BAT fears leap in US tax: Price war 'a temporary feature in our long-term success story'

THE TOBACCO and insurance giant BAT Industries expects the Clinton administration to seek a quadrupling of cigarette tax in the US.

Martin Broughton, recently promoted to be BAT's chief executive, said the company's best guess was that the US government would probably seek to raise federal excise tax from 24 cents to dollars 1 a packet. But he added: 'How long that will take and how much they will achieve is another question.'

BAT was reporting a 40 per cent rise in first quarter pre-tax profits to pounds 360m. Tobacco profits fell from pounds 227m to pounds 220m, partly because of reduced buying in anticipation of the price war.

Philip Morris's recent declaration of its intent to protect its Marlboro brand by aggressive price cuts poses a second threat to Brown & Williamson, BAT's US cigarette business.

However, Mr Broughton disputed the success Philip Morris claims to have achieved by discounting in a test exercise in Portland, Oregon.

He said Brown & Williamson's response would be as flexible as possible.

'We have the technology to make sure we can monitor what is happening on a store-by-store basis around the country,' he added.

Mr Broughton said BAT did not regard the proposed tax rises or the price war 'as more than temporary features in our long-term tobacco success story'.

BAT's profits were also helped by the continuing recovery at Eagle Star, whose pounds 10m contribution was part of more than doubled profits of pounds 93m from financial services. Improved UK profits and tax changes reduced BAT's tax rate, helping to boost earnings per share by 56 per cent to 13.7p.

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