Tobacco Industry Myths Shattered as Smuggling Rates Fall Again

Thursday 18 October 2012

Official figures released today show that there was a further fall in tobacco smuggling in the UK in 2010/11. [1] According to HM Revenue & Customs, in 2010/11 an estimated 9% of cigarettes consumed in the UK were illicit compared to 11% in 2009/10. The figures for hand rolled tobacco were 38% in 2010/11 compared to 42% in 2009/10 (all figures mid-range estimates). Meanwhile, tobacco tax revenues have also continued to rise. [2]

The March 2010 Budget raised tobacco duty by inflation plus 1% and the March 2011 budget raised tobacco duty by inflation plus 2%. As always, tobacco industry lobbyists complained that tax rises (and new regulation on tobacco use) would drive up illicit trade. After the March 2010 Budget, the Tobacco Manufacturers Association predicted that because the Government had "imposed the largest tax increase on tobacco products in ten years" it would "only provide further stimulus to those who seek to profit from the illicit trade in tobacco." [3] After the March 2011 Budget, the TMA complained that the “Government has today increased tobacco duties by 2% above inflation which clearly demonstrates a complete lack of joined-up-thinking as taxation is the acknowledged driver of the illicit tobacco trade." [4] As usual, these complaints have proved to be wrong. 

Commenting, Deborah Arnott, Chief Executive of ASH said:

 “The continuing fall in the illicit tobacco trade is good news for the British economy. Once again it is clear that there is no reason to believe tobacco industry propaganda about the relationship between illicit trade, tobacco taxes, plain packaging or other tobacco control measures.

We want HMRC and the Border Agency to strengthen their successful joint work on the problem, for the UK Government to work with the European Union to make sure that the EU’s legally binding agreements with the big tobacco firms to stop smuggling work well in practice, and to work with other countries around the world to put the recently negotiated Illicit Trade Protocol into full effect.

We can defeat tobacco smuggling, and at the same time reduce smoking rates and the toll of death and disease that smoking causes. But if we listen to siren voices from the tobacco industry we will do neither.”

Cigarettes: Illicit Market and Associated Revenue Losses [5]

 

2000/1

2005/6

2006/7

2007/8

2008/9

2009/10

2010/11

Illicit Market Share

Mid-point of range

 

21%

16%

15%

14%

13%

11%

9%

 

Hand Rolled Tobacco: Illicit Market and Associated Revenue Losses

 

2001/2

2005/6

2006/7

2007/8

2008/9

2009/10

2010/11

Illicit Market Share

Mid-point of range

 

63%

60%

55%

50%

50%

42%

38%

ENDS

Notes:

[1]  Measuring Tax Gaps 2012.  HMRC.  

[2]  Tobacco tax revenues 2005/06 – 2010/11

Financial Year

Tobacco Tax Revenue - £million

2005/06

7,959

2006/07

8,149

2007/08

8,094

2008/09

8,219

2009/10

8,813

2010/11

9,144

2011/12

9,551

Source:  HMRC Tobacco Bulletins  

[3]  Double tobacco tax hike will delight the smugglers, TMA, 24 March 2010

[4] The Government risks undermining its own Tackling Tobacco Smuggling Strategy, TMA, 23 march 2011 

[5] The illicit tobacco trade rose from below 5% in the early 1990s to 20% in 2000 (mid-range estimates), in large part due to tobacco companies’ facilitating the smuggling of their own products. Around 80% of smuggled tobacco entering the UK in the 1990s was manufactured in the UK, exported and diverted to the black market, then smuggled back into the UK. In 2000, the UK Government introduced an anti-smuggling strategy and strengthened it in 2006, 2008, and 2011. Between 2004 and 2010, the European Union also concluded legally-binding agreements with the four biggest tobacco manufacturers, imposing large financial penalties if their own products were found to have been diverted into illicit channels.  

Measuring Tax Gaps 2011 (pdf)