Tobacco companies raise prices more than required by tax changes, despite claims

Study undermines industry claims to be concerned that making cigarettes too expensive will push people towards illicit tobacco products

Ben Chapman
Friday 26 July 2019 06:17
A woman stubs out a cigarette in an ashtray in a cafe
A woman stubs out a cigarette in an ashtray in a cafe

Tobacco companies have increased their prices by more than is required by tax changes, undermining the industry's own central argument against increasing taxes on cigarettes.

Lobbyists for cigarette firms have argued against rises in taxes, claiming that they will make their product too expensive, pushing smokers towards fake and illegally imported tobacco.

This, the industry has claimed, actually reduces tax revenues and makes consumers less safe than if they smoke legal tobacco.

But research published on Friday by researchers at the University of Bath and King's College London found tobacco companies regularly increased their prices beyond what has been required by government.

The authors said that this shows that the companies' claim that they are concerned about high prices prompting consumers to switch to the illicit market is questionable.

They suggest that, if this was the driving concern behind calls for lower cigarette taxes, companies would have tried to ensure their own share of tobacco prices was kept low.

However, before 2010 in Britain and Ireland, almost 50 per cent of the total price increase of tobacco problems came from companies themselves, not taxation, the study found.

Between 2010 and 2012, when there were large and unexpected tax increases, industry-driven price changes were small, accounting for 16 per cent and 20 per cent respectively of the price increases in manufactured and RYO tobacco.

But from 2013 to 2015, when tax increases were smaller and planned, a third of the price increase for manufactured cigarettes was industry-driven, rising to nearly half 48 per cent of the price hike for RYO tobacco.

Price rises on cigarettes and roll-your-own tobacco products have gone beyond tax changes even when they have been large and unexpected, according to the study which was funded by the National Institute for Health Research (NIHR).

Roll-your-own (RYO) tobacco had the highest industry-driven price rises, despite higher levels of illicit trade for these products, the research, published in the British Medical Journal's Tobacco Control, found.

However, the government had been reluctant to increase taxes further on RYO for fear of pushing smokers towards the illegal market, which is already larger than that for manufactured cigarettes, the study claims.

Dr Rob Branston. from the University of Bath. said: "If the tobacco industry was really concerned about higher prices driving the market for illicit tobacco, they would only increase their prices whenever they were forced to do so by higher taxes.

"But the results of our paper show that the industry has a track record of going beyond tax rises when it comes to price increases in order to enhance their profits."

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