its major position in Scotland, did not make a submission in response to the initial call for evidence or to the invitation to give evidence this morning. Perhaps that is a company policy, but it is not overly helpful. Tesco’s representative might respond to that after I have asked my questions.
You are suggesting that there is no difference in quality so the proposal is discriminatory against low-price products.
Clearly, there are differences in quality between products, but if you intervene in the market in such a way, there is a danger that prices will become set at fixed points. If minimum unit pricing is introduced, there is a danger that the price of a product will coalesce around the minimum price for that product—say £4 for a bottle of wine, or whatever it might be for spirits. We might see a drive towards price ranges that coalesce around those price points rather than competition based on different brands and brand quality.
I disagree with the view that alcohol is treated as a different product. Yes, its sale is licensed, and when we do promotions we often limit the volumes, but we promote and sell it on the basis of a range of issues including price, quality and availability. It is because of those factors that people choose to shop with retailers such as those that are represented here today.
As a community retailer with nearly 400 stores throughout Scotland, the Co-operative is sensitive to the need to tackle harmful and hazardous drinking. Our issue with the population approach is the disproportionate impact on some communities, particularly those on lower incomes. Throughout our estate of stores, we are finding that white van man is picking up part of the market in cigarettes. Our fear is that that will spread to alcohol and, in effect, people will be forced to make a choice about where they get their alcohol from. The assumption is that families who have a set budget will reduce the amount that they spend on alcohol but, alternatively, the result might be a reduction in the amount that is spent on fresh food. We are concerned about the impact on various socioeconomic groups in some communities. That is part of our issue with a whole-population approach.
I do not think that we would see it as untouchable.
You say that you are against the whole-population approach, but that you are not saying, “Don’t touch price”. However, I have not seen in any of the witnesses’ submissions any proposal for a more sophisticated way of touching price. That leads me to infer, perhaps unfairly, that your message to the committee is, “Don’t touch price.”
Various submissions refer to the duty mechanism as a flexible way in which to target certain types of product that are known to be more difficult and to address certain anomalies in the duty system. The committee probed evidence from cider manufacturers on why cider has allegedly become the drink of choice for certain target groups of problem drinkers. One could make a reasonable case that the political and slightly ad hoc nature of the way in which duty is raised each year has led to a system that is slightly incoherent in its social policy outcomes. We agree that something could be done on that.
I do not think that our views are unknown.
Nevertheless, it is nice to get a written submission. That is our point.
A previous witness, Gavin Hewitt, said that setting a floor price using duty and VAT was perfectly transparent, which I accept. However, the resulting price would be significantly lower than the current lower price and materially lower than any price that might be achieved by a minimum unit price. What that would do in a public health context is beyond me.
At current levels of duty the price would be lower, but the budget is in two weeks’ time and most of us around the table would be surprised if we did not see fairly significant increases in alcohol duty now and in the future. There has been a duty escalator for some time. There is an argument for looking at how duty on alcohol is calculated and the differential between products. The UK Government can look into that. Setting a floor price through duty and VAT would set up a difference in the price architecture—some prices at the bottom would be raised. It is likely that you would then see a change in price architecture throughout the range. That is different to minimum pricing, where you are likely to see the bottom tier come out of the market altogether.
Of course, that perfectly correct statement presumes that each and every one of you will not absorb the tax but will add it to the price. Otherwise, the differential would not appear. However, I do not think that we will discuss that at length.
As soon as a price differential was created, people started driving.
Convener, may I speed things up by adding my similar question to Ian McKee’s first question?
Yes.
That was my point—that people who are coming to buy alcohol cheaply are also buying groceries.
Yes, they come and do their wider shop as well. The alcohol in those stores in Northern Ireland has a higher participation of overall sales by about 4 to 5 per cent than in the rest of our stores in the UK. The alcohol is a clear driver and one of the things that people purchase; equally, other items are also cheaper, and they buy them too.
With respect, Mr McKee, we sell 30,000 lines in a supermarket. People come for offers on nappies, health and beauty, flowers and Easter eggs. It is possible in discrete policy areas to become somewhat, shall we say, overfocused on one product. I understand completely why we are focused on this one product, because it has unique quantities and qualities, but a supermarket is a very broad mission, with thousands of lines—I gave the figure of 30,000, but it is probably sometimes more and sometimes less.
I wanted to pick up on Dr Simpson’s point about sales data. One important starting point is that we are the off-trade and there is a separation between the point of purchase and the point of consumption. We could provide sales data—we do not have a loyalty card at Morrison’s, so the information might be lumpier than that from some of my competitors—but those data will not necessarily give you the information on consumption that you might expect. For example, we surveyed 1,000 of our customers in preparing our response to the Government’s original consultation. About 90 per cent of people who bought products on promotion were stocking up for a period of time and 70 per cent were buying for social occasions. It is not always clear, therefore, whether the person who buys the alcohol is the person who will drink it.
