Economics

UK Economics

Taxation

The Treasury (The department managing public funds) earned £8,093 million in revenue from tobacco duties for the financial year 2003-2004 (excluding Value Added Tax).

Tax on tobacco is collected in three ways: 

• specific excise duty at a rate per 1000 cigarettes,
• an "ad valorem" excise duty which is 20% of the total retail price, and
• VAT at 17.5% of the price including the other taxes. 

About 80% of the price of a packet of cigarettes consists of taxation.

The price of cigarettes has a major effect on cigarette consumption.  Raising tobacco taxes reduces smoking and smoking related illness as people cut down, quit smoking, or never start due to the high cost.

Subsidies

The UK Government contributes to a total Europe-wide subsidy for the tobacco-growing industry, based mainly in Italy and Greece.  Tobacco is the most heavily subsidised crop per hectare.  The European Union spends almost €1 billion a year subsidising tobacco farming. A programme to gradually phase out tobacco subsidies has been agreed by the EU and is due to come into effect in 2006.  

Health Costs

£1.5 billion in NHS costs each year for treating smoking related illnesses!

• Smoking costs the National Health Service approximately £1.5 billion a year for treating smoking related illnesses. This includes the cost of hospital admissions, GP consultations and prescriptions.  The state also pays for sickness/invalidity benefits, widows’ pensions and other social security benefits for dependants.
• Encouraging/helping people to quit smoking is a very cost effective health care intervention. For example, the cost to the NHS of prescribing  statins – drugs to lower cholesterol levels – is estimated to be between £5,400 and £13,300 per life-year gained whereas the cost of smoking cessation advice is estimated to range from £212 to £873 per life-year gained

The tobacco industry

According to the latest official figures, in 2003, 3,217 people were employed in tobacco manufacturing, and an estimated 7,600 employed in the sale and distribution of tobacco products. These figures represent a drop from about 40,000 employed in 1979, mainly as a result of increased automation of production.  The decline in jobs was approximately 72% between 1980 and 1993, whereas domestic consumption of cigarettes declined by 22% during that period and exports grew.

British American Tobacco (BAT), the world’s second largest tobacco company is based in Britain.  It has a global market share of 16%, just behind the US company Philip Morris which has 17% of the world market. 

The UK cigarette market is dominated by two companies:  Gallaher and Imperial Tobacco, each holding around 40% of market share.  

In 2004, British American Tobacco, one of the largest companies in the UK, reported an operating profit of £2,830 million.