Economy

• A 2024 estimate of the cost of alcohol in England by IAS came to £27.44 billion. This used the same method as a Cabinet Office calculation from 2003.
• However, this only represents the ‘external’ cost of alcohol to society – the costs imposed by drinkers upon others – and excludes any private costs.
• Another widely cited range is between £27 and £52 billion. This comes from a study that collated estimates from different countries and found a range between 1.4-2.7% of national income, which Public Health England then applied to UK national income in 2016. Using national income in 2023, this range would be between £37 and £72 billion.

• Examples of private costs are: spending on alcohol, loss of quality of life, lawyers’ fees, and private medical expenditure.
• Examples of external costs of alcohol are: treating health problems, violence and crime suffered as a result of drinking, and economic loss due to premature deaths.
• External costs are important because they are imposed upon third parties without their consent. They are not reflected in the market price.
• There is general agreement that ‘externalities’ such as this justify government intervention, with standard economic theory suggesting alcohol taxes (and thus the consumer) should cover the full price of the social cost of drinking.

• Tangible costs are those that involve the loss of resources that could otherwise be used for spending or investment. These are commonly assigned financial value, and so are easier to estimate. For example, health care and criminal justice costs represent sums of money that would not otherwise have to be paid by the government.
• Intangible costs, such as the fear of crime or the loss of quality of life, by contrast, would not yield resources if eliminated, and are therefore inherently more difficult to value.

• Productivity is lost in a number of ways:
  • Presenteeism: Though quantifying its prevalence and magnitude is tricky, evidence suggests that alcohol consumption reduces people’s productivity at work.
  • Absenteeism: Studies have found that high levels of drinking, particularly in men, is linked to higher rates of absence from work.
  • Unemployment: Studies have found that heavy drinking is associated with a higher risk of unemployment.
  • Premature Death: Alcohol-related deaths reduce the size of the labour force. It has been estimated that 167,000 years of working life were lost in England in 2015 due to alcohol, 16% of all working years lost. (PHE, 2016)

• Every year, workplace hangovers are estimated to cost the UK economy between £1.2 and £1.4 billion. (IAS, 2019)

Copy of How much do workplace hangovers cost the UK economy? by The Institute of Alcohol Studies

• The best estimate suggests £14.9 – £15.9 billion is lost in government revenue each year due to alcohol harm in England and Wales alone, consisting of:
  • Direct costs to the health services – £4.9 billion
  • Costs to the criminal justice system – £4.5 billion
  • Social care costs – £2.9 billion
  • A shrinking tax base due to a less productive workforce – £2.6 – 3.6 billion (IAS, 2017 and 2024 cost analysis)
• Approximately £12.5 billion is raised via alcohol excise duty each year. This increases to around £15 billion raised after VAT is levied.
• One of the purposes of excise duties is to discourage the consumption of goods that are deemed harmful to consumers’ health or the environment. So, tobacco products, gambling activities, and certain fuels, have duties imposed on them.

• The alcohol industry is a small but not insignificant part of the UK economy, contributing around £46 billion a year to national income, around 2.5% of total GDP. (IAS, 2017)
• This is split between production (e.g. brewers, distillers) and retail (e.g. pubs, bars, and supermarkets). Excluding £2.6 billion in gross capital formation, this includes:
  • £17.5 billion from tax
  • £3.0 billion from off-trade retailers
  • £8.3 billion from on-trade retailers
  • £1.6 billion from distributors and wholesalers
  • £6.1 billion from exports
  • £7.0 billion from domestic producers
• The most significant production is beer for the domestic market and spirits for export.

• The alcohol industry is responsible for around 770,000 jobs, approximately 2.5% of UK employment. (IAS, 2017)
• The vast majority of these are in pubs, clubs, and bars, around 506,000. These are typically part-time and poorly paid.
• By contrast, alcohol producers provide far fewer jobs (around 30,000) but have much higher wages. This is because it is more efficient to produce alcohol than to sell it, due to mechanisation of breweries and distilleries.
• Employment in pubs has remained very stable in recent years, despite many establishments closing. This suggests larger pubs have gained share at the expense of smaller ones.

Employees – public houses and bars, 2001 to 2021 by The Institute of Alcohol Studies

• Reducing alcohol harm requires the reduction of consumption. This has caused alarm among the industry and some politicians; however, it is likely that lower alcohol consumption would boost national income.
• Firstly, lower consumption may occur alongside the purchasing of more expensive drinks – what the industry refers to as ‘premiumisation’ – which could mean spending does not decline.
• Yet even if spending on alcohol declines, spending on other goods is likely to rise to compensate and so boost other industries.
• In the ‘long run’ (when productive capacity is the main constraint on the economy) lower alcohol consumption is likely to have a positive effect by boosting productivity and labour supply, by reducing absenteeism, presenteeism, unemployment, and premature mortality.
• In the ‘short run’ (when a shortage of demand is the main constraint on the economy), the effect is more uncertain and depends critically on what products are purchased instead of alcohol.
• The Office for Budget Responsibility’s analysis suggests that the long run effects are more relevant to the UK economy at the present time.

• Evidence suggests that average alcohol consumption falls slightly during economic crises.
• Crucially however, such crises often see a polarisation of drinking patterns, with certain groups consuming less and others more.
• During the recession of 2008/9 in England, there was a small but statistically significant decrease in frequent drinking (defined as drinking on four or more days in the past week), from 27.1% in 2006 to 23.9% in 2009. (EJPH, 2013)
• Yet there was a rise in heavy episodic drinking among unemployed drinkers.
• During the start of the first COVID-19 lockdown in the UK, although 26% of adults reported consuming less alcohol, the same percentage reported drinking more than usual over the past week. (Drug and Alcohol Dependence, 2021)
• During economic crises, governments may reduce expenditure on public services, which in turn can affect health outcomes.