Alcohol pricing: a measured response?

The Supreme Court’s unanimous judgment in Scotch Whisky Association v Lord Advocate [2017] UKSC 76 (15 November 2017) was eagerly anticipated, and though not surprising, nonetheless gives valuable further insight into the extent to which the courts will respect a discretionary area of judgment exercised by the Scottish Parliament.  

The decision is the final chapter in a five-year challenge by the Scotch Whisky Association (“SWA”) to the legality of the Alcohol (Minimum Pricing) (Scotland) Act 2012 (“MUP Act”). The MUP Act will require retailers not to sell any alcoholic product at a price below a statutorily-determined minimum, set by reference to the number of units of alcohol it contains.

Initially the SWA challenged the MUP Act on a number of grounds. Arguments concerning incompatibility with the Acts of Union were dismissed by the Lord Ordinary. An argument that the Act related to a reserved matter was dropped after Imperial Tobacco lost a similar challenge to another Act. The SWA narrowed its case before the Inner House and then the Supreme Court to the question of compatibility with EU law.

An Act of the Scottish Parliament “is not law” insofar as it, or a provision of it, is incompatible with EU law (Scotland Act 1998, s 29(2)(d)). The SWA argued that the MUP Act breached article 34 of the Treaty on the Functioning of the European Union (TFEU) (which prohibits “quantitative restrictions on imports and all measures having equivalent effect” between EU member states), as well as article 39 TFEU (which provides for the EU’s common agricultural policy) and the “Single CMO Regulation” (Regulation (EU) No 1308/2013), which provides for a common market for agricultural products.

EU law: appropriateness and proportionality

On the SWA’s reclaiming motion in the Court of Session, the Inner House decided to refer the question of compatibility to the Court of Justice of the EU. Generally, on a preliminary reference the CJEU will restrict itself to providing guidance on EU law, leaving it to the national court to apply this to the facts before it. 

The CJEU did not, therefore, rule that the MUP Act breached EU law, but rather that:

(1) it had the potential to do so, since it was indeed a quantitative restriction within the meaning of article 34, and contrary to the Single CMO Regulation; but 

(2) protecting public health is recognised as a legitimate aim by both the TFEU and the Single CMO Regulation, and member states were free to decide on the level of protection to be afforded to public health “within the limits imposed by the Treaty”.

The circularity of this guidance was noted by the Supreme Court, but in essence, as the CJEU noted, the Treaty requires two things: the measure must be appropriate (in that it must be capable of achieving public health aims), and proportionate (i.e. the same public health benefit could not be attained through means less restrictive of free movement of goods). The CJEU left it to the domestic courts to decide whether the Scottish Government had satisfied these requirements.

It was not lost on the Supreme Court that the CJEU adopted this two-stage test in preference to Advocate General Bot’s proposed three-stage test, under which the national court ought also to consider whether the benefit to public health justified the detriment to free movement – sometimes referred to as proportionality stricto sensu. Rather than approaching this as a separate test, the CJEU rolled consideration of this factor into the proportionality of choosing minimum unit pricing over other measures.

Parties were agreed that there would be an impact on the EU market for alcoholic products and that public health was a legitimate objective. What was less clear was what health outcome specifically the Scottish Government was trying to achieve. Under the broad “public health” heading ministers set out two objectives: lowering alcohol consumption generally, and the narrower targeting of low-income drinkers to address health outcome inequalities. For reasons explained below, identifying the primary objective was key to determining appropriateness and proportionality.

Appropriateness – achieving the objective

The Government had to demonstrate that minimum unit pricing was capable of achieving the Scottish Parliament’s aims. Although this was for the Government to prove (because article 34 had been engaged), it did not, the Supreme Court held, need to prove that it was the only conceivable way of achieving this objective. Although the SWA argued that the evidence was unconvincing, the court was partly influenced by the sunset clause providing for minimum pricing to expire after six years. That compensated for the inability to predict with any real certainty whether minimum unit pricing would be an effective way of achieving the Government’s aims. Like the CJEU, the Supreme Court considered that the experimental nature of the policy ought not to prevent it from being potentially within the range of appropriate responses.

Proportionality – alternative means 

The SWA further argued that increased alcohol duties would be an alternative, and more proportionate, means of achieving the Parliament’s aims. The CJEU also hinted heavily that such measures would be preferable, from a free movement point of view, because tax increases across the board do not remove the competitive advantages enjoyed by cheaply-produced products, and do not prevent new products from using discounts to gain a foothold in the market. 

