Why the Chancellor must resist temptation to hike tax on tobacco
Saturday, February 25, 2023 at 15:00 Reports suggest the cost of a pack of cigarettes could rise by a record £1.15 after next month’s Budget.
Likewise the smallest pouch of rolling tobacco (30g) could go up by £2.
This is based on the fact that the tobacco duty escalator (which was reintroduced by George Osborne in 2010 and has been imposed almost every year since) is inflation plus 2%, and the measure of inflation used is the Retail Price Index (RPI) which is currently 12.7% or 13.4%. (Reports seem to vary.)
Either way, if you add 2% you have an increase of close to 15%.
What made me choke on my croissant though was ASH's reaction. After years of demanding ever higher tax hikes (inflation plus 5%, for example), it appears that ASH is ambivalent about the possible increase (which I suspect was someone flying a kite).
[The] group noted that RPI is "not a good measure of affordability" at the current time when wages are not keeping pace with inflation.
In a statement, ASH said: "A better measure of affordability is average earnings, as is used in Australia, and we recommend that the UK switch from using RPI to average weekly earnings increase as the foundation for the tobacco tax escalator.
They add that:
"The Office for Budget Responsibility (OBR) estimates that average weekly earnings will have grown by 5.4% in the fiscal year 2022-3, and are expected to grow by 4.2% in 2023, while the figures for RPI are 13.0% and 8.3%."
So, while I note ASH's unexpected concern (?) for smokers who may be feeling the pinch financially, you'll forgive me if I raise a quizzical eyebrow.
After all, raising excise duty to make tobacco less affordable to more people has been ASH’s policy for years, so why the sudden interest in a better (fairer?) measure of “affordability”?
Inflation is expected to fall later this year so pinning an increase in excise duty to average earnings growth - which is likely to exceed inflation in the not too distant future, especially if public sector workers get their way - may not be as attractive as it sounds.
I’d have to check the figures but had a similar policy been in place over the past decade or so, during which inflation has been consistently low, the price of tobacco may have been even higher than it already is.
Either way, this is the first time I've heard ASH challenge the use of RPI as a measure of inflation in relation to excise duty on tobacco. Why now?
The Retail Price Index is one measure of inflation used by government. Another is the Consumer Price Index (CPI) which tends to be lower, so using the RPI to calculate tobacco duty has always been problematical for smokers.
In October 2017 - long before ASH expressed a view on RPI - Forest published a briefing paper, 'The impact of using the RPI in the tobacco duty escalator', that began:
The reintroduction of the tobacco duty escalator (the policy of raising taxes above inflation) in 2010 has led to very large tax increases on tobacco products. Compounding the issue, the government has used an inflation measure – the Retail Price Index – that is known to be higher, in general, than the rate of inflation.
A review of price indices by Paul Johnson, director of the Institute or Fiscal Studies, found that the RPI is fundamentally flawed because it s "upwardly biased". It also argued that taxes should not be linked to the RPI inflation measure because of its flaws and that its continued use risks the integrity of the public finances.
The tobacco duty escalator has therefore used an inflated (and discredited) inflation rate and has risen much faster than it would have if an accurate measure of inflation had been used. This has punished smokers by raising the cost of living.
In particular it has hurt those on low incomes for whom tobacco duty is highly regressive. This in turn will have driven smokers to the illicit and cross border cigarette market that has grown as a percentage of total consumption since the reintroduction of the duty escalator.
As I say, I don't remember ASH objecting to the use of RPI to calculate tobacco tax hikes before, so forgive me if I’m sceptical about their motives.
It's particularly odd that they are commenting on RPI now because, as I understand it, it’s due to be dropped as a measure of inflation (for tobacco at least) later this year, although any tax hikes in next month’s Budget may still be based on RPI.
Could it have something to do with the fact that ASH is also calling for an additional levy on the tobacco companies that everyone knows will be passed on to the consumer?
The levy is far more important to ASH and the tobacco control industry because the money raised - whether it be £125m or £700m a year - is supposed to be spent on tobacco control initiatives. (Nice work if you can get it.)
As for raising duty on tobacco using a method employed in Australia, the motive for that also needs to be looked at. Is it coincidence, for example, that Australia, has the highest rates of tobacco duty in the world?
The country also has a significant problem with illicit tobacco, grown domestically or smuggled into the country, but that doesn’t get a mention.
My immediate concern however is the fact that the Chancellor, Jeremy Hunt, is a former health secretary who in 2014 argued that Britain should “aspire” to be a country where nobody smokes.
Let’s hope that ambition doesn’t drive him to overplay his hand. We know smokers are an easy target but if the Chancellor succumbs to temptation poorer smokers will be pushed further into poverty and there will be only one group that wins - not ASH, but criminal gangs and illicit traders.
Reader Comments (3)
Whatever the motives, one thing we can be sure of is that it is motivated by ASH's vested interests to keep on screwing consumers to fund their salaries and lifestyles. It doesn't fool anyone that the organisation wants to disguise it's war on tobacco consumers by hiding behind the call for a levy on Tobacco companies.
One thing the calculated and manipulative fake charity is not is stupid. Of course they know that targeting tobacco companies for more funding for ASH's anti smoker politics will also lead to picking the pockets of the beleaguered consumer as the big tobacco companies looking to keep their profits pass that on - or those like Philip Morris rub their hands with glee at the prospect of higher tobacco prices helping to fund their cause for Big Vape to replace Big Tobacco and give the company back profits it has lost through quitters over several decades.
Every year the unholy mix of ASH and the Chancellor unite to make it more and more difficult to remain a law abiding smoker.
Thank heavens I can still afford this small luxury.
Parliamentarians weren't always cruel to pensioners, then again ASH had not been invented then.
NEW CLAUSE.—(Relief for pensioners in respect of increase in tobacco duty.)
HC Deb 09 July 1947 vol 439 cc2333-57
Brought up, and read the First time.
r. Dalton
I beg to move, "That the Clause be read a Second time."
At last I am going to seek to make provision, with the consent of the House, for some old people to have a smoke. In consequence of the discussion which took place on the Second Reading of the Bill and before that, upon the Budget Resolution, I gave an undertaking to study whether we could devise some administrative arrangement to enable certain defined classes, particularly old age pensioners, to get a limited quantity of tobacco at pre-Budget prices."
https://api.parliament.uk/historic-hansard/commons/1947/jul/09/new-clause-relief-for-pensioners-in