September 1, 2014

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Price Fixing in the UK Booze Market -- the Government's Solution to Binge Drinking

On 28 November 2012 the UK’s Home Office launched a consultation regarding proposals to deliver the Government’s policies aimed at cutting alcohol fuelled crime and anti-social behaviour. Rather than focus on the irresponsible drinkers, however, the proposals are firmly targeted at how, when, and for what price alcohol can, and should be, sold.

In particular, the consultation seeks views on the following proposals:

  • a ban on multi-buy promotions (e.g. buy-one-get-one-free) in shops and off-licences;
  • a review of the mandatory licensing conditions, to ensure that they are sufficiently targeting problems such as irresponsible promotions in pubs and clubs;
  • health as a new alcohol licensing objective for cumulative impacts so that licensing authorities can consider alcohol-related health harms when managing the problems relating to the number of premises in their area;
  • cutting red tape for responsible businesses to reduce the burden of regulation while maintaining the integrity of the licensing system; and
  • minimum unit pricing, with a recommended minimum price of 45 pence per alcoholic unit.

The logic behind the wider alcohol strategy is that irresponsible drinkers cause harm, and expense, to society through alcohol related crime and disorder and the “clogging up” of accident and emergency rooms. The Home Office considers that responsible drinkers should no longer bear the societal cost of the binge drinking minority, and it believes that the proposals in the consultation will achieve that aim. It suggests, for instance, that banning multi-buy promotions will reduce excessive alcohol consumption, whilst the minimum price which will ensure “for the first time that alcohol can only be sold at a sensible and appropriate price”.

These proposals, however, sit uncomfortably with the concepts of a free and competitive single European market. The fundamental basis of competition law logic is that protecting a free competitive market will result in greater choice and lower prices for consumers. The recommendation of a minimum price, and restrictions on discounting, run directly counter to that logic.

Indeed, were the supermarkets to decide, as a collective, that in the interests of public health they would self-impose the minimum price and multi-buy ban, they would be seen as acting in cartel-like manner, and the arrangements would be illegal, void and unenforceable under UK and/or EU competition law. The participants would be subject to administrative fines, and consumers that were forced to pay more as a result would be able to bring damages actions.

The Government, however, hopes to legitimise the price floor by enacting primary legislation to make the new requirements obligatory on all off-trade outlets – compliance with statutory requirements being a defence to otherwise anti-competitive conduct. Nevertheless, it will have the same effect on the market. There will be a lowest price preventing outlets from freely competing on price, and the restrictions on discounting will further increase the overall price that consumers will  have to pay. Not only will this directly impact the prices customers pay, it may also change purchasing habits more generally and impact, therefore, on the type and range of products that shops will stock, as well as the overall volume of sales. These proposals, therefore, may affect players at multiple levels of the value chain, both nationally and internationally, and particularly those that specialise in the production and importation of low cost alcohol products. The Government acknowledges all these risks, and the potential impacts on the industry, yet believes that they are justifiable in light of the broader aims.

Thought should be given, however, as to whether the public policy reasons cited in favour of the new laws are genuinely addressed by the proposals, and whether the restrictions are proportionate in light of the benefits to be gained when matched against the negative effects. For instance, does the consumer benefit in terms of reduced alcohol crime and illness really outweigh the cost for the average purchaser who will no longer be able to take advantage of supermarket price competition. Indeed, are off-trade sales really to blame for binge drinking, or do nightclub or pub multi-buy promotions, which will still be permitted, really contribute more to the problems that the Government is seeking to address?

Competition law, however, only catches the acts, or omissions, of economic entities – it does not provide a route to control the acts of Governments in creating new legislation such as this (or at least not as a general rule). The Government can not, however, act completely independently of EU law, particularly in relation to the fundamental freedoms embodied in the Treaty which address freedom of movement of goods, amongst other things.

The Impact Assessments published alongside the consultation note that the Government is in discussions with the European Commission, and that it will consider any implications for EU and international competition. It has not, however, made any comment as to whether the proposals are, indeed, compatible with applicable EU laws.

Attempts to pursue similar legislation in Scotland (based on a 50 pence minimum price per unit) have already been challenged at a European level, with the European Commission issuing a formal opinion. That has been followed by challenges lodged by Spain, Italy, Portugal, France and Bulgaria, based on concerns about imports into Scotland. As a result, the Commission’s complaints process has been extended until the end of 2012. In addition, the Scottish Whiskey Association (“SWA”) has launched a judicial review action.

Those complaints have been based, in part, on Article 34 TFEU which relates to imports and prohibits “quantitative restrictions and all measures having equivalent effect between Member States”. The SWA’s action goes on to state that the minimum pricing of alcohol would artificially distort trade in the alcoholic drinks market. It is likely that the Scottish Government will rely on a “protection of health” defence under Article 36 TFEU.

The way in which the case has evolved in Scotland should provide an indication of the likely response to the equivalent suggestions in the latest proposal. The consultation runs until 6 February 2013, giving adequate opportunity for interested parties to have a say.

©2014 Greenberg Traurig, LLP. All rights reserved.

TRENDING LEGAL ANALYSIS


About this Author

Associate

Lisa Navarro advises on the application of UK and EU competition law in various sectors including water, music publishing, hospitality, shipping, healthcare and chemicals, both in relation to behavioural issues and merger control. Lisa also advises on UK and EU regulatory matters and in relation to public procurement, state aid, regulated utilities and the UK’s regime for access to information.

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