The Nielsen Company does that.
As usual, I am obliged to my colleagues for telling me what I ought to know.
As members who visited Helsinki will know, the stores there, which have almost a monopoly on selling alcohol, had educational notices everywhere about consumption and so on. Can we move on?
Yes.
That was remiss of me. I ask members to focus their minds on getting finished before 2 o’clock.
My final supplementary will be very brief. Mr Grant said—and I presume that others will concur—that alcohol is not a loss-leader and that people come into your stores because of the vast variety of things that you offer. We have previously heard evidence—it caused members some consternation—that minimum unit pricing could put up to £120 million into supermarkets’ pockets without a penny going to public health education or other initiatives. If I were asking this question as a shareholder rather than a committee member, I might be incensed by your seeming to turn your backs on £120 million, which would, after all, mean a bigger dividend, increased profits and other good things. Why are you turning your back on this bonanza if you are not using alcohol as a loss-leader for all the other goods that you sell?
We take a lot of interest in what our customers think about this and its impact on them. You are right; if we look at minimum pricing in purely commercial and market share terms you might expect us to be in favour of it. However, as I said before, we are against it because we do not think that it is proportionate and we question whether the results with regard to reduction in consumption will be achieved.
There are too many unknowns for us to comment. Our businesses analyse these things logically and given the number of question marks surrounding the issue I do not think that we will be able to address it fully until we know what the minimum price will be. We have said to Government that we will have this conversation if there is a safe place competition-wise, but until we reach that point I do not think that we can have a meaningful dialogue about these numbers.
I mean that it would be as good as having Asda.
You are saying that there is no evidence base for predicting a correlation between a promotions ban and a reduction in the volume sold.
The truth about promotions is that they mainly function to attract people to different products and brands. The promotions often exist at the request of the manufacturer or supplier. We would typically be asked by some of the suppliers who have given evidence to you today to run promotions in order to encourage customers to try something different. However, from our position, that is not directly about a net sales increase or consumption increase; it is about switching people between things. From the supplier’s and our point of view, promotions encourage our customers to believe in us, in the sense that we have different things to offer them that are all good quality and in the mix, and so on. It is therefore not about driving sales; from the supplier’s point of view, it is often about trying something different.
Excuse me, but do the suppliers pay for their promotional spots?
I know that you cannot tell me.
That is helpful.
The Clubcard has been mentioned, although I think that Nectar points or dividends would be affected, too. The Clubcard is a way of saying thank you to customers—it is nothing else. We operate in an extremely competitive market—indeed, it is probably the most competitive market in the UK—and loyalty is a crucial element in our operations. The Clubcard is one tool that we use to say thanks to customers for their loyalty. There could be an opt-out on alcohol, but it is important to be clear that there is nothing more to the Clubcard than a way of saying thanks. It is a way of building customer loyalty in an extremely competitive market.
Do you mean in respect of customer offers?
I am not a marketing professional but I imagine that such people would spend time thinking about how to maintain market share. As I said, we would never seek to evade or go round the law, but companies think about how to protect and advance their market share. That is in a commercial organisation’s DNA; it is what we do.
I am sorry, I know that it has been a long morning, but what was your question?
I would like to hear about the St Neots project, because it tackles underage drinking.
Who can talk about that?
I confirm that we do not have it.
Yes, there are quite a few.
I have been involved in the Rosyth project, where we are starting to build up some great momentum. Tesco and the Co-op, which happen to be the two multinational traders in the town, are sitting down with all the key stakeholders—the police, trading standards, housing associations, the community council and so on—to have an honest conversation about local alcohol problems and where the focus of our effort and energies should be.
The UK Government estimates that duty fraud is worth about £1 billion a year, but that may prove to be conservative. There is a concern that, if that is the situation under the current regime and the price differential is increased, many customers in poorer neighbourhoods will be served by white van man, who will be able to mask illegal product much more easily by saying that it is bona fide English alcohol that was bought in Carlisle.
A lot of people have spoken about price and availability affecting consumption. We have heard a lot of evidence about price, and we took some evidence on availability on our visit to Finland. The only Scottish example that has recently come into play has been the change to the licensing laws under which alcohol is now not available to buy in supermarkets until later in the day. Has that impacted on people’s shopping patterns?
I have not seen that report. We have said to Government that we will have a discussion—
We have said to Government that we are willing to have a discussion with it about what a minimum price policy could look like, as long as—
I do not want us to have a Jeremy Paxman moment.
Pricing plainly plays a part in the entire economy of alcohol, so it cannot be excluded from our thinking.
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