The punitive hikes in tobacco duty introduced by Chancellor Jeremy Hunt last year may have backfired.
Reports this morning suggest the UK inflation rate has ‘unexpectedly’ taken a turn for the worse. According to the Guardian:
The increase in the annual rate was largely the result of a government increase in tobacco duty, after the chancellor, Jeremy Hunt, announced higher taxes in the autumn statement.
Given the importance Rishi Sunak has placed on reducing inflation to two per cent, this is nothing short of a disaster for Downing Street, and it’s pretty clear who is to blame.
But first, a quick recap:
In his Budget statement last March, the Chancellor stuck to the tobacco escalator and increased duty on cigarettes using the Retail Price Index (RPI) of 10.1%, plus 2% – in other words, an increase of 12.1%.
And if that wasn't enough, in November he raised the duty on cigarettes by RPI plus 2% again. Furthermore (to reduce the gap with cigarette duty), he increased the duty on hand-rolling tobacco by RPI plus 12%.
This was just seven weeks after the prime minister announced plans to introduce a generational tobacco sales ban, so the Chancellor no doubt thought he was kicking on an open door.
However, the economic consequences of the Government's war on smoking are now coming home to roost, and it's not good news for Rishi Sunak or the Conservatives, whose election schtick will be based largely on their ability to reduce inflation and improve the economy.
Instead, according to the Bank of England, inflation is currently at four per cent and the target of two per cent is further away than it was before the latest figures.
Of course, given that smoking is a minority habit, there have already been people questioning why the price of tobacco could impact the inflation rate.
It's true that tobacco is just one of hundreds of consumer items used to calculate inflation, and it's also true that increases in tobacco duty won't directly affect the vast majority of the population.
But that's true of many items in the 'basket' used to calculate inflation. I don't use e-bikes, for example, nor have I ever purchased security or surveillance cameras (items recently added to the list).
I rarely use the train, either, yet train tickets are included, so the inclusion of tobacco (which is still consumed by almost one in seven adults) is perfectly legitimate, especially if you contrast tobacco with two items recently removed from the list – digital compact cameras, and non-chart CDs bought in store.
But there are two other aspects to this.
One, by having an impact on the inflation rate, Hunt's decision to impose further punitive tax hikes on tobacco last year has marked him (and therefore the Government) as economically incompetent.
Most people won't care that they don't smoke and are therefore not directly affected by an increase in tobacco duty.
The only thing that will register is that efforts to reduce inflation have stalled and the Government is struggling to achieve its target of two per cent. Politically, that's another error by the Chancellor.
Two, most smokers are from poorer backgrounds. Forcing people who are already on lower wages to pay significantly and disproportionately more for tobacco is hardly levelling up – it's discrimination, pure and simple.
Not for the first time, the war on smokers, and smoking, has backfired. If that doesn't give Rishi Sunak pause for thought before he steams ahead with his generational tobacco sales ban, I don't know what will.
PS. I don't claim to be economically literate myself, so if I've got anything wrong do let know. Then again, I'm not Chancellor of the Exchequer!