Also see: ASH Scotland policy briefing on tobacco smuggling (March 2008) (pdf 138kb)
Tobacco taxation is as an effective way of reducing tobacco consumption as price increases deter tobacco use. When the price of tobacco goes up, people quit smoking, cut down or, in the case of young people, never start. Young people are particularly susceptible to price rises.(Liang, et al. 2003)
Studies show that a 1% rise in relative cigarette price results in the range -0.25 to -0.5 % fall in the amount smoked (Chaloupka, et al. 2002), commonly referred to as 'price elasticity'. The World Bank (1999) has calculated that a 10% increase in the price of cigarettes on average reduces demand by 4% in high-income countries and by as much as 8% in middle or low-income countries.
The effect of a 10% price increase on the 77 billion cigarettes sold in the UK would be to reduce consumption by about 3 billion cigarettes per year - an eventual reduction in tobacco-related premature mortality of around 3,000 lives per year. Additionally, if global cigarette production per adult was halved by the year 2020 this would prevent a third of tobacco-related deaths in 2020 and almost halve tobacco-related deaths in the second quarter of the century. (Peto and Lopez 2000)
In his 2000 Budget Statement the Chancellor raised cigarette taxes by 5 per cent above inflation with 25 pence on a packet of 20 cigarettes. The Chancellor announced that some of the additional money accruing from the duty increases on tobacco would go towards the NHS. The Scottish Executive received £26 million of the extra tobacco taxation money and announced that it would invest the money into a major health improvement and public health programme in Scotland. However, by the 2004 Budget, tax increases had levelled out, and the Chancellor only raised tobacco duty rates in line with inflation, which meant that (including VAT) a typical packet of 20 cigarettes increased in price by 9.2 pence.
Further details of how the Government is reinforcing its strategy to tackle tobacco smuggling are set out in a document ‘New responses to new challenges - Reinforcing the Tackling Tobacco Smuggling Strategy’, published in March 2006. Tobacco smuggling undermines the Government’s objective to reduce smoking and denies the Exchequer revenue to fund public services. Since the launch of the Tackling Tobacco Smuggling Strategy in 2000, the illicit market share has been reduced from 21 per cent to about 16 per cent in 2003/04 , protecting £6bn in revenue. The strategy is being reinforced to clamp down further on smuggling, and to tackle the persistent smuggling of hand-rolling tobacco and the growing threat from counterfeit. New measures included:
And the 2004 Annual Report of the Chief Medical Officer included a chapter called 'Tobacco and borders: death made cheaper' which revealed that 57% of hand rolling tobacco in the UK was smuggled.
A three year investigation into involvement of smuggling of BAT executives (which was made in response to a Health Select Committee report ) by the British Department of Trade and Industry (DTI) was closed in Februrary 2004 with the announcement that it had found no evidence of illegal activity and that no further actions would be taken.
Following discussions at an expert working group in October 2000, ASH Scotland published a policy paper on Policy Paper on Tobacco Taxation and Smuggling in July 2001.