United Kingdom Supreme Court

“Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between member states.”

It is accepted that the proposed minimum pricing is a measure which would have equivalent effect to a quantitative restriction on imports, in that it will have an effect on, for example, actual or potential wine or beer imports from a number of other EU States. The respondents’ response is reliance on article 36 TFEU, providing:

“The provisions of articles 34 and 35 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of … the protection of health and life of humans … Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between member states.”

The Court of Justice’s judgment

“44.     … I consider that the existence of a CMO covering the wine sector does not prevent the national authorities from taking action in the exercise of their competence in order to adopt measures to protect health and, in particular, to combat alcohol abuse. However, where the national measure constitutes a breach of the principle of the free formation of selling prices that constitutes a component of the single CMO Regulation, the principle of proportionality requires that the national measure must actually meet the objective of the protection of human health and must not go beyond what is necessary in order to attain that objective.

45.       As the commission suggests, I consider that the examination of the proportionality of the measure must be undertaken in the context of the analysis that must be carried out by reference to article 36 TFEU.

46.       Consequently, I propose that the answer to the first question should be that the single CMO Regulation must be interpreted as meaning that it does not preclude national rules, such as those at issue, which prescribe a minimum retail price for wines according to the quantity of alcohol in the product sold, provided that those rules are justified by the objectives of the protection of human health, and in particular the objective of combating alcohol abuse, and do not go beyond what is necessary in order to achieve that objective.”

“71.     A barrier to the free movement of goods may be justified on one of the public interest grounds set out in article 36 TFEU or in order to meet overriding requirements. In either case, the restrictions imposed by the member states must none the less satisfy the conditions laid down in the court’s case law as regards their proportionality.

72.       In that regard, in order for national rules to comply with the principle of proportionality, it is necessary to ascertain not only whether the means which they implement are appropriate to ensure attainment of the objective pursued, but also that those means do not go beyond what is necessary to attain that objective: Berlington Hungary Tanácsadó és Szolgáltató kft v Magyar Állam (Case C-98/14) [2015] 3 CMLR 45, para 64.

73.       Although the words generally used by the court seem most frequently to result in only two different stages of the control of proportionality being distinguished, the intellectual exercise followed in order to determine whether a national measure is proportionate is generally broken down into three successive stages.

74.       The first stage, corresponding to the test of suitability or appropriateness, consists in ascertaining that the act adopted is suitable for attaining the aim sought.

75.       The second stage, relating to the test of necessity, sometimes also known as the ‘minimum interference test’, entails a comparison between the national measure at issue and the alternative solutions that would allow the same objective as that pursued by the national measure to be attained but would impose fewer restrictions on trade.

76.       The third stage, corresponding to the test of proportionality in the strict sense, assumes the balancing of the interests involved. More precisely, it consists in comparing the extent of the interference which the national measure causes to the freedom under consideration and the contribution which that measure could secure for the protection of the objective pursued.”

“83.     First, account should be taken of the fact that it is for the member states to decide on the degree of protection which they wish to afford to public health and on the way in which that degree of protection is to be achieved. Since the level of protection may vary from one member state to another, member states must be allowed discretion in that area … That discretion is necessarily represented by a certain relaxation of control, representing the national court’s concern not to substitute its own assessment for that of the national authorities.

84.       Second, it is necessary to take into account the complexity of the assessments to be carried out and the degree of uncertainty which exists as to the effects of measures such as those at issue.”

He added that a third relevant consideration in the present case was the provision for a re-evaluation and report by the Scottish Ministers after five years, coupled with the provision for automatic termination after six years unless otherwise ordered and affirmed by the Scottish Parliament (para 85).

“86.     … [T]he discretion left to the member states cannot have the effect of allowing them to render the principle of free movement of goods devoid of substance. In so far as article 36 TFEU includes an exception to that principle, it is for the national authorities, even where they have a discretion, to show that the measure satisfies the principle of proportionality. …

87.       Furthermore, whatever the extent of that discretion, the fact none the less remains that the reasons that may be invoked by a member state by way of justification must be accompanied by an analysis of the suitability and proportionality of the restrictive measure adopted by that state and of the precise evidence on which its argument is based ...”

