New Mandatory Condition for 2014
The Secretary of State has approved the introduction of a new Mandatory Condition which will, in effect, ban the sale of alcohol below what has been referred to as ‘cost price’.
In reality the new legislation, which is the greatest possible dilution of the ‘minimum price per unit’, doesn’t even go that far. It only bans the sale of alcohol below the price of the duty on the alcohol and the vat on the duty; not on the cost of manufacture of the alcohol.
‘A relevant person shall ensure that no alcohol is sold or supplied for consumption on or off the premises for a price which is less than the permitted price’
P = D + (D x V)
This catchy little piece of calculus which appears in the legislation, is slightly easier to understand as:
Permitted Price = Duty on the Alcohol Being Sold + VAT on that Duty
This legislation has appeared largely unnoticed by licensed premises and there is really no need to panic or change current pricing policy in 99% of cases.
The new mandatory condition is primarily targeted at the supermarkets and to a lesser extent discount off-licence chains, who may use alcohol as a loss-leader. The rest of the licensed sector, in their usual pricing policy would normally comfortably exceed the ‘permitted price’; even during their most aggressive price promotions.
As with all the mandatory conditions, failure to comply is punishable with a Maximum Fine of £20,000 and / or 6 Months Imprisonment.
As an offence under Section 136 of the Licensing Act 2003, selling alcohol below the ‘permitted price’ may also result in a Review of the Licence, or the service on the premises of a closure notice under Section 19 of the Criminal Justice and Police Act 2001.
The guidance set out on the Licensing Act 2003 (Mandatory Conditions) Order 2014 make it clear that the offence can be committed by either the Premises Licence Holder, the Designated Premises Supervisor (DPS) or a Personal Licence Holder at the premises.
Some Scenarios to be Aware of
Buy One Get One Free Promotions – Even at effectively half price, most on-sales will still be above the ‘Permitted Price’ for the individual unit of each drink. For example if a bottle of beer is £2.50, running a buy-one-get-one-free promotion should be interpreted as each bottle being sold for £1.25 which would still be above the ‘Permitted Price’ for a 330ml / 5% abv beer.
All Inclusive Events – many event companies and licensed premises run events where the alcohol is priced in and dispensed openly and freely. While this pushes the boundaries of the mandatory condition banning Irresponsible Promotions, it is generally accepted that as long as they don’t market events as ‘Drink as Much as You Can’ and if they are ticketed, invitation only events; they are accepted.
It is a good idea in these cases to have something equivalent to a fair usage policy in place and proof of training for staff serving the alcohol. The licence holder should also exercise more caution at these events with respect of the levels of alcohol consumption.
With this new mandatory condition in place, it would also be advisable that event organisers demonstrate through their pricing, that the alcohol being sold to the client is priced into a contract at a level above the ‘permitted price’. Whether this break-down of costs is made available to the client is a matter for commercial consideration, but having a copy to use in the case of any potential prosecution would certainly be advisable.
Free Glass of Wine with a Meal – This type of promotion would be allowed and the ‘permitted price’ would be calculated on the basis of the total cost of the product; including the meal. So if your promotion stipulates ‘£5 Meal Deal with a Free Glass of Wine’, that would be acceptable as the ‘Permitted Price’ of the wine included in the deal is less than £5.
With these types of promotion it is the total price of the package which must exceed the ‘permitted price’ of the alcohol contained within the offer.
Selling Unwanted Stock – or stock which will soon be on the wrong side of its ‘best before date’. I have witnessed a number of premises which have decided to sell off slow selling lines or stock lines where stock holding is coming up to its sell-by date. Desperation to clear the stock and monetise sometimes as little as 10 or 20p in the £1, could easily fall foul of this mandatory condition.
Free Drinks – Is a drink ever free, unless a friend provides it in an unlicensed private dwelling?
Most free drinks given away on licensed premises would be seem as de facto or indirect sales of alcohol; effectively selling the alcohol at a price of £0.00; which would be in breach of the new mandatory condition.
However the guidance which accompanies the new mandatory condition provides some clarity here, it states:
‘Free drinks offered on ad hoc or impromptu basis, for example as compensation for poor service, do not count as sales because the customer has not paid anything for the drink. This is different to, for instance, ‘meal deals’ where the drink is offered as part of a package of goods.’
In the Frequently Asked Questions section the guidance also states:
‘Where a receipt shows a drink at zero pence, does this count as a sale?
This does not count as a sale as it has no monetary value.’
While this statement seems to contradict many of the presumptions that have been made by licence holders and enforcement officers, it does clarify that the ‘permitted price’ only applies where there is a monetary value on a drink.
We Can Help
Our licensing consultants can provide assistance and guidance on all licensing matters as well as on operational procedures and future marketing campaigns to ensure compliance with all current legislation under the Licensing Act 2003 and associated legislation.
Please contact us on 01784 434 392 or email us at email@example.com.
- The Licensing Act 2003 (Mandatory Conditions) Order 2014 >> – Home Office
- Guidance on banning the sale of alcohol below the cost of duty plus VAT >> – Home Office
Author - Peter Mayhew is the Managing Director of Beyond the Blue Training & Consultancy. He delivers training courses and provides expert opinion on alcohol & entertainment licensing for individuals, organisations and public bodies. Peter is a frequent contributor to industry publications.
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Page Updated: 10th June 2014