We pause here to note, and emphasise, that the Scottish Government could not defend the MUP Act on the basis that the Parliament lacked the powers to increase duties. EU law remains concerned with the member state (i.e. the UK), not with the internal division of powers within a member state. The CJEU, as the Supreme Court acknowledged, previously held in Tallinna (Case C-553/13) that additional sales duties could be imposed in a part of a member state where the aim was to influence behaviour and not simply raise money. Therefore, the Lord Advocate had to concede that EU law did not prohibit duties being raised in Scotland but not elsewhere in the UK.

If the Parliament’s objective was to decrease alcohol consumption generally, tax increases would therefore be an effective means. However, though this had been its stated focus in passing the MUP Act, before the courts the Government focused its argument on the narrower issue of consumption amongst hazardous, typically poorer drinkers. The courts accepted that the Government was not bound to the broader objective previously set out. 

This made it harder for the SWA to demonstrate that duty increases, though less damaging in principle to free movement, would be as capable of achieving the same objective. The Supreme Court, like the courts below, accepted that duty increases would not be a more appropriate or proportionate means of meeting this objective as they would lead to across-the-board price increases, which would have to be substantial in order to have the same effect of limiting the availability of low price, high strength alcohol. Minimum unit pricing would target those less affluent drinkers whom the legislature had determined were most in need of intervention. Also it could not be evaded through absorption (the selling of alcoholic products at below cost).

Worth the potential economic harm?

That only left the argument that the impact on trade would be disproportionate to the public health benefit. Adopting the CJEU approach, the view of Lord Mance (with whom the other Justices concurred) was that such a proportionality stricto sensu test would require the courts to compare two “essentially incomparable values”: public health and economic impact. 

Such a value judgment was not for the courts to make. Making use of the ambiguity in the CJEU’s guidance, the Supreme Court found that it was unable to apply any test that would require it to balance the value of even one life cut short by alcohol misuse against the economic harm to alcohol producers. It was for the legislature to set the public health objective it wanted to achieve. The courts were restricted to considering whether the legislation was appropriate to achieving that objective.

Comment

The Scotland Act will celebrate its 20th birthday next year, yet to date only four Scottish Parliament Acts have been held ultra vires the powers conferred – all on the basis of incompatibility with Convention rights. What does this, and the SWA judgment, tell us about assessing the vires of its legislation?

Though it is not namechecked, the judgment owes a lot of its intellectual pedigree to Lord Hope’s judgment in AXA General Insurance Ltd v Lord Advocate [2011] UKSC 46. The fact that the Scottish Parliament’s powers are conferred, and therefore limited, by law should not give the impression that the courts will intervene lightly, nor will they substitute their own judgment for that of elected lawmakers, particularly in public policy questions.

It was AXA that settled the longrunning question whether the Scottish Parliament could be reviewed on the ground of irrationality, with a resounding “no”. Lord Hope noted that, quite apart from such a limitation being unnecessary, “it would also be quite wrong for the judges to substitute their views on these issues for the considered judgment of a democratically elected legislature”.

What SWA now does is affirm the Inner House’s position in both SWA and Sinclair Collis v Lord Advocate [2012] CSIH 80, that the Scottish Parliament enjoys no less a margin of appreciation than the legislature of any other EU member state. Member states enjoy a greater margin of appreciation in EU law in policy areas where different member states are subject to different circumstances, most of all when it comes to matters of public health. It is no secret that Scotland has an established problem with overconsumption of alcohol.

Lord Mance’s reluctance to second-guess the judgment of an elected legislature when it comes to balancing the value of the health, and ultimately lives, of problem drinkers, is in line with this tradition. 

Concluding thoughts

The SWA judgment is not, however, a blank cheque for the Scottish Government. There is a fine constitutional balance to be struck, as demonstrated by the recent “named persons” judgment (Christian Institute v Lord Advocate [2016] UKSC 51), in which the court noted that the Children and Young People (Scotland) Act 2014 had the potential to operate in ways which would be a disproportionate interference with the right to private and family life. In striking this balance, the courts have been willing to accept the legitimacy of the elected legislature targeting problem drinkers and health inequalities, and to respect their judgment as to the balance between health and freedom to set prices. However, courts are more prepared to intervene when the public interest in question is less well defined, or the individual freedom at stake is more so. Measures which restrict consumer choice in the interest of health are one thing; measures which interfere with the right to a private and family life, even in the interest of health, remain something different.