TMA responds to Policy Exchange research note ‘Cough Up’

Responding to the Policy Exchange Research Note ‘Cough Up’ Christopher Ogden, Chief Executive of the TMA, said:

“The suggestion that tobacco tax be increased by 5% and the tobacco duty escalator be reintroduced is ridiculous.

” HMRC recognize that high tax exacerbates smuggling and it was only when the Government removed the tobacco duty escalator in 2001 that the situation began to stabilize. Since 2001, a policy of fiscal restraint, combined with greater enforcement has seen levels of non-UK duty paid (NUKDP) consumption gradually fall. However, the TMA estimates that up to 24% of the cigarette market and up to 62% of the handrolling market is still NUKDP, and within the NUKDP market there has been a noticeable increase in counterfeit product and the appearance of ‘cheap whites’*.

“The TMA believes that the high level of tobacco tax, the root cause of the high level of tobacco smuggling, needs to be addressed and a fundamental review of fiscal policy must be undertaken. Raising tobacco taxation above the rate of inflation is counter productive and will only increase smuggling. Evidence from the UK‘s recent history proves this point.

“When the essence of a report is based on statistics, it loses its credibility when the numbers fail to add up. The tax on a pack of cigarettes, equates to 23.3 pence per cigarette and according to the report each cigarette smoked costs the country 6.5 pence, it would seem smokers already contribute 350% more than the costs attributed to them in the report.

“This report follows Sir Liam Donaldson’s report, that puts the cost of Alcohol at £22.7bn, Obesity at £20bn, Inactivity at £10.1bn and Smoking at £7.9bn, clearly indicating a breadth of issues that need to be addressed through education. If taxation resolves public health issues, then one can ask the question whether Policy Exchange will recommend the introduction of inflationary taxes across a range of consumable products.”

* HM Revenue & Customs defines “Cheap Whites’ as brands produced by smaller, overseas manufacturers that make no legitimate supplies of any tobacco products to the UK. There is often little or no legitimate market for these brands anywhere in the world. Effectively, these products – commonly known as “Cheap Whites”– are produced for smugglers. In some cases “cheap whites” are produced in countries outside the European Union, such as Russia, and smuggled into the UK where they are illegally sold at a street price of between £2.50 – £3.00 per packet.