World Bank cites UK as example of how tobacco taxes can be used to increase government revenues and improve public health



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A major new World Bank report launched today in Thailand [1] puts paid to the tobacco industry argument that when governments raise tobacco taxes it increases the illicit trade in tobacco, damaging government revenues and public health. To quote the report, “Countries as different in levels of economic and institutional development as the United Kingdom, Kenya and Georgia have all successfully improved the effectiveness of their tobacco tax administration and, by doing so, reduced tobacco illicit trade while increasing tobacco taxes and tobacco tax revenues.”

Indeed as the report goes on to say, “in every case study where there was a significant tax or price increase, there was a resultant increase in government revenue, and (where data was available) a decline in smoking prevalence.”

The report includes a comprehensive analysis of how the UK brought the illicit trade under control while simultaneously implementing annual increases in taxes. In the 1990s the tobacco manufacturers were selling vast quantities of their products to intermediaries who sold them illegally in the UK without tax being paid. By 1999 it was estimated that more than one in five cigarettes smoked in the UK was smuggled, and that if no action was taken this would rise to more than one in three within a few years. [2]

From 2000 onwards the UK Government implemented a comprehensive anti-smuggling strategy while continuing to increase taxes. Since then the illicit market share for manufactured cigarettes has fallen from 21% to 15%, and from 61% to 28% for handrolled tobacco and revenue losses have been cut from £3.5 billion to £2.5 billion.[2]  Over the same time period the proportion of adults in Britain who smoke has fallen from more than one in four, to fewer than one in six. [3]

The World Bank report on tobacco tax administration and reform concludes that:

  • To reduce illicit trade in tobacco products, it is both crucial and feasible for all countries to strengthen tax (including customs) administration and enforcement (as the UK has successfully done).
  • Tobacco taxes only play a minor role in illicit trade.
  • Illicit tobacco kills because it weakens the effect of taxes in reducing tobacco. consumption by increasing the affordability, attractiveness and availability of tobacco.
  • The young and the poor are most affected – cheap and illicit encourage consumption by the most price-sensitive.
  • Illicit trade provides opportunities for Big Tobacco to misinform public opinion and influence public policy – the industry routinely uses inflated estimates of the illicit trade to campaign against tobacco tax increases [5];

and goes on to encourage:

  • Implementation of the WHO Framework Convention on Tobacco Control (FCTC) guidelines on tobacco taxation and the Protocol on illicit trade.

The Protocol on illicit trade [4] is designed and was developed to prevent orchestration of cigarette smuggling by the tobacco transnationals. By the start of this century a third of global cigarette exports were going missing and the industry’s own documents showed that smuggling was a core part of the tobacco manufacturers’ business strategy, used to undermine government tax policy, a strategy that continues to this day. [6]

The Protocol came into force in 2018, and requires, among other things, the implementation of a global ‘Track and Trace’ system to monitor all cigarette packs.  The UK is a party to the Illicit Trade Protocol and a ‘Track and Trace’ system for all manufactured cigarette and handrolled tobacco packs is being introduced for all products manufactured for sale in the UK from 20th May 2019 as part of a Europe-wide system.[7]

 

Professor Anna Gilmore, from the University of Bath and Bloomberg Philanthropies STOP partnership and one of the co-authors of the UK case study said,

“The World Bank report proves that tobacco industry data and claims about smuggling cannot be trusted. It also highlights  the industry’s appalling history of involvement in tobacco smuggling. As countries move to implement supply chain controls and track and trace systems to address smuggling it is therefore vital they ensure these systems are independent of the tobacco industry”

The UK has been successful in driving down the illicit market but it could still do more. In particular the report suggests that licensing should be required for tobacco retailers as recommended in the Illicit Trade Protocol.

Deborah Arnott, chief executive of ASH, and also a co-author of the UK case study said,

“Tobacco may be legal but it is also lethal and highly addictive. Yet in England, unlike alcohol, tobacco can be sold anywhere by anyone. Selling tobacco should require a licence which can only be obtained by legitimate retailers, and removed if they’re caught selling illegal tobacco or selling to children.”

The North of England Tackling Illicit Tobacco for Better Health programme, a partnership coordinated by Fresh, has, as highlighted in the report, been successful in driving down both the supply of, and the demand for, illicit tobacco in the North East. [8] However, although the National Audit Office recommended five years ago that this model be rolled out around the country, this has not yet happened because funding has not been available. [2]

 

ENDS

Notes and Links:

Action on Smoking and Health is a health charity working to eliminate the harm caused by tobacco use. For more information see: www.ash.org.uk/about-ash

ASH receives funding for its programme of work from Cancer Research UK and the British Heart Foundation.

ASH staff are available for interview and have an ISDN line. For more information send an email to press@ash.org.uk or ring 020 7404 0242. Out of hours contact Deborah Arnott (Chief Executive, ASH) on 07976 935 987 or Hazel Cheeseman (Director of Policy, ASH) on 07754 358 593.

References:

[1] World Bank. Confronting Illicit Trade in Tobacco: A Global review of Country experiences. Editor Sheila Dutta. 2019.

[2] World Bank report chapter 7. United Kingdom: Tackling Illicit Tobacco. Authors Tessa Langley (University of Nottingham); Anna Gilmore and Allen Gallagher (University of Bath); Deborah Arnott (ASH)

[3] ASH Factsheet No. 1. Smoking Statistics. November 2018

[4] WHO FCTC Protocol to eliminate illicit trade in tobacco products.

[5] In addition to the World Bank report see also: Gallagher AWA, Evans-Reeves, KA, Hatchard, JL, Gilmore, AB, Tobacco industry data on illicit trade: a systematic review of existing assessments. Tobacco control 2018

[6] Gilmore AB, Rowell A. The Tobacco industry’s latest scam: How Big Tobacco is still facilitating tobacco smuggling, while also attempting to control a global system designed to prevent it. Tobacco Control 2018.

[7] Directive 2014/40/EU of the European Parliament and the Council on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco and related products and repealing Directive 2001/37/EC.

[8] The North of England Tackling Illicit Tobacco for Better Health Programme is featured in the report (chapter 7) as an example of how police, local authorities, HMRC and health teams joined together to reduce supply of and demand for illegal tobacco in the UK. The programme was formed in 2009 by Fresh and Tobacco Free Futures in the North West. The Illicit Tobacco Partnership was subsequently formed in 2016 by Fresh, Action on Smoking and Health and the UK Centre for Tobacco and Alcohol Studies (UKCTAS).