Those who cause the harm must pay: Tobacco Industry Levy needed amidst fiscal pressures
A ‘polluter pays’ levy on tobacco companies could raise up to £5 billion over the next five years to help more people stop smoking. Health charity, Action on Smoking and Health (ASH) is urging the Chancellor to make the tobacco industry pay its fair share towards the enormous costs of smoking to the public purse. As public finances face mounting pressure, ASH argues that now is the time for those who cause the harm, to pay for it, through a new levy.
In addition, the charity is urging government to implement higher tobacco taxes to reduce the affordability of harmful tobacco products and encourage more people to quit.
Analysis by the University of Bath and the University of Sheffield estimates that a levy could raise up to approximately £5 billion over 5 years while also controlling prices in the market and limiting tobacco manufacturers extraordinary profit margins. These are currently up to 61% for UK tobacco companies, compared to the 10% average for consumer products.1
The funding could be used to accelerate progress to support current smokers to quit as the Government implement their smokefree generation legislation and make strides towards their goal of creating a smokefree country.
Tobacco costs society around £43.7 billion every year in health, welfare, and productivity losses, significantly higher than the £7 billion raised by tobacco taxes each year.2 Reducing rates of smoking would benefit government revenue freeing healthcare resources and boosting productivity. A levy on tobacco companies can bring forward the date when the country is smokefree and provide needed support to low-income groups where smoking rates are highest.
Hazel Cheeseman, Chief Executive of ASH, said:
“The government faces tough fiscal choices, but this one is simple. Tobacco companies make many millions in profits from products that kill half their users. These companies can and should pay more.
A Polluter Pays levy would ensure the industry, not the taxpayer, covers the costs of its own damage, while protecting health and raising vital revenue.”
The proposed levy would cap wholesale prices, stopping companies from passing the cost on to consumers, and would also limit industry profits. It would build on the UK’s long-standing success in tobacco taxation, ensuring fairness in who bears the financial burden of tobacco-related harms.
Closing tobacco tax gaps
In addition to making the polluters pay ASH is also calling as part of its Budget Representation 2025, for a comprehensive set of reforms to strengthen tobacco taxation and close loopholes that allow certain products, particularly cigarillos and heated tobacco, to be sold more cheaply and marketed more freely than cigarettes.
Cigarillos are currently taxed around 27% less than cigarettes and can still be sold in small, flavoured packs that appeal to young people. Aligning cigarillo tax with cigarettes could raise an estimated £29.4 million per year for the Treasury while protecting children from industry exploitation.
Similarly, heated tobacco products are taxed based on weight rather than per stick, keeping retail prices artificially low. ASH recommends increasing the excise duty on these products to at least 80% of the cigarette tax rate, following the model used in Germany.
ASH is maintaining its call for HMT to close the gap in tax between hand rolled tobacco (HRT) and factory-made cigarettes by putting an extra 10% on top of the tobacco tax escalator for HRT.
Dr J Robert Branston, Associate Professor of Business Economics and Co-Director of The Tobacco Control Research Group at the University of Bath, said:
“The UK is a world leader in tobacco control, but these loopholes undermine our goal to become a country free from the harms of tobacco. By increasing taxes on all tobacco products, including aligning cigarillo taxes with cigarettes and significantly increasing the tax on heated tobacco, the Treasury could both boost revenues and protect public health.”
Dr Katie East from Brighton and Sussex Medical School has been analysing the uptake of non-cigarette tobacco products and finds cause for concern:
“While countries with otherwise similar regulations have seen a fall in young people using products like cigarillos, we have seen increases in England. Weaker regulations and lower prices might be reasons for the growing popularity of cigarillos, which are cigarettes in all but name.”
2 https://ash.org.uk/key-topics/the-economic-impact-of-smoking
ENDS
Contact: press@ash.org.uk
Notes to Editors
- Cigarillos are small cigar-like tobacco products that closely resemble cigarettes but are taxed as cigars.
- Heated tobacco products are devices that heat rather than burn tobacco, but still deliver nicotine and other harmful chemicals.
- ASH is a public health charity established by the Royal College of Physicians in 1971, funded by the British Heart Foundation and Cancer Research UK.
Full list of ASH’s recommendations for the 2025 Budget:
Taxes on tobacco products
- Tobacco tax escalator: increase the tobacco tax escalator from 2% to 5% above RPI.
- Raise Minimum Excise Tax at least in line with the tax escalator
- Enhance the hand rolled tobacco (HRT) tax escalator: by an additional 10% above the tobacco tax escalator, until tax per average HRT cigarette is equivalent to that of factory made (FM) cigarettes.
- Eliminate duty free allowances for tobacco
- Tax cigarillos at the same rate as cigarettes and eliminate the significant differential in taxation with FM cigarettes.
- Raise taxes on all tobacco products: it would be timely for HMT to review taxes across tobacco products, in particular heated tobacco which has grown in popularity and on which other European countries are levying higher taxes.
Fiscal opportunity from a levy on tobacco companies
- To raise revenue from tobacco companies, and limit their pricing tactics and profits, by implementing a ‘Polluter pays’ levy scheme on tobacco manufacturers
Taxes on vapes, nicotine pouches, and other nicotine products
- Publish a vape strategy jointly with DHSC and other relevant parts of government, setting out a clear approach to vaping products and the vape market.
- Model impact of excise tax on vape devices: there is scope to tax vape devices as well as liquid. This should be modelled to better understand the impact on public health. A tax on heated tobacco devices should also be considered.
- Review tax rate for nicotine pouches: With product regulations increasing on nicotine pouches and plans to ban or tax nicotine pouches in EU countries, it is timely to review their taxation in the UK, and we advocate for the implementation of a tax consummate with the forthcoming tax on vape liquids.
Supply chain controls to protect tax revenues
- Better communicate the UK’s track record on illicit tobacco
- Fund activity to reduce the demand for illicit products
- Revise Economic Operator ID (EOID) regulations: to require publication of tobacco retailer EOIDs.
- Maintain current levels of funding for local and national illicit tobacco enforcement activity until at least 2029
- Provide sufficient funding to local enforcement for implementation of the Tobacco and Vapes Bill