HMRC is still downplaying the illicit trade

HMRC put the latest tobacco tax gap estimates out on Tuesday. As with the previous few years, they defy both belief and mathematics. Only 14% of tobacco is illicit, they claim, and illicit hand-rolling tobacco is at an all time low! 

 

Simple maths shows that HMRC’s figures cannot possibly be accurate. Converting kilograms of rolling tobacco into sticks, the equivalent of 36.6 billion cigarettes were sold legally in the UK in 2022. If this declined at the same rate as smoking prevalence (-17 per cent), it would have been 30.4 billion by 2024. In fact, there were only 22.9 billion cigarettes sold legally in 2024, a shortfall of 7.5 billion.

If we imagine, for the sake of argument, that there was no illicit tobacco at all in 2022, this would mean that 25 per cent of the total market was illicit by 2024/25 (7.5 billion is 25 per cent of 30.4 billion). If you believe, as HMRC does, that 13 per cent of the market was illicit in 2022/23, it means that 33 per cent of the market was illicit in 2024/25. If HMRC underestimated the size of the black market in 2022/23, the real figure is higher still, but the absolute minimum it could be in a wildly optimistic and frankly impossible scenario is 25 per cent.

 

The calculation above is based on all other things being equal. HMRC always adjust the figures, but they must have really adjusted them in the last few years. They need to explain what they have done and why. Since 2020, the tobacco tax gap has been little more than a guess. 

 

The only piece of solid data is the legal sales figure. We have survey data for the number of smokers and the number of cigarettes they consume, but the ONS survey HMRC relies on had its status as an official accredited statistic withdrawn in 2024 due to “ongoing challenges with the response rates, levels, and weighting approach”. Moreover, smoking prevalence and cigarette consumption figures always need to be adjusted upwards to account for shy smokers and under-reporting. This requires a certain amount of guesswork. Estimates of how much duty-free tobacco is brought into the UK are also based on surveys and may be inaccurate. 

A further problem is that during the pandemic, the ONS stopped asking people how much they smoked. HMRC therefore “imputed” the figures for 2020/21, 2021/22 and 2022/23. The question was asked again in 2023/24 and so HMRC describes its estimate for that year as “actual”, but it has gone back to guessing for 2024/25. Blaming “modifications to question sequencing and funding limitations” it says that “certain consumption data for 2024 to 2025 are incomplete”. It has therefore “projected consumption data” for 2024/25 “based on established historical trends.” But what we are seeing today is not in line with historical trends. That is the whole point!

 

One point that I didn't make in the article is that the ONS's estimates of how many cigarettes smokers consume has gone up, not down, since 2022. Since 2019, the daily cigarette consumption averages are:

 

2019: 10.6

2020: 9.3

2021: 9.8

2022: 10.5 

2023: 11.3

2024: 11.2

 

The figures for 2020 and 2021 are guesses. The survey question wasn't asked in those years so the ONS used "modelled predicted estimates". They seem suspiciously low. Since the question was asked again in 2022, the daily consumption estimate has risen from 10.5 cigarettes to 11.2 cigarettes.

 

That might not seem much but it represents a 7% increase in tobacco consumption or two and half billion extra cigarettes! That's another 2.5 billion cigarettes unaccounted for. More, in fact, because HMRC adjusts these figures upwards to account for under-reporting. 

 

HMRC seems to have ignored the ONS figure completely in its latest estimates, preferring "projections" instead. If nothing else, this shows how sensitive these estimates are to small changes and small errors. 

 

The current system has become farcical. Just use empty pack surveys for God's sake!

 

The best way to gauge the size of the black market in tobacco is to gather a large and representative sample of disused tobacco packs and see whether they were sold legally. Tobacco companies have been doing this for years. KMPG, acting on behalf of Philip Morris International (PMI), produce an annual empty pack survey which recently found that 33 per cent of cigarette packs in the UK were contraband or counterfeit. Japan Tobacco International (JTI) use a slightly different methodology in which they interview smokers in their homes and offer to exchange their empty or current pack of cigarettes for a JTI brand. Using this system, they estimate that 33% of cigarettes and 50 per cent of hand-rolling tobacco were illicit in 2024/25 (their figures for 2025/26 suggest that this has risen to 42 per cent and 60 per cent respectively). 

Many people are wary of claims made by tobacco companies, but the Irish government has been using a close cousin of the JTI survey since 2009 for its official estimates. With a similarly high level of tobacco duty, the official Irish figures are similar to the industry’s figures for the UK. Ireland’s 2025 survey found that 28 per cent of cigarettes and 37 per cent of hand-rolling tobacco was illicit. 

 

Read the whole thing. 

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The world won't listen

I spoke to Rohan Pike, the founder of the Australian Border Force’s Tobacco Strike Team, about his country’s black market tobacco nightmare. 80% of the market is illegal, tobacco tax revenue is down by three-quarters and there have been nearly 300 firebombings. It's a warning to the world but the world won't listen. 

Today, HMRC produced its tobacco tax gap estimate for 2024/25. As I have explained before, HMRC's methodology systematically underestimates the size of the illicit market and should be scrapped in favour of empty pack surveys (as used in Ireland). In their latest edition, they have resorted to "imputing" the figures for 2024/25. This is essentially guesswork based on projecting from past trends - and the past trends are themselves unreliable. It's a farce and needs to stop. According to HMRC, the amount of illegal handrolling tobacco sold is at an all time low!

Watch my interview with Rohan below. 

