Tobacco tax rise: A step in the right direction



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Wednesday 24 March 2010

ASH welcomes the rise in tobacco duty announced in today’s Budget of 1% above inflation and the commitment to raise duty by 2% above inflation from 2011 to 2014. ASH would have preferred to have a larger increase now, as recommended in its recently published report The Effects of Increasing Tobacco Taxation” endorsed by 49 public health organisations, [1] and urges the incoming Government to commit to these tax rises year on year.

ASH had called for a 5% rise in real terms, which would have amounted to a 31p increase in the price of the most popular priced cigarettes.

ASH’s report, produced by independent economist Howard Reed [2], demonstrated the economic benefits of raising tobacco prices through taxation by 5% above inflation. The immediate and most beneficial outcome would be a reduction in the number of smokers by 190,000.

The conclusions of the report are based on two economic models which show that if successive governments continue to raise tobacco tax above inflation it would:
• save the NHS over £20 million a year by reducing the cost of care and treatment of smoking-related diseases;
• reduce smoking-related absenteeism in the work place saving over £20 million a year; and
• increase government tax revenues by over £500 million a year, a total of £2.6 billion in the first five years.

Deborah Arnott, ASH Chief Executive said:

“The 15p rise in tobacco tax will encourage some adults to quit but is unlikely to have as strong an impact as a price rise of 5% or more above inflation would have had. However, we are encouraged by the commitment to raise tobacco taxes in future years and urge whichever Party that wins the General Election to adopt this strategy. Raising the price of tobacco is one of the most effective ways of reducing smoking.”

ENDS
Editors notes:

[1] The ASH report: The Effects of Increasing Tobacco Taxation: A cost benefit and public finances analysis” is available at: http://www.ash.org.uk/files/documents/ASH_722.pdf

[2] Howard Reed is a widely published economist whose technical expertise lies in microeconometric analysis and econometric modelling. Howard is the director at Landman Economics and was previously the chief economist at the Institute for Public Policy Research and the Institute for Fiscal Studies.