Taxation

The tax, both excise duty and VAT, raised through the sale of tobacco products continues to be a major source of revenue for the Government, contributing around £10.5 billion annually. This is, according to the Treasury, equivalent to more than 2 pence on the basic rate of income tax or over 11 pence on the top rate of income tax.

On a typical pack of 20 cigarettes the total tax burden of £4.83 accounts for 77% of the recommended retail price (RRP) of £6.29. On some of the least expensive brands the total tax burden accounts for up to 90% of the RRP.

It has been the policy of successive Governments to maintain a high level of tax on tobacco products in order to reduce tobacco consumption and the prevalence of smoking. Between 1993 and 2000 a tobacco duty ‘escalator’, which saw year-on-year increases in tobacco duty ahead of inflation, was implemented with the aim of reducing consumption still further.

This policy has resulted in taxes on tobacco products in the UK being amongst the highest in the world and comfortably ahead of those in other EU Member States. For example, in July 2010 the price of a typical pack of cigarettes in the UK was £6.29 while in Belgium the price was about £3.99, in Spain it was around £2.80 and Poland it was around £1.57. The differences in the price of handrolling tobacco (HRT) are even more marked. A 50g pouch which cost £12.53 in the UK could be bought in Belgium for around £3.87.

It is not surprising that due to the UK’s high level of tax on tobacco products we experience very high levels of smuggling and crossborder shopping. Yet in March 2010, the Chancellor announced that the duty ‘escalator’ would be re-introduced with immediate effect, therefore, we are extremely concerned that this could lead to an increase in smuggling.
The TMA’s concerns are supported by research from CEBR, which clearly shows that the tax increases announced in 2010 will immediately reverse the decline in non-UK duty paid consumption.