Respiratory: Industry responsible for much of tobacco price hikes in UK

Tobacco companies have driven around half of the price hike in cigarettes in Britain in recent years, yet industry insists that tax increases are solely to blame, say experts in an online editorial in Tobacco Control.

Furthermore, industry repeatedly claims that tax rises fuel tobacco smuggling – claims that have intensified as the UK deliberates on whether to introduce plain packaging – say the authors from the UK Centre for Tobacco Control Studies at the University of Bath.

They cite the claims, repeatedly made by Japan Tobacco International (JTI) (which has around a 40% share of the UK market) in reports and formal responses to budgets, that tax increases are behind the rise in tobacco smuggling.

“These claims are made despite evidence of the far more complex supply-side drivers of the illicit tobacco trade (including tobacco industry involvement), recent survey evidence showing that price was unrelated to levels of illicit tobacco use across Europe, and data from her Majesty’s Revenue and Customs showing that levels of illicit cigarettes in the UK have declined steadily to reach an estimated 9% by 2010-11,” they write.

In a bid to find out what proportion of cigarette price rises are attributable to tax hikes or increases imposed by industry itself, the researchers analysed data from market research company Nielsen on brand specific cigarette prices and sales in Britain between 2006 and 2009.

Nielsen has been publishing these data since November 2006, and claims to track £0.87 in every £1 spent.

The researchers segmented the brands according to price: premium; mid-price; economy; and ultra-low price, and then used the Nielsen data and the Consumer Price Index (CPI), the UK government’s preferred measure of inflation, to calculate the total price increases over the three year period and apportion the amount to tax and other costs.

Their calculations showed that almost half (48%) of the total increase in price across all brands combined was directly attributable to tobacco companies raising their own prices. Tax increases were responsible for the remainder (52%).

And for all but the cheapest brands, the proportion of the total increase directly attributable to the tobacco industry was more than half, at around 55%, with tax increases taking up 45%, the analysis showed.

The authors admit that without a detailed break-down of manufacturing, distribution, and marketing costs, they are unable to pinpoint whether rising overheads have driven these increases.

But industry claims that tax hikes are responsible for “massive price increases” are misleading, they conclude, because they fail to take account of the large proportion of price hikes generated by tobacco companies themselves.

“Should the industry be genuinely concerned that price increases fuel illicit tobacco use, it would surely not increase prices to this extent [approximately half], particularly given its very large profit margins, which significantly outstrip those of consumer staple companies,” they write.

They say that their findings are entirely consistent with other research in Ireland, showing that between 2000 and 2010, roughly a third of the price increase in cigarettes was imposed by industry, “despite its claims at every budget that tax (and thus price) increases would lead to smuggling.”

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