More Side Effects from UK’s Alcohol Taxes: Quality Deflation

I pointed out earlier of the unintended consequences from UK’s sin taxes on alcohol: damaging effects of bootleg alcohol, growth of the informal economy or of bootleg alcohol consumption and a shift in alcohol consumption patterns from the formal to the informal economy without reducing overall demand.

Here is another side effect: quality deflation from beer producers in the formal economy

From the CNBC.com

Britain's favorite pint of bitter is being watered down as austerity continues to bite and taxes rise.

John Smith's Extra Smooth, billed as "no nonsense beer", is being reduced from 3.8 percent alcohol to 3.6 percent in response to rising costs and reduced beer consumption. The move comes into effect next month and will save Heineken, the Dutch brewer that owns the John Smith's brand, 6.6 million pounds in duty annually. Beers with weaker alcohol content pay a lower rate of duty than their higher strength rivals.

Heineken, which is also raising the cost of the famous bitter by about 2.5 pence a pint, said it was bringing John Smith's "in line with competitor smooth ales that already sit at or below this alcoholic strength", including its biggest rival, Carlsberg's Tetley Smoothflow…

The Campaign for Real Ale, a lobby group, reckons that U.K. beer tax has risen by more than 40 percent since 2008, and now accounts for a third of the cost of a pint. Over the same period, the number of regular pub goers in the U.K. has declined by 3 million and more than 5,800 pubs have shut.

So Sin taxes essentially encourages low standards that not only reduces consumer satisfaction but importantly increases health risks.

Oh, expect the same outcome in the Philippines.