Pre-Budget Report: Tobacco tax maintained and smuggling strategy updated – good progress being made but more work needed

Monday 24 November 2008

ASH welcomes the government’s commitment to maintain the level of tobacco taxation despite the reduction in VAT announced in the Pre-Budget Report. However, the government is urged to increase tobacco tax above inflation in the next budget to help the large majority of smokers who want to quit.

The new integrated strategy to tackle tobacco smuggling, released today as part of the Chancellor’s Pre-Budget Report, represents a significant step forward but leaves some areas of concern. Currently tobacco smuggling is costing the UK economy around £2.4 billion a year in lost revenue. Substantially reducing tobacco smuggling would therefore help recoup this lost revenue and curb this criminal activity. New and tougher targets are needed for a reduction in tobacco smuggling.[1] The target set out in Annex 1 for 2008-9 to restrict the size of the illicit cigarette market to no more than a 13% market share, was achieved by 2006/7, while at the current pace of progress it is unlikely that the target for hand-rolled tobacco will be reached. [2]

ASH Director, Deborah Arnott said:

“The new integrated strategy should help reduce the illicit trade in tobacco but it will require effective collaboration and intelligence sharing between the UK Border Agency and HMRC if it is to be successful.

“The lack of new tougher targets to reduce the market share of illicit trade in tobacco is a major concern as is the slow progress towards signing the EU anti-smuggling agreements.”

Although pleased that the UK Government supports the negotiations that are currently underway towards an internationally agreed protocol to halt tobacco smuggling, ASH believes that immediate attention should be focused on negotiations with the European Commission to enable the UK to sign the anti-smuggling agreements that already have the support of the other 26 Member States. [3] ASH would also like to see a commitment to measuring the market share of counterfeit tobacco.

Notes and links:
[1] Beyond smoking kills. ASH, 2008
[2] Measuring Indirect Tax Losses – 2007 HMRC October 2007
[3] For background information on the JTI and Philip Morris agreements see, on our website:
JTI Smuggling Agreement  and Philip Morris and EU agreement