MPs Call For Increases In Tobacco Taxes, May End Up Harming Britain’s Treasury

tobacco taxes
REUTERS/Andrew Winning

The All Party Parliamentary Group on Smoking and Health (APPG), chaired by Bob Blackman MP has called for yet another increase in tobacco taxes. The Conservative MP for Harrow East is recommending to Parliament, “that the tobacco tax escalator be increased from 2% to 5% above inflation every year.”

In addition, they are also calling for, “spending on tobacco control to be increased from £200 million to £300 million a year, funded by the additional tax rise.”

Citing NHS funding and, “a £30 billion shortfall in funding by 2020,” the APPG group believes that “persuading” people to quit smoking “to reduce demand (and costs)… continuing to drive down smoking prevalence will be essential to the success of this strategy.”

The APPG is dominated by health charity Action on Smoking and Health (ASH) which “acts as the group’s secretariat.”

ASH is often described as a “sock puppet” in the sense they get very little in donations from ordinary people. They have an income of around £800,000 a year mostly derived from other charities and direct funding from government. The APPG also states that ASH spent in the region of £4,500 to £7,500 on “Receptions” as well as other “Secretariat” work.

The question is, are smokers a burden on the taxpayer? Around 80 – 90 per cent of lung cancer patients are smokers as are emphysema patients. Smoking also doubles your chances of a heart attack. Nevertheless 91 per cent of smokers can name at least one of the diseases and the conclusion is most are making an informed choice.

What is no myth is the billions of pounds smokers pay in direct taxation. In 2014, receipts were £11.4 billion. It is also estimated that 70,000 people are directly and indirectly employed by the tobacco industry, from delivery drivers to retailers. Estimates of over £20 billion are not thought to be exaggerated. It could be possible that smokers pay 20 per cent of all NHS costs.

How much do smokers cost? ASH in their accounts for 2009 state on page 5 “Revealed that the annual cost of smoking to the NHS in England has soared from £1.7 billion in 1998 to £2.7 billion in 2008.”At worst, it appears that smokers contribute four times their cost to the NHS.

What is more intriguing is research from the Netherlands in 2008. The Dutch Department of Health’s actuaries calculated from the age of twenty the lifetime costs of treating the healthy, smokers and the obese these were in Euros:

Healthy:  €281,000

Obese:    €250,000

Smokers: €220,000

They concluded:  “Because of differences in life expectancy, however, lifetime health expenditure was highest among healthy-living people and lowest for smokers. Obese individuals held an intermediate position.”

The Czech Health Ministry similarly concluded a ten to one advantage from treating smokers versus taxation.

What other consequences could an increase in taxation trigger?  

Where government and the tobacco companies have common cause is in smuggling. ASH estimated in April of this year that, “10% of cigarettes consumed in the UK were illicit, and the proportion of hand rolled tobacco that was illicit was 39%.” Not all of the importation is illegal. It is perfectly permissible to go to Belgium for example and buy tobacco at the third of the price in the UK and as long as it is for personal consumption.

If the Laffer Curve is exceeded, as it appears in Ireland, the effect of the increased taxation may be severe. Ireland has higher taxes than the UK and it is estimated that 27 per cent of all tobacco is imported without duty. More worryingly is that the main drivers of the black market are the terrorist Real IRA.

ASH Scotland reported in 2011 that worldwide the main instigators of the illegal trade were, “The Taliban, al-Qaeda, Hezbollah, the Provisional IRA and… the Real IRA and Chinese Triads [who] are central to the traffic to the UK of counterfeit cigarettes produced in highly sophisticated factories in the Far East”.

In these troubled times it seems encouraging the funding of such violent and regressive organisations would be madness.

Finally, the other aspect to consider is that tobacco taxes mainly fall on the poor. They are twice as likely to smoke, compared to people that are more affluent. Christopher Snowdon of the Institute of Economic Affairs (IEA) in his paper Aggressively Regressive, states that, “The average smoker from the poorest fifth of households spends between 18 and 22 per cent of their disposable income on cigarettes.”

With a deficit of £1.5 trillion, it seems ironic that a Conservative MP is calling for more government spending which maybe counter productive. However, if the illegal trade was to take off, the results could be far worse for the country and the Exchequer, no matter how well intended.