Sunday, 28 June 2015

At what point does smuggling negate the health gain from tobacco duty rises?

Until just a few years ago the words 'illegal tobacco' seldom, if ever appeared in the press and media. It's not that the smuggling of tobacco didn't take place (how many folk brought home from overseas a couple of hundred fags for Uncle George or Grandma) or even that there weren't sufficient examples to make police, trading standards and customs keen on sending out press releases when arrests were made.

Now is different. The 'illegal cigarettes' story is a mainstay of the local press (maybe only topped by cannabis factories and 'nuisance' motorcycles) and a regular item on the agenda of local councils:

During the past month, officers from trading standards gathered almost 100,000 cigarettes and 37kg of hand-rolling tobacco, worth more than £40,000, from retailers in operations that also targeted premises in Leeds, Kirklees and Wakefield.

The seizures included counterfeit, non-duty paid and incorrectly-labelled cigarettes and tobacco. Since April 2014, West Yorkshire Trading Standards has seized almost 700,000 cigarettes and 300kg of hand-rolling tobacco.

Stoke-on-Trent City Council officers have seized 14,000 counterfeit cigarettes and 5kg of hand-rolling tobacco in a joint operation with Staffordshire Police.

The operation focused on the sale of illicit tobacco at nine premises in Hanley, Tunstall and Cobridge.

A BRADFORD shopkeeper has been prosecuted for a second time for selling illegal cigarettes and counterfeit tobacco.

Hemen Ahmed Hussain, of Chislehurst Place, Little Horton, was given a 150-hour community order by magistrates for possessing 2,500 cigarettes and 3.2kg of hand-rolling tobacco with an intent to supply.

The goods were seized by officers from West Yorkshire Trading Standards (WYTS) following a visit to Baz's off-licence in Southfield Lane, Little Horton, in September last year.

A Salford couple have been jailed after smuggling 25 tonnes of fake tobacco in a fraud costing the taxpayer almost £4m.

Feng Gao and his partner Mingshu Yang shipped boxloads of illicit hand rolling tobacco into the country.

The criminal duo, of St Heliers Drive, Salford, concealed the illegal tobacco in false soles and shelves as they shipped shoes and furniture to the North West.

The reason for this explosion in illicit tobacco sales is pretty simple - in the UK up to 88% of the recommended retail price for cigarettes is tax. And this means that avoiding paying this duty is a very profitable business. A year or so ago the Daily Mirror published a list of Britain's top twenty tax dodgers - nine of this were wanted for smuggling cigarettes, a fact that tells us just how profitable the dodging of cigarette duty is these days. And with each price escalation the more attractive smuggling gets as a business proposition for the unscrupulous, corrupt and criminal.

As it stands (and it rather depends where you look for data - the tobacco companies have higher estimates than HMRC which has higher guesses than the tobacco control industry) smuggled tobacco represents somewhere between 10% and 20% of total UK consumption. I'm going to plump for the figures used by LACORS (Local Authorities Coordinators of Regulatory Services) who put the figure at 17%. And local government recognises that the smuggling problem is significant:

Increased smuggling leads to the wide availability of cheap cigarettes to the poorest people thereby maintaining high smoking rates among disadvantaged groups; and contributing significantly to widening health inequalities

The question here is whether the regulatory and enforcement agencies - police, trading standards, customs - are able to keep on top of a growing problem. And whether the duty escalator, for all its good intentions, is now having the unintended outcome of promoting criminality while, in effect, reducing the price of tobacco in our poorest communities. Moreover, the unregulated distribution of tobacco means that it sits in the same car boot or dingy flat as illegal drugs and counterfeit booze.

There has to come a point at which the gain from increasing the price is lost - it becomes so prohibitive that most people turn to illegal and smuggled product. And if this happens then the use of price as a tobacco control tool is broken. Indeed for deprived communities this is perhaps already the case meaning that, for the poorest smokers the high price is de facto a ban so they turn to illegal supply. And if the supply of illegal drugs is any sort of guide then the steady trickle of press releases from local agencies about illegal tobacco stands to become a flood as those agencies replace shouting about small victories while knowing that they are losing the battle against the smuggler and street distributor.


1 comment:

Junican said...

I think that you have it the wrong way round, Mr Cooke. It isn't the importing of tobacco which is criminal, it is the persecution of smokers which is criminal. If you believed that some shop or whatever was ripping you off, would you not feel perfectly justified in taking your business elsewhere? Why should smokers not feel the same? The 'criminality' involved is artificial. There is no aspect of Natural or Common Law which justifies blatant State theft based upon superstition (SHS danger). On the contrary, citizens have a duty to counter these actions in whatever way they can.
There was a reasonable cause when certain goods and activities were classed as 'luxuries' and had an elevated rate of taxation. That idea had some justification since it 'penalised' those well-off enough to be able to afford those luxuries. OK. You might consider tobacco, alcohol, petrol, chocolates, sugary drinks, take-away food, etc, to be luxuries.
I wonder what the net affect of using VAT to fairly distribute taxes over, say, three categories of goods? Those categories might be: VAT free (staple foodstuffs, children's clothing, etc), Standard VAT (clothing, bus fares, pub takings, etc) and Super VAT (tobacco products, alcohol products, holiday companies, sugary drinks, high-powered cars, golf clubs, etc).
'Duties' are an anachronism in the modern world and ought to be abolished.