Budget aftermath: Tobacco tax delay angers health lobby

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The Independent Online
A SURPRISE delay in slapping extra tax on cigarettes could cost the Exchequer a packet - of more than pounds 600m in lost revenues.

But Customs and Excise said yesterday that the decision to stall for more than seven months the extra 21p duty and tax on 20 cigarettes was a "hangover" from the old November Budgets, when Kenneth Clarke had increased tobacco duty from 1 December.

Similarly, Gordon Brown, the Chancellor of the Exchequer, has held back the increase in drink - a penny on a pint of beer and 4p on a bottle of wine - until New Year's Day, 1999.

That timing had been settled by Mr Clarke in his November Budget because he had not wished to be dubbed a "Scrooge" for putting extra duties on drink in time for Christmas.

But the distinction between the immediate, overnight increase in petrol duty, and the extra tax "holiday" for tobacco, will disturb the health lobby.

December's increase in duty amounts to 5 per cent in real terms - over and above inflation - because "the Government maintains its commitment to protecting health".

Last year's July Budget increase was also stalled until December, and it was estimated that in addition to "lost" revenue of pounds 300m, the Chancellor had handed the manufacturers ample time to maximise production and profits in advance of the tax hike.

A spokesman for Customs and Excise yesterday played down any suggestion of lost revenue. Treasury calculations show a remorselessly steady increase in the tax "take" from tobacco; up from pounds 8bn in 1996-97 to pounds 8.9bn in the coming year.

But the yield from next December's increase in duty will be pounds 25m for the rest of the new financial year - compared with a full year yield of pounds 710m in 1999-2000.

As for any suggestion of profiteering on the back of the delayed increase, Customs and Excise said that there was always stockpiling of cigarettes and tobacco in advance of a tax increase. "That is what happens every year, anyway," the spokesman said. "That is a fact of life."

But John Carlisle, the former Conservative MP who now works for the Tobacco Manufacturers' association, told The Independent that the delayed increase in duty was "a sort of crumb of comfort for me and my industry, and the poor smoker.

"Like last year, it seems to be creating a precedent as to the time the duty goes up, but from our point of view it won't make any difference to the basic problem; that the smuggler will be delighted by the news that the price is going up by that amount in the future."

He said there were limits on how much the manufacturers could produce and stockpile.

"Yes, there is always stockpiling by retailers, but they have to pay the full price, and therefore cannot do all that much." There was also a certain amount of stockpiling by smokers, too.

But he added: "Probably, iit pushes consumption up a bit because people tend to store stuff and if it's there, they are tempted to smoke it."