Moderate Increase Doesn’t Allay Concerns Over Smuggling

Commenting on the Chancellor’s decision to increase taxes on tobacco, Tim Lord, chief executive
of the Tobacco Manufacturers’ Association, said:

“The inflation-only rise in tobacco taxes is not surprising given this approach has, over the
last four years, helped stabilise the level of smuggling and crossborder shopping.   However,
while we welcome the Chancellor’s restraint, it is still an increase, and as a result the gap
between UK tobacco prices and the rest of the EU will widen.

“Increasing the cost of cigarettes, already at £4.89 a pack, when the average price in the rest
of the EU is less than £2.00, does nothing to deter smugglers or reduce the incentive for smokers
to buy cheap cigarettes from abroad.

“The 28% of cigarettes and 73% of handrolling tobacco that evades UK duty represents a huge loss
of revenue for retailers and the UK Government. This increase will not solve the problem.”

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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.Prior to the Budget the price for the most popular price category of cigarettes was £4.89.
Typical prices in Spain and Belgium are £1.45 and £2.59 a pack respectively.
3.The price of a 50g pouch of handrolling tobacco was £9.90. The price of the same brand of HRT
in Belgium is around £3.00.
4.TMA estimates that total non-UK duty paid consumption of cigarettes in 2004 was 28% (20
billion cigarettes), almost 60% sourced from other EU countries. 73% (7,950 tonnes) of
handrolling tobacco is non-UK duty paid, mostly sourced within the EU.
5.HM Customs & Excise have estimated that the loss of revenue to the Treasury from the smuggling
and crossborder shopping of tobacco products in 2003/4 was £4 billion. Total revenue lost since
1995 exceeds £23 billion.
6.In the lead up to this year’s Budget the TMA called for:

◦A tax freeze on cigarettes
◦A £4 tax reduction on 50g handrolling tobacco
◦An increase in HM Customs & Excise resources at airports, ports and inland
◦The enforcement of travellers’ allowances wherever possible – particularly against the ‘new’ EU
Member States.