“Price changes culture” Sir Ian Gilmore yesterday told the Select Committee on Health, as he gave evidence in its inquiry into the Government’s alcohol strategy. His implication – that alcohol is too cheap, and ought to be more expensive – is widely shared among public health specialists, and by the Prime Minister, who favours a minimum price.

The implicit assumption is that alcohol is relatively cheaper than it was ten or twenty years ago, and the instrument used to demonstrate this is the “affordability of alcohol index” published by the NHS Information Centre (table 2.8 in Statistics on Alcohol, England 2011).

The index is also referred to in John Appleby’s Data Briefing on alcohol statistics, just published online by the BMJ. He rightly cites the NHS IC’s table to show that alcohol is now more affordable than it was 30 years ago. But so is everything else, with the possible exception of houses in London’s classier postcodes. That is the whole point of economic growth: it makes things more affordable. If it didn’t, there would be little point in pursuing it.

It would be interesting to compare the affordability of alcohol with that of, say, cars, white goods, or electronics – or even chips. But affordability indices for such products calculated on the same basis as the alcohol index are hard to track down. Suffice it to say that in 1922 a factory worker in the UK would have had to work for 54 weeks at the then prevailing weekly wage to buy an Austin 7, priced at £152. Today he’d have to work for only 27 weeks to buy a Ford Fiesta, an infinitely better vehicle.

As the NHS IC’s table makes clear, the price of alcohol has risen more swiftly than the retail price index since 1980. Setting both at 100 in 1980, the retail price index in 2010 was 334.5, while the alcohol price index was 411.2;  so over this period alcohol prices have risen nearly 23 per cent faster than retail prices as a whole.

However, disposable income has also risen during the period, and at a more rapid rate, so that despite its increasing cost, alcohol has become more affordable. In 2011, for the first time, the NHS IC introduced a change in methods that significantly reduced the increase in affordability since 1980.

Astonishing as it may seem, prior to this year it had been calculating on the basis of gross disposable income, not gross disposable income per capita. As Rachel Seabrook of the Institute of Alcohol Studies pointed out (1), it was not calculating how much alcohol the average individual could afford, but how much the entire country could afford: so as population increased, so did affordability. That’s nonsense, in anybody’s book. How this measure ever became established is a mystery.

Responding (I assume) to Dr Seabrook’s 2010 paper in Alcohol and Alcoholism, the NHS IC has changed its method, but helpfully retains a calculation based on the old method alongside. The effect is to reduce the affordability of alcohol index from 166.8 in 2010 (1980 = 100) to 144.4.

That’s not quite the end of the story, however. Dr Seabrook also pointed out that the measure of income used, gross disposable income or QWND, may not be the right figure to use. This measure treats owner-occupiers as if they pay themselves rent, the “imputed rental” appearing as both an expense and a cost, so that it cancels out in the accounts. But if you are plucking out a figure from the income side of the equation, it includes a rental income that house-owners could earn if they rented their properties out – which they don’t. So it exaggerates their incomes by a substantial amount.

Futhermore, while mortgage interest payments are subtracted in working out disposable income, mortgage capital repayments are not. And people paying rent do not have that rent subtracted to work out their disposable income. This and other changes, such as subtracting heating costs, make quite a big difference to disposable incomes and hence to the affordability index for alcohol. This is best summarised in Dr Seabrook’s graph (below) which shows that by her reckoning alcohol affordability has fallen in recent years, not risen, and was only 5 per cent higher in 2009 than it had been in 1999.

Her revised index has the virtue of matching much more closely actual consumption than does the NHS IC’s measure. It helps explain why alcohol consumption has been flat or falling in a period in which the NHS IC asserts its affordability has been rising. (Note that this graph is based on NHS IC’s old method of calculation. The discrepancy would be less using its new method.)

What’s the take-home message? Alcohol has become more affordable, but more slowly than other items. Its price has risen faster than the retail price index over the past 30 years. And the affordability index, though modified, still has important methodological difficulties that mean it needs careful interpretation.

This is not to argue that raising the price artificially higher would not cut consumption. It would, just as raising the cost of cars would cut traffic congestion. But at least we should not start by believing that alcohol affordability has increased at a greater rate than other things we spend our money on – which is just what many campaigners continue to imply.

References

1. A New Measure of Alcohol Affordability for the UK, by Rachel Seabrook, Alcohol and Alcoholism, vol 45, No 6, pp 581-585, 2010