March 21, 2023

Smoking tax hike will swell black market

Smoking tax hike will swell black market

Cigarette prices will be jacked up by over 15% in the biggest tobacco tax hike in UK history, the media reports.

Rather than increase government revenues from tobacco duty, such a seismic hike will only encourage more people to buy illicit supplies – put at £2 billion per annum by HMRC in 2014.

The £8.1 billion of revenue raised in 2002-03 should by now have reached £17 billion to allow for inflation – but the revenue was only £10.3 billion in 2022. Some smokers are using new products like vapes, buying illicit tobacco, or quitting altogether.

The smoking of tobacco has been in a long term decline for a number of decades but the fall in the real value of revenue raised by tobacco duties (109%) is materially greater than the fall in the smoking rate (95%) between 2003 and 2021.

Allowing for inflation the amount of revenue lost to illicit suppliers (£2 billion in 2014) is likely to have grown to at least £2.8 billion. A large tax hike in Jeremy Hunt's budget will drive more smokers into the black market without leading to higher revenues or fewer smokers

Perhaps the government thinks it can reduce smoking by jacking up costs to an absurd level and they simply don't care if tobacco revenues plummet. If that is their thinking it would be particularly stupid to try to raise money by taxing much healthier alternatives such as vaping or THPs (Tobacco Heating Products).