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Representing the UK Tobacco Sector

Smuggling & Crossborder Shopping

The high tax-induced price of tobacco products in the UK has led to many smokers seeking alternative cheaper sources of cigarettes and handrolling tobacco (HRT), both legal (duty-free and crossborder shopping) and illegal (smuggling and bootlegging). The TMA estimates that in 2007 this non-UK duty paid consumption (NUKDP) accounted for 27% of the cigarettes and 68% of the HRT smoked in the UK.

While the consumption of UK duty paid (UKDP) cigarettes and HRT has fallen since 1993, there has not been a corresponding fall in the level of total tobacco consumption or smoking due to the increase in smuggling and crossborder shopping.

The UK’s high tobacco tax policy has provided economic incentives for criminals to meet the demand that exists for cheap tobacco products. This has implications for Government revenue and for law and order. It threatens the livelihoods of many legitimate businesses, in particular independent tobacco retailers.

A 'Disorderly Market' in smuggled tobacco products has been created that is uncontrolled, untaxed and unaccountable. 
 

Tackling the Problem

Following the introduction of the tobacco duty 'escalator' in 1993 NUKDP tobacco consumption grew rapidly, reaching its peak in the early 2000s.

In response the Government unveiled its Tackling Tobacco Smuggling strategy in March 2000 designed to reduce the level of cigarette smuggling to 18% by 2004/5 (subsequently revised to 13% by 2007/8). This £209 million package of measures included:

  • the employment of 950 new staff
  • the funding for X-ray scanners
  • the introduction of tougher penalties for those caught smuggling
  • public awareness campaigns

Tackling Tobacco Smuggling
The Government's strategy to address the smuggling of tobacco products into the UK

This strategy was refreshed and enhanced in March 2006 to provide additional focus on the smuggling of HRT, demonstrated by the deployment of 200 staff specifically to target this problem. 

A key element of the strategy is the Memorandum of Understanding (MoU) between the UK tobacco manufacturers and HM Revenue & Customs. The MoU includes provisions to limit the availability of genuine tobacco products to smugglers, to share intelligence and information on sources of counterfeit production (an increasing problem) and to undertake regular assessments of anti-smuggling technologies.

While the enforcement-led approach of the Tackling Tobacco Smuggling strategy has been successful in reducing the level of cigarette smuggling the overall level of NUKDP consumption remains stubbornly high, due to increasing levels of crossborder shopping.

It is important to note that the levelling off in NUKDP consumption has occurred during a period in which tobacco duty has not increased in real terms. (The last use of the 'escalator' was in the Budget of 2000 – the same year the strategy was introduced.) With no real terms increases in tobacco duty the incentives for smuggling and crossborder shopping have not increased and therefore the level of NUKDP has remained flat.

Tax Cuts – The Effective Solution

The TMA argues that it is only by reducing tax levels in the UK that smuggling can be stopped. Tax cuts would remove the incentives for smokers to shop abroad for tobacco products or buy from smugglers. We do not believe that these tax cuts would impact significantly on the existing trends in tobacco consumption, smoking prevalence or on the Government’s tax revenue.

The UK’s high prices encourage smokers to purchase cheap black market tobacco, greatly harming legitimate businesses and channelling money into the hands of criminals.

March 2007

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