“28.     A restrictive measure such as that provided for by the national legislation at issue must, however, satisfy the conditions set out in the court’s case law with respect to proportionality, that is, the measure must be appropriate for attaining the objective pursued, and must not go beyond what is necessary to attain that objective (see, by analogy, Berlington Hungary (Case C-98/14) [2015] 3 CMLR 45, para 64), which the Court will consider in its examination of the second to sixth questions, which specifically concern the analysis of the proportionality of that legislation. It must be observed that, in any event, the issue of proportionality must be examined by taking into consideration, in particular, the objectives of the CAP and the proper functioning of the CMO, which necessitates that those objectives be weighed against the objective pursued by that legislation, namely the protection of public health.

29.       Consequently, the answer to the first question is that the Single CMO Regulation must be interpreted as not precluding a national measure, such as that at issue, which imposes an MUP for the retail selling of wines, provided that that measure is in fact an appropriate means of securing the objective of the protection of human life and health and that, taking into consideration the objectives of the CAP and the proper functioning of the CMO, it does not go beyond what is necessary to attain that objective of the protection of human life and health.”

“As regards whether that national legislation does not go beyond what is necessary in order effectively to protect human life and health, it must be borne in mind that, in this case, that analysis must be undertaken, as stated in para 28 of this judgment, with regard to the objectives of the CAP and the proper functioning of the CMO. However, given the issue to be examined in this case, that analysis will have to be undertaken with reference to proportionality in the context of article 36 TFEU and will therefore not have to be carried out separately.”

“53.     … [I]t is for the national authorities to demonstrate that that legislation is consistent with the principle of proportionality, that is to say, that it is necessary in order to achieve the declared objective, and that that objective could not be achieved by prohibitions or restrictions that are less extensive, or that are less disruptive of trade within the European Union: Criminal proceedings against Franzén (Case C-189/95) [1997] ECR I-5909, paras 75 and 76 and Rosengren v Riksåklagaren, para 50.

54.       In that regard, the reasons which may be invoked by a member state by way of justification must be accompanied by appropriate evidence or by an analysis of the appropriateness and proportionality of the restrictive measure adopted by that state, and specific evidence substantiating its arguments …

The objective(s) pursued by minimum pricing

“The average consumption of alcohol in a population is directly linked to the amount of harm as evidenced in a number of systematic reviews. The more we drink, the greater the risk of harm. As overall consumption has increased in Scotland so have the resultant harms.”

“Whilst alcohol-related issues impact on all socio-economic groups, it is important to recognise the greatest harm is experienced by those who live in the most deprived areas. The reasons why alcohol has a more harmful effect on people living in deprived communities are complex and not fully understood. Risky and harmful alcohol use is likely to be both a cause and effect of social deprivation. What is clear is that the level of alcohol-related harm in deprived communities is substantial, with alcohol-related general hospital discharge rates in the 20% most deprived communities (as measured by the Scottish Index of Multiple Deprivation, SIMD) around 7.5 times higher than in the most affluent fifth. Similarly, alcohol-related mortality rates are 6 times higher in the most deprived areas. Tackling alcohol-related harm has the potential to help address Scotland’s wider health inequalities.”

“significantly, average weekly consumption among low income harmful drinkers was much higher than among other harmful drinkers (93 units for men and 69 for women compared to 69 and 52 units respectively for harmful drinkers in the highest income group). This helps to explain the differential harm patterns described above. In addition those on low incomes are likely to be more responsive to minimum pricing. Given this, it is therefore likely that those in lower income/more deprived groups will benefit from the greatest reduction in health harms.”

“the harmful drinkers in the lowest income quintile consume far more alcohol per head, and are the source of much greater health related and other harm, than harmful drinkers in the higher income quintiles. There is also clear evidence that the greatest alcohol-related harm is experienced by those who live in the most deprived areas (see the evidence summarised in para 2.29 of the Final BRIA).”

And he went on to conclude, at para 60, that there was objective evidence that the proposed minimum pricing measures “are appropriate to achieve their aims”.

Less restrictive measures to achieve the same aim?

