Tobacco Tax Gaps: More action needed to combat illicit tobacco



20 October 2016.  Official figures released today show a small rise in the illicit market share of manufactured cigarettes while there was a fall in the proportion of illicit hand-rolled tobacco. [1] According to HM Revenue & Customs, in 2015/16 an estimated 13% of cigarettes consumed in the UK were illicit, compared to 12% in 2009/10. The figures for hand rolled tobacco were 32% in 2015/16 compared to 44% in 2009/10 (all figures mid-range estimates).

Although the long-term trend shows a decline in tobacco consumption, the latest statistics show that the illicit trade in tobacco is still a major problem in the UK.  The tax gaps figures reinforce the need for continued investment in measures to tackle illicit tobacco.  ASH welcomed the Government’s commitment announced in the 2016 Budget that the Home Office would receive £31 million to strengthen border controls and intercept smugglers. [2] This was in addition to the measures announced in the new strategy published in the March 2015 Budget [3] and measures including expanding by 50% the number of criminal investigation teams  working on tobacco fraud announced in the summer 2015 Budget. [4]

Despite these commitments, ASH is concerned that cuts to local authority budgets are affecting the work of trading standards departments across the country, undermining capacity to take action on illicit tobacco. During the last six years, total spend nationally on trading standards has fallen from £213m in 2010 to £124m today. Teams have been cut to the bone, with a 12% drop in staff working in trading standards since 2014. This has come on top of the 45% drop identified over the previous five years by an earlier survey.  [5]

This is disappointing as investment in local enforcement is very cost effective and helps drive down total tobacco consumption.  For example, the setting up of a regional Illicit Tobacco Partnership the North East has seen a significantly greater fall in the illicit trade than has been seen at national level, to the benefit both of public health and government revenues. Between 2009 and 2015 the illicit market declined by more than a third in the northeast from 15% to 9%. [6] Furthermore, the North East has seen the biggest decline in smoking prevalence in England falling from 29% in 2005 to 19.9% in 2014. [7]

As tobacco smuggling is an international problem, global action is also crucial as is recognised by the Government which played an active role in the development of the WHO Framework Convention on Tobacco Control’s Illicit Trade Protocol.  ASH is therefore calling on the Government to ratify the Protocol as soon as possible as this is essential to support effective anti-illicit trade policies at UK level. [8]

Commenting,  Deborah Arnott, Chief Executive of ASH said:

“The latest statistics show the need for continued investment to tackle tobacco smuggling, particularly at the local level.  Spending on enforcement in this area is highly cost effective. However, we are concerned that cuts in council budgets across the country is reducing the amount of enforcement work that can be done by trading standards officers. Fighting illicit trade needs action at an international, national and local level.”

 

ENDS

NOTES

The illicit tobacco trade rose from below 5% in the early 1990s to 21% in 2000 (mid-range estimates), in large part due to tobacco companies’ facilitating the smuggling of their own products. In 2000, the UK Government introduced an anti-smuggling strategy and strengthened it in 2006, 2008, 2011 and 2015. Between 2004 and 2010, the European Union also concluded legally-binding agreements with the four biggest tobacco manufacturers, imposing large financial penalties if their own products were found to have been diverted into illicit channels. In November 2014, BAT was fined £650,000 by HMRC for oversupplying hand-rolled tobacco to Belgium [4]

Since 2000, HMRC (and the UK Border Agency after its establishment in 2008, succeeded by the UK Border Force in 2012) have agreed and implemented a series of detailed strategies to tackle tobacco tax evasion, and the Government provided substantial additional resources for this purpose during the last spending review. The latest of these strategies is “Tackling Tobacco: From Leaf to Light” published on 21st March 2015.

[1]: HMRC Tobacco Tax Estimates 2015/16
[2]  Budget 2016
[3] HM Treasury “Tackling Tobacco: From Leaf to Light” published on 21st March 2015.
[4]  Summer Budget 2015
[5]  CTSI. Chartered Trading Standards Institute Workforce Survey. June 2016
[6]  Illicit Tobacco Partnership
[7]  North East sees biggest drop in smoking in England, Fresh North East
[8]  Illicit Trade Protocol