Budget 2017: Modest rise in tobacco tax and new minimum tax level welcome, but not enough



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08 March 2017.  Action on Smoking and Health today welcomed the Chancellor’s decision to introduce a Minimum Excise Tax on cigarettes, based on a price per pack of 20 of £7.35 (equivalent to a tax of £268.63 per 1,000 cigarettes). The Chancellor has also continued the tobacco tax “escalator”, which means a tax rise of 2% above inflation for all tobacco products.

Tax increases are effective in reducing health inequalities as they have a greater impact on more disadvantaged smokers than the general population. [1] [2] While real average cigarette prices have been increasing, the difference between retail prices of the most expensive and cheapest cigarettes has widened by more than two thirds over the last decade. Research by Professor Gilmore and colleagues at the UK Centre for Tobacco and Alcohol Studies shows that this is because the tobacco industry has been absorbing tax increases on the cheapest brands rather than passing them on to consumers, while increasing prices, and therefore profits, on more expensive brands. [3] The new Minimum Excise Tax will help prevent this approach (known as “overshifting”).

The use of cheap cigarettes is most marked among younger (16-24 year old) smokers, 71.4% of whom now use cheap brands. [4] The proportion of smokers mainly using Hand Rolled Tobacco has increased from 25% of men and 8% of women in 1998 to 40% of men and 23% of women in 2013 [5]. HRT is not covered by the new Minimum Excise Tax, and ASH is concerned that this could lead to a further shift from cigarettes to HRT, particularly among smokers on lower incomes.

ASH and other public health organisations have called for an increase in the escalator to 5% above inflation, and for a rise of 15% above inflation on Hand Rolled Tobacco (HRT).

 

Commenting, ASH Chief Executive Deborah Arnott said:

“We’re delighted that the Chancellor has ignored the self-serving calls from the tobacco industry and its front groups to drop the tobacco tax escalator. We’re also pleased that he has introduced a Minimum Excise Tax on cigarettes. But we really wanted to see sharper tax rises on all tobacco products, and in particular a larger rise on tax on hand rolled tobacco. The danger is that smokers on lower incomes may shift from cigarettes to HRT in even greater numbers than before.”

 

Notes

[1] The World Bank. Curbing the epidemic: governments and the economics of tobacco control. May, 1999.

[2] Amos A, Bauld L, Clifford D, et al. Tobacco control, inequalities in health and action at a local level. York, Public Health Research Consortium, 2011

[3] Gilmore A, Tavakoly B, Taylor G, Reed H.  Understanding tobacco industry pricing strategy and whether it undermines tobacco tax policy: the example of the British cigarette market. Addiction 2013; 108 (7): 1317-1326

[4] Gilmore A, Tavakoly B, Hiscock R, Taylor G. Smoking patterns in Great Britain: the rise of cheap cigarette brands and roll your own (RYO) tobacco.  J Public Health (2014) doi:10.1093/pubmed/fdu048. Published online: August 11, 2014

[5] Opinions and Lifestyle Survey. Smoking habits among adults.  ONS November 2014