“While all policies were estimated to reduce health inequalities because drinking is associated with substantially higher absolute health risks in lower socioeconomic groups than in higher socioeconomic groups, the scale of the inequality reduction varied across the policies. A £0.50 minimum unit price and a £0.22 per unit volumetric tax were estimated to reduce inequalities the most because heavy drinkers in lower socioeconomic groups buy proportionately more of the cheap alcohol most affected by these policies. Estimated impacts on health inequalities were smaller for a 4.0% alcohol ad valorem tax and a 13.4% current duty increase as price increases were more evenly distributed across the alcohol consumed by different socioeconomic groups.”

“M14  At full effect, a 50p MUP is estimated to lead to 117 fewer alcohol-related deaths per year among hazardous and harmful drinkers. To achieve the same reduction in deaths among hazardous and harmful drinkers, an estimated 28% increase in alcohol taxes is required.

M15    If reductions in alcohol-related harm in specific population groups are sought, then larger tax increases would be required; for example, a 36% tax increase would be required to achieve the same reductions in deaths among harmful drinkers as a 50p MUP. This is because MUP targets large price increases on those at greatest risk from their drinking while tax increases affect all drinkers.

M16    Although achieving the same reduction in deaths among hazardous and harmful drinkers as a 50p MUP, a 28% tax increase would lead to slightly larger reductions in alcohol consumption among moderate and hazardous drinkers but smaller reductions in alcohol consumption among harmful drinkers and, particularly, harmful drinkers in poverty.

M17    Similarly, at full effect, the reductions in deaths under a 28% tax increase would be larger among hazardous drinkers and smaller among harmful drinkers, particularly harmful drinkers in poverty, than under a 50p MUP price.

M18    These differences in how death reductions are distributed across the population mean a 50p MUP is more effective than a 28% tax increase in reducing alcohol-related health inequalities. This is because a 50p MUP better targets the alcohol consumed by harmful drinkers on low incomes who are the group at greatest risk from their drinking.

M19    Increases in consumer spending on alcohol are estimated to be substantially greater under a 28% tax increase than a 50p MUP. For example, among moderate drinkers annual per capita spending would increase by £2 or 0.5% under a 50p MUP and by £17 or 4.7% under a 28% tax increase. For harmful drinkers the annual increases in spending per capita are £6 or 0.2% for a 50p MUP and £152 or 6.4% under a 28% tax increase.”

“to reduce consumption, including consumption by hazardous and harmful drinkers, to the maximum extent possible regardless of possible economic or social consequences.”

Rather, they were those he had identified in paras 53 to 54 of his judgment, set out in para 24 above. There was a relevant judgment as to which it was for the Scottish legislature and Ministers to make, what level of protection for health and life to achieve, by striking a balance between health and other interests: para 79. Second, the relevant EU directives meant that excise duty could not be used to achieve the same outcomes as minimum pricing: paras 68 and 71. Third, he said that minimum pricing was easier to understand and simpler to enforce: see para 68. It was not open to absorption, eg by “off-trade” outlets such as supermarkets selling alcohol drinks below cost in order to attract other business onto or on their premises.

“Furthermore, assuming that any practical tax increase within the EU setting would involve across the board increases, albeit perhaps on different types of product, such increases would have a disproportionate, undesirable and unnecessary effect on moderate drinkers, who do not generally represent a significant problem in societal terms, at least of the type requiring to be addressed.”

The First Division also said (at para 181) that:

“The fact that minimum pricing may not, to the same extent, affect those who are more affluent, is of peripheral significance. These richer persons tend not to suffer to the same extent as harmful and hazardous drinkers in the lower quintile of affluence, whose health and life is at greatest risk.”

“Member states may levy other indirect taxes on excise goods for specific purposes, provided that those taxes comply with the Community tax rules applicable for excise duty or value added tax as far as determination of the tax base, calculation of the tax, chargeability and monitoring of the tax are concerned, but not including the provisions on exemptions.”

“does not require member states to comply with all rules applicable for excise duty or VAT purposes as far as determination of the tax base, calculation of the tax, and chargeability and monitoring of the tax are concerned. It is sufficient that the indirect taxes pursuing specific objectives should, on these points, accord with the general scheme of one or other of these taxation techniques as structured by the Community legislation.”

