Tobacco Tax Policy Needs Fundamental Re-Think

Tobacco Tax Policy Needs Fundamental Re-Think

High tobacco tax, one of the cornerstones of the UK government’s tobacco policy for almost a decade, has resulted in high levels of smuggling and crossborder shopping, with little effect on levels of smoking. According to the Tobacco Manufacturers’ Association (TMA), it is long overdue for a fundamental re-think. Tax‑induced price differentials between the UK and other Member States encourage smuggling and crossborder shopping. The TMA has recommended to the Treasury a freeze on cigarette taxes and cutting the tax on handrolling tobacco by £4 per 50g in the forthcoming Budget. The TMA says this would reduce the incentive for smokers to buy non-UK duty paid tobacco, restoring sales to UK retailers and lost revenue to the Treasury.
Tim Lord, chief executive of the TMA, said: “It’s been clear for years now that the present tobacco tax policy has seen smokers avoid paying excessively high UK duty by buying abroad or taking advantage of the black market. This is especially true of handrolling tobacco. UK consumption of this product has increased in the last decade and nearly three quarters of it is non-UK duty paid. Increasing duty yet again in the next Budget will just make matters worse. It’s time for the Government to recognise the limits of this policy and have a fundamental re-think.”

ends

For further information, please contact:

Gill Silverman, Media and Information Manager
T: 020 7544 0108
M: 07712 530 436
F: 020 7544 0117
Email:  information@the-tma.org.uk

Notes to Editors

1. This press release is issued on behalf of the TMA’s principal member companies: Imperial Tobacco Ltd, Gallaher Ltd and British American Tobacco.

2. Tobacco consumption and the prevalence of smoking has remained ‘stable for more than a decade’ *, as many smokers, instead of cutting down or quitting in the face of higher tax‑induced prices in the UK, have gone abroad to buy their tobacco where it is significantly cheaper or turned to the black market.  (see Chart 1)

Chart 1: Handrolling Tobacco Prices Across the EU – January 2005

Source: TMA

3. Cigarette smuggling has been brought more under control due to significant additional resources for HM Customs & Excise and four years of tobacco duty increases pegged to inflation. However, 28% of cigarette and 73% of handrolling tobacco consumption in the UK is still avoiding UK duty. (See Table 1)

Table 1: Handrolling Tobacco Consumption in UK

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Tonnes
UK Duty Paid 3,050 2,600 2,215 1,875 1,800 2,000 2,100 2,700 2,800 2,830 2,950
Non-UK Duty Paid 1,350 2,500 3,885 4,925 5,600 6,500 7,325 6,800 7,500 7,870 7,950
% Non-UK Duty Paid 31% 49% 64% 72% 76% 76% 78% 72% 73% 74% 73%

Source: TMA

4. The TMA has calculated that if there were a cut in tax of £4 per 50g pouch of handrolling tobacco even if only half of non-UK duty paid consumption reverted to UK retailers, there would be no effect on Treasury revenues. If the entire non‑UK duty paid sector was converted back to UK retailers this would yield an additional £200 million.

Table 2: Revenue Losses from Smuggling and Crossborder Shopping

1995 1996 1997 1998 1999/0 2000/1 2001/2 2002/3 2003/4
£ million
Smuggling 680 790 1,700 2,630 3,380 3,080 2,630 2,650
Crossborder Shopping 50 50 60 85 660 920 1,190 1,410 1,380
Total 50 730 850 1,785 3,290 4,300 4,270 4,040 4,030

Source: HM Customs & Excise. Data shows revenue (excise duty & VAT) losses resulting from the smuggling and crossborder shopping of all tobacco products.

* Office for National Statistics. Cigarette Smoking: Stable for more than a decade. www.statistics.gov.uk/CCI/nugget.asp?ID=866&Pos=6&ColRank=1&Rank=160

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