Giles Roca Current government tobacco taxation is resulting in HMRC losses

Cigarettes and tobacco products on display behind the counter of newsagents. Picture; Jane Barlow
Cigarettes and tobacco products on display behind the counter of newsagents. Picture; Jane Barlow
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The Tobacco Manufacturers’ Association has just published its third annual anti-illicit trade survey. This is the largest study of its kind. It measures 12,000 smokers’ attitudes, awareness and behaviours in regard to illegal and non-UK duty paid tobacco.

The results reveal the true extent of how the government’s high tobacco tax policy is shifting consumer purchases from the legal, duty-paid market to other sources. Counterfeit, smuggled and cross-border purchases cost the Treasury billions of pounds in expected tobacco tax revenue every year and fund criminal networks that make substantial profits from the illegal trade.

We know that the problem is getting worse, which is unsurprising when tax on tobacco continues to rise each year and consumers have increasing access to cheap, often illegal, sources through social media as well as through more traditional avenues. This year’s survey shows that 71 per cent of UK smokers admitted to buying tobacco products from ‘non-shop’ sources. This means that rather than going to a supermarket or corner shop and paying UK tax, a huge proportion of smokers are electing to buy some of their tobacco from abroad, from friends of family, in pubs, in the street, at car boot sales, in vans, at work, in ‘fag houses’ (private houses selling tobacco) or online.

Official government figures estimate that this behaviour costs the Treasury £2.1 billion in lost tax revenue every year with a further £500 million lost because of cross-border shopping.

Up to seven per cent of smokers are now buying tobacco online, a number that has doubled in the space of just two years. This brings its own challenges. With multiple sites offering cheap tobacco, the internet is much more difficult to police than other, more conventional sources of illegal tobacco.

So what’s driving this? Successive governments under pressure from health lobbyists have adopted a high tobacco tax policy without giving proper consideration to the potential impact on the illicit market, tax revenues or the legitimate retail sector.

There are solutions. The annual tax escalator on tobacco should be replaced with a more practicable system of optimising the tax rate, which should have the dual aim of maximising tax revenues and minimising smuggling profits. The meagre punishments for those tobacco smugglers who are caught should be replaced with tougher sanctions. Finally, HMRC’s ‘guidelines’ on how much tobacco can be brought into the UK from the EU should be replaced with formal limits.

The government must ask itself whether the high tobacco tax regime that it continues to pursue is working. The evidence suggests otherwise.

Giles Roca is director general of the Tobacco Manufacturers’ Association (TMA)