Labour's tobacco tax plans under fire from big baccy

Ed Miliband's plans to pay for more NHS spending with a levy on tobacco companies' profits has been criticised... by tobacco companies.

by Adam Gale
Last Updated: 24 Sep 2014

It must be difficult, being a multinational tobacco giant. The traffic wardens of the business world, cigarette manufacturers are an easy target, constantly berated for their trade and its unfortunate side-effect, lung cancer.  

Sometimes, the firms just ignore the criticism, but now that Ed Miliband has joined in, they’re starting to speak up. The Labour leader’s proposal to levy £150m on the tobacco companies’ profits is ‘unjust and just a bad idea’, Alex Gietz of Imperial Tobacco told the BBC.

Miliband’s announced a populist double whammy yesterday, saying that Labour would raise an additional £2.5bn a year for the NHS (yay!) by cracking down on tobacco firms, hedge funds and mansion-dwelling millionaires (boo!), should it win next year’s general election.

The tobacco levy would be similar to one launched in the US in 2009, which targets profits based on percentage of market share, in an effort to make it difficult to pass the costs onto the consumer. Miliband said it would ‘raise revenue from the tobacco companies who make soaring profits on the back of ill health’.

The trouble, the tobacco firms point out, is that although their profits are rising, they already provide the state with more than their fair share of tax. While the cost of smoking to the NHS is estimated at between £2.7bn and £5.2bn, tobacco duties bring in significantly more. In 2012-13, the Treasury raised £9.7bn from duties, which accounts for 77% of the price of an average pack of cigarettes, and a further £2.6bn from VAT, leading to the iniquitous situation whereby the government is the single biggest beneficiary of the tobacco trade.

Giles Roca, director general of the Tobacco Manufacturers’ Association (TMA), said: ‘This anti-business idea is illogical and ignores a major cause of lost tobacco tax, the illegal market.’ The argument that higher taxes are likely to drive consumers into the hands of criminals and thus reduce revenues is a legitimate one, but isn’t likely to elicit much sympathy from (non-smoking) voters.

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