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Sunday, 28th March 2010

UK: Cough up: Balancing tobacco income and costs in society

Cough up: Balancing tobacco income and costs in society
Source: Policy Exchange
From Executive Summary:

Smoking remains a controversial issue in our society. Despite tobacco being the only consumer product that kills half of its regular users, smoking is an addiction that many people continue to enjoy. However, 65% of smokers want to quit their habit, but are unable to do so; therefore smoking remains the single largest cause of preventable mortality - over 83,000 deaths in England in 2008 - and a major driver of health inequalities in our society, since poorer people are more likely to smoke.

There has been a significant amount of anti-smoking legislation enacted in recent years: smoking has been banned in enclosed public places; the legal age at which tobacco may be bought has increased from 16 to 18 and the display of tobacco products are to be removed from the point of sale. These measures have been well received and public opinion favours further measures. We have reached a tipping point in our attitudes to smoking.

Although tobacco tax in the UK is relatively high compared to other countries, cigarettes are much more affordable today than they were in the 1990s because tobacco duty rates have failed to keep pace with rises in income. Indeed, the duty escalator introduced in 1993 was removed in 2001 following concerns about high rates of tobacco smuggling. However, data now shows that tobacco smuggling has been in steep decline following the introduction of a targeted strategy: since 2000 the market share of smuggled cigarettes has fallen by 50%.

Taxation of tobacco contributes 10 billion to HM Treasury annually; however, we calculate that the costs to society from smoking are much greater at 13.74 billion. Every cigarette smoked is costing us money. These societal costs comprise not only the cost of treating smokers on the NHS (2.7 billion) but also the loss in productivity from smoking breaks (2.9 billion) and increased absenteeism (2.5 billion); the cost of cleaning up cigarette butts (342 million); the cost of smoking related house fires (507 million), and also the loss in economic output from the deaths of smokers (4.1 billion) and passive smokers (713 million).

In order to balance the income and costs of smoking, we believe that tobacco duty should be progressively increased until the full societal costs of smoking are recovered through taxation. Currently a packet of cigarettes costs 6.13, whereas we believe the cost should be at least 7.42. Cigarettes are being under- taxed by 1.29 per packet which amounts to 2.82 billion in lost revenue for HM Treasury. We believe that this increase in tax should be recovered through the re-introduction of the duty escalator; but in the first instance, tobacco tax should be increased by 5% at the next Budget.

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