The Government has progressed its plan to ban the selling of cheap alcohol.  The ban will apply to all sales of alcohol including those made online.  Guidance issued by the Home Office at the start of February indicates that it will be illegal to sell alcohol below “cost price” from 6 April of this year.

What does below “cost” mean?

The Government has established “cost” as the amount of “duty plus VAT” – i.e. the level of alcohol duty for an alcoholic product plus VAT payable on the duty element of the product price.

The duty element varies in accordance with the type and strength of the alcohol.

We have set out below examples of permitted prices for different products:

Click here to view the table.

What about multi-buy and other discounts or promotions?

Businesses can continue to sell multipacks of beer and cases of wine.  However, they will need to ensure that each multipack is sold above the aggregate of the permitted price of each product.  For example, if a business wants to sell a 24 pack of 4% ABV lager the same calculation would be used (10.56 litres x 4% x 19.12) x 1.2) meaning the minimum price for the 24 pack would be £9.70.

Many pubs and other venues run promotions, for example a free bottle of wine when purchasing two courses etc.  These promotions will still be permitted as long as the price of the meal is at or above the permitted price of the alcoholic drink.  Free drinks provided on an ad hoc basis do not count as sales because the customer has not paid anything for the drink.

Discount vouchers will still be permitted as long as the price of the product after the discount is above the permitted price (for example if buying a 440ml can of 4% ABV lager a discount voucher could not be used to bring the price below 41p).

Are there any exceptions?

There are some limited exceptions including sales at bars and shops at international airports and ferry terminals.  The ban does not apply to alcohol offered as a prize in raffles and competitions.  Low strength beer and other drinks at 1.2% ABV are also exempt.

How will the new rules be enforced?

The ban will be a new licensing condition of the Mandatory Code of Practice which applies to all licensed premises in England and Wales (but NOT Scotland).  Responsibility for ensuring compliance is the responsibility of a “relevant person” which is defined as the premises licence holder, DPS or personal licence holder.

The “responsible person” must ensure that any person responsible for amending prices on the premises is aware of the legal requirement to sell alcohol at or above the cost of duty plus VAT on that premises.  The ban will be enforced by licensing authorities, trading standards and the police.  Failure to comply with the new licensing condition may be an offence under section 136 of the Licensing Act 2003.

What are the consequences of a selling below cost price?

Anyone found guilty of selling below cost price is liable to a fine of up to £20,000 or a term of imprisonment not exceeding 6 months.

What do businesses need to do?

According to a government impact assessment, it appears that only 1.3% of the market is likely to be affected by the ban.  It is hoped that retailers, in particular smaller ones, may benefit from more custom if alcohol loss leading activity is reduced.

Regardless of the relatively minor impact anticipated, we would recommend that businesses and others who supply alcohol check that their pricing systems are up to date to prevent any sale of alcohol below the cost of duty plus VAT and ensure that prices are amended centrally as well as on websites, tags, displays, shelving, menus and other literature such as posters and flyers. Particular caution should be exercised in relation to promotional and other discount events.