“In EU market terms the effect [of minimum pricing at 50 pence per unit] might be described as relatively minor. The on-trade is unlikely to be adversely affected at all. No doubt some wine from Bulgaria, Romania and Portugal may lose a competitive edge. Their share of the market too is very small, but there will be an effect on the competitive nature of some wines and beers from other EU states. Cheap French brandy may be affected, even if, so far as spirits are concerned, the greater impact will be on domestically produced vodka, whisky and cider.”

As a broad conclusion on the information available, this does not appear to be challenged. Second, the First Division went on to reject the petitioners’ case that the information on which it was based was inadequate, taking the view that the detailed exercise of market prediction based on the production of models, for which the petitioners were contending, was neither necessary nor practicable.

“There is no consensus from industry on what will happen to pricing of products and hence the effect on the market in relation to the introduction of a minimum price per unit of alcohol. Some consider all prices will be affected ie those above a minimum price will also be adjusted, others believe it will only be those below the minimum price that will be affected, and others consider it will be somewhere in between.”

“It has proved extremely difficult to access the level of data required to analyse which individual products are likely to be most affected, and the country of origin of such products.”

Again, at para 6.7 the BRIA recorded that the Scottish Government “is not able to predict how individual companies and retailers will react to the introduction of a minimum price per unit.” A survey had shown no consensus. As regards the effect on producers, again, there was no consistent view among (it appears, Scottish) industry representatives.

“The legislation would apply equally to international producers, wholesalers and retailers trying to enter the Scottish market. Any firms wanting to import high strength, low price products would have to raise their retail prices to comply with the minimum price per unit legislation. This could impact on a foreign company’s ability to compete in the domestic market if the company was currently selling at very low margins in order to be competitive with domestic products.”

The Competition Assessment noted that the initial change effected by minimum pricing would be a reduction in the quantities sold of products whose original price lay below the minimum, though the extent would depend on the elasticity of demand (para 36). Retailers would however benefit by the higher prices of the quantities actually sold and might, as in British Columbian experience, benefit by a general raising of the price of higher value products to maintain a differential with those now affected by minimum pricing (paras 36 and 38). The likely distribution of the increased revenues across the supply chain was not known (para 42).

“The detailed analysis is necessarily non-exhaustive, not only because of the time constraints for delivery of this opinion but also because, for reasons to be explained, regulatory policies with the types of characteristics possessed by the MUP scheme are liable to lead to chains of unintended consequences. Whilst it is possible to identify and analyse the tendencies involved in these chains of consequences, they are impossible to pin down with anything approximating total precision, because in part they are governed by future adaptations and innovations to changed incentive structures, knowledge of which is today necessarily limited.”

I note that, even when examining differences between studies by HMRC in 2010 and 2014 of price elasticities in the alcohol market, the authors in their second report identified a problem of uncertainty, arising from lack of sufficient evidence to make it possible to know on what assumptions the available data should be analysed (underdetermination) (para 13).

“[T]here is no need in this case to consider balancing trade-offs between health policy goals and other aspects of economic policy, such as the promotion of unimpeded trade flows and the promotion of competition.”

Paragraph 6 of this report means that the authors did not attempt an exercise in comparison of opposing considerations. Those considerations are not only incommensurate on their face; their comparison would, in the light of para 2 of the report, involve weighing inherently unknowable uncertainties regarding the nature and impact of minimum pricing on EU trade against the value which it is for national legislatures and governments to place on health policy goals: see para 48 above.

“63.     … [T]he purpose of this analysis [by reference to the First Brands Ltd survey] was principally to capture a more general point that, whilst the MUP will, by definition, lead to a change in prices for those products which are currently priced below the relevant threshold, it is also possible that products currently priced above the MUP may also be affected by such a policy in the longer term …

65.       Indeed, although predicting retailer strategies is a somewhat speculative exercise, we think economic logic points to the de-stocking of higher-priced products as a likely outcome.”

“96.     The general conclusion to which economic analysis leads in this case is that it is possible to be very confident that distortionary/discriminatory effects will eventuate, but that it is not possible to evaluate those effects in a comprehensive and precise way.”

Conclusion