Smoking costs £13.74 billion a year - tobacco duty needs to rise to reflect this, says think tank

Thursday, 18 March 2010

Synopsis

Whilst tax on tobacco contributes £10 billion annually to the Treasury coffers, the true costs to society from smoking are far higher, at £13.74 billion, think thank Policy Exchange’s latest report finds. This cost is made up of the cost of treating smokers on the NHS (£2.7 billion) but also the loss in productivity from smoking breaks (£2.9 billion) and increased absenteeism (£2.5 billion); the cost of cleaning up cigarette butts (£342 million); the cost of fires (£507 million), and also the loss in economic output from the deaths of smokers (£4.1 billion) and passive smokers (£713 million).

The report, Cough up, calculates that of this £13.74 billion, cigarettes – which comprise 93.3% of the tobacco market – cost us £12.82 billion a year. Currently, a pack of cigarettes costs just £6.13. But this would need to be increased to at least £7.42 for cigarettes to be revenue neutral to society and their true cost reflected by their price.

The report recommends that:

Tobacco taxation should be increased by 5% in the next Budget. This would see the price of a pack of cigarettes rise by 23 pence from £6.13 to £6.36 per packet and generate over £400 million for HM Treasury.

The tobacco duty escalator should be re-introduced to increase the cost of tobacco over the course of the next Parliament to ensure tobacco use becomes revenue neutral to our society. Currently, cigarettes are being under-taxed by £1.29 per packet (costing
£6.13, not £7.42) which amounts to £2.82 billion in lost revenue for HM Treasury. It also means that every cigarette smoked costs us 6.5 pence. Detailed cost and revenue changes over time would need further modelling.

To prevent people from switching from packets of cigarettes to hand-rolled tobacco (HRT) as a means of avoiding tax increases, the duty on HRT should be increased to a level commensurate with cigarettes, since HRT is under-taxed in comparison with other forms of tobacco.

Henry Featherstone, Head of Policy Exchange’s health and social care unit and author of the report, said:

“Smoking is the single, largest preventable cause of serious ill health and kills tens of thousands of people in England every year. It is a popular myth that smoking is a net contributor to the economy – our research finds that every single cigarette smoked costs the country 6.5 pence. In order to balance income and costs, tobacco duty should be progressively increased until the full societal cost of smoking is met through taxation.

“As a start, the next Budget should increase tobacco duty by 5 per cent – this will reduce tobacco consumption by 2.5 per cent, and provide an additional £400 million for the Treasury. A proportion of this extra revenue should be put towards helping people quit, and in particular reaching hard-to-reach groups like pregnant teenagers. Targeted action like

this would help reduce England’s growing health inequalities, whereby those on lower incomes suffer more ill health, which can largely be attributed to smoking.”

The report also finds:

Smoking is a socially inherited disease: a smoking mother greatly increases the chances of a child smoking. A specialist stop smoking service for pregnant mothers should be established throughout the country, as part of either maternity units, or the current NHS Stop Smoking Services. Direct financial incentives to stop smoking of £10 per week should be offered to pregnant women of, or below, the age of 20 – this would cost £36 million annually.

Prevention of addiction is the crucial next step in reducing smoking prevalence. A body of evidence demonstrates the effectiveness of mass media campaigns targeted at young adults to prevent tobacco addiction. These media campaigns would cost £10 million per year to implement Only a tiny fraction of smokers wanting to quit use the NHS Stop Smoking Service. To increase referral rates to this highly cost-effective service, funding of mass media campaigns should be increased by £10 million per annum to both continually educate the public and encourage higher levels of self-referral.

The medicine Varenicline is the most effective and cost-effective treatment option in the NHS Stop Smoking Service, but it is only used in 20% of cases. Varenicline should be offered as first line drug treatment for all patients wishing to quit smoking - this would cost £36 million.