There are a great many reasons for why alcohol tax rates vary so much across different European countries, and between product types within-country. This includes: historically varying levels of the production of different types of alcohol, protection of particular industries (e.g. wine industry in France), national income, political considerations, the reliance of governments on duty revenue, and public and political understanding of alcohol harm (Angus, 2019).
In addition, a lot of factors are continuously affecting levels of harm and alcohol affordability (e.g. the wider economy, social conditions, other health-related behaviours). This means it is very difficult to understand the relationship between alcohol prices and harm by simple comparisons between countries.
Yet one of the arguments made by the alcohol industry regarding alcohol duties is that raising taxes on alcohol cannot be very effective because many of the European countries that have high rates of alcohol tax also have high rates of harm from alcohol. They also argue that countries with low alcohol taxes often have low rates of harm.
However, there are clear reasons why this apparent contradiction exists.
Point 1: Countries with high alcohol taxes have often implemented these exactly because of high rates of harm from alcohol.
There is overwhelming economic and epidemiological evidence that shows raising alcohol duties leads to a reduction in consumption and harm [see Point 4]. Because of this, many countries that were experiencing high rates of alcohol-related death and other harms have raised tax rates to help tackle that harm.
Lithuania is the most recent example. In March 2017, the country increased its previously very low tax rates by more than double, to tackle increasing rates of consumption and harm. The increase brought it in line with average taxation rates across the European Union. It was estimated that the taxation change avoided 1,452 deaths in the year following implementation of the policy (Štelemėkas, 2021).
Countries with comparatively high alcohol taxes across Europe include Finland, Sweden, and the UK.
As the World Health Organization states:
Nordic countries have a long history of alcohol consumption, complex challenges with heavy episodic drinking practices, and a reputation of implementing some of the strongest regulations to reduce alcohol-related harms.
In Finland for instance, in 2007, average consumption was at an all-time high of 12.7 litres of pure alcohol per capita. This is partly due to alcohol taxes being lowered by 44% in 2004. By 2019, average consumption had fallen by 21%, partly due to several incremental increases in alcohol taxes (Tigerstedt, 2020).
The UK has high alcohol duty rates partly due to historically high levels of heavy episodic drinking and high rates of harm. However, for many years, cider duty has been set at a much lower rate than beer of the same strength. As Colin Angus et al. have stated: “This disparity is likely to be a key reason why cider consumption is particularly high among heavy and dependent drinkers in the United Kingdom.” Australia has a similar problem, with heavy and dependent drinkers consuming cask wine which is subject to lower taxes (Megan Cook, 2022).
Point 2: Some countries with low alcohol taxes also have very high rates of harm.
There is a tendency to believe that many central European countries have low rates of alcohol harm, despite low alcohol duty rates. However, this isn’t the case in some countries.
France, for instance, has low rates of duty, and 41,000 people each year die from alcohol-related causes, 7% of all deaths (Le Figaro, 2019).
In Germany – where alcohol duty is very low, particularly for wine and beer – 74,000 people die from alcohol-related causes each year (German Central Office for Addiction Issues, 2019).
Italy and Spain both have comparatively low rates of alcohol duty and also have low rates of alcohol harm. This points to very different historical drinking cultures in both countries compared to the drinking cultures of the UK, Germany, and some Nordic countries.
One study suggests that:
Results of qualitative cross-cultural studies comparing Italy to Nordic countries (i.e., Finland, Sweden) suggest that Italy is a paradigmatic example of the non-intoxication oriented drinking culture: socialization into alcohol often occurs early in life and in the family setting, alcohol use is relatively integrated into everyday life (e.g., to enhance enjoyment of food), and there is a negative stigma of drunkenness.
The UK does not have this culture, and attempts to create one – such as with the Licensing Act 2003 aiming to create a ‘café culture’ around drinking – have failed so far.
Point 3: In the UK, alcohol has become relatively cheaper compared to many other countries, contributing to increases in harm.
Another important consideration is the relative affordability of alcohol in different countries. The changing affordability of alcohol is directly linked to increases or decreases in consumption rates and harm. The UK is a comparatively rich country, even in European terms. Therefore, in order to control alcohol consumption and avoid increases in harm, the UK should have comparatively higher duty rates.
In addition, alcohol has become much more affordable in real terms in the UK over the past few decades. In 2020, it was 72% more affordable than in 1987 (NHS Digital, 2022). This noticeable and significant increase in affordability will have driven changes in consumption, whereas in countries where alcohol has always been more affordable there won’t be that driver of change.
Point 4: There is overwhelming evidence across multiple countries that increasing alcohol taxes leads to a reduction in consumption and subsequent harm.
Few can explain this better than the book Alcohol: No Ordinary Commodity, Chapter 7, so here is it:
The effect of price changes on alcohol consumption has been extensively investigated. Since 2006, eight meta-analyses have systematically summarized the results of relevant econometric studies. The reviews mainly covered studies from HICs, and only one review specifically examined studies from LMICs. All eight reviews consistently reported that a price increase leads to a decrease in consumption, and when prices go down, consumption goes up. Overall, total alcohol has an average short-run price elasticity of approximately −0.5, with −0.4 for beer and −0.7 for both wine and spirits. Price elasticity tends to be lower for the alcoholic beverage used most in a country. The lower value for beer probably reflects the fact that the majority of studies of alcohol price elasticity are from beer-drinking countries.
Short-run estimates are typically more inelastic than long-run estimates meaning that consumers reduce their drinking more in the longer than in the shorter term after a tax increase. [This is why it is so important to consistently increase alcohol duty in line with inflation or by slightly more.]
The effects of price changes for young people are reflected in harm rates. Price increases lead to reduced rates of suicide, traffic injuries, and sexually transmitted diseases among young people.
Adult drinkers are also responsive to changes in alcohol prices, and thus a price increase leads to reduced consumption among heavy drinkers and a reduction in heavy episodic drinking. This is demonstrated in numerous studies.
The industry argument that points to differences in alcohol tax rates across Europe and claims that this shows increasing prices doesn’t reduce harm is simplistic and aims to confuse and misinform its audience. Making alcohol less cheap is the most effective and cost-effective way of reducing alcohol harm across a country.
Written by Jem Roberts, Communications Manager, Institute of Alcohol Studies, and Professor John Holmes, Director of the Sheffield Alcohol Research Group, University of Sheffield.
All IAS Blogposts are published with the permission of the author. The views expressed are solely the author’s own and do not necessarily represent the views of the Institute of Alcohol Studies.