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More sausage action

Inside the Sausage Factory remains free to download and I've written an article for Cap-X about how rational actions lead to irrational policies.

I also did a podcast with the IEA yesterday in which I outline my arguments...

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Tales from the sausage factory

 

Today sees the release of my new book Inside the Sausage Factory: The Illusion of Evidence-Based Policy-Making. The title is a reference to something Bismarck supposedly said about law-making. It can be a messy process, but it is supposed to be ‘evidence-based’ these days, especially in areas like public health.

The book looks at four campaigns for “public health” policies in Britain in the 2010s: plain packaging for tobacco, minimum pricing for alcohol, the sugary drinks tax and the de facto ban on fixed-odds betting terminals (FOBTs). I look at the evidence that was cited the most by politicians and the media, but the thing that stands out is that the decisions to introduce (or reject) each of the policies do not seem to have had much to do with evidence.

Instead, I argue that everybody involved in the policy-making process, from voters up to the Prime Minister, was acting in their own rational self-interest. Paradoxically, this led to irrational policies being introduced (none of them worked).

I outline some of my findings at the Spectator today…

 

The evidence from Inside the Sausage Factory suggests that politicians will succumb to pressure on low-salience issues unless they believe that the policy will be widely unpopular or conspicuously backfire. Once the ‘public health’ interest groups had put their policies on the agenda, the government could not put off a decision forever. They became barnacles on the boat that needed to be scraped off. With the exception of minimum pricing in England, which had significant public and political opposition, the government in Westminster concluded that the reputational risks of inaction were greater than the political, economic and legal risks of acting. The squeaky wheel got the grease.

For those of us who are of a liberal disposition, this is not a happy conclusion to reach. It implies that politicians are hostages to small pressure groups manipulating public opinion and that the cycle will repeat itself again and again. Where will it end?

 

And I look at what happened next at The Critic…

 

In the campaigns I write about in Inside the Sausage Factory, several studies were referenced again and again by politicians, journalists and activists. The policies didn’t work and the evidence wasn’t very good, but at least evidence was cited from time to time. The evidence for banning “junk food” adverts and social media for the under-16s is negligible and the evidence from the generational tobacco ban is non-existent. Scientific evidence was not a decisive factor in any of the campaigns I studied from the 2010s. Today, it seems to be entirely optional.

 

And because the book is published by the IEA, you can download and read it for free.

 

Inside the Sausage Factory is the last in a series of publications about policy-making in “public health”.

The Corporate Playbook examines the fatuous view of policy-making that is trendy in “public health” academia.

Bootlegging Baptists looks at the economic incentives of paternalistic pressure groups and reasons why consumers do not mobilise to defend themselves.

The People vs Paternalism proposes a way of overcoming the paradox of participation and building a grassroots consumer rights organisation.

Anti-Capitalism and Public Health does what it says on the tin and examines the economic agenda of the “public health” lobby.

Not Invented Here asks why certain pressure groups oppose practical solutions to the problems they supposedly care about.

 

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Hockney's war on the dreary

I've written about David Hockney's anti-nanny state activism for Spiked. I had always hoped to meet him (he attended a few FOREST parties), but sadly I never will. 

 

The contrast between the playfulness of Hockney’s bouts of libertarian activism and the po-faced outrage he received in response only served to underline his point. After Hockney sent the Guardian a piece of art criticising ‘anti-smoking fanatics’ in 2012, its readers responded by making drawings of their own – the artistic equivalent of bringing a knife to a gun fight – to whine about how ghastly smoking is. Unsurprisingly, they were the height of cringe.

After the Guardian ran a sycophantic interview with the Australian anti-smoking academic Simon Chapman, Hockney wrote a letter to the newspaper explaining why it would have been better off talking to him. Hockney listed all the things that he was and Chapman wasn’t, including being ‘a good and satisfied customer of the tobacco companies’, ‘not a professional agitator’ and ‘someone who prefers the centre of Bohemia to Australian suburbia’. As Chapman’s flaccid reply showed, it was the charge of not being Bohemian that stung him the most. It was hard to believe that a septuagenarian living in Bridlington was more edgy than a sociologist living in Melbourne, and yet we all knew it to be so.

The puritans and killjoys of ‘public health’ had no answer to him. He was a living legend and they weren’t. Spending all day painting and smoking is not everybody’s idea of a fulfilling life, but it sounded better than whatever Chris Whitty was doing. By shifting the debate from the risks of death to the joys of life, Hockney had taken them out of their comfort zone. All they could do was ignore him. It must have pained them to see him live too long for them to say, ‘I told you so’, but he was bound to die eventually. And now he has, and the world is a drearier place for it.

 

Read it all (non-subscribers get three article free per month). 

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Uninventing the internet

Keir Starmer's attempt to build legacy is, like Blair and Sunak's, a ban, this time on kids using social media. I've written about it for The Critic...

 

We will continue to regress as a society until we learn to judge new legislation by its likely consequences rather than by the intentions of its advocates. The looming ban on under-16s having access to platforms “whose purpose is to enable social interaction and  which allow users to post material” has all the hallmarks of another government failure. It has already been tried — and failed — in Australia. It is being framed as an attack on Big Tech rather than its satisfied customers. It has been pushed through by the conflicted old media off the back of a narrow selection of bereaved parents who have been used a human shield against criticism. It seems designed to give Starmer a “legacy”.

These are all red flags. So too is the familiar refrain that the ban will not be a “silver bullet” and that the public should therefore brace themselves for further restrictions. (Many of the problems the ban is supposed to address were meant to have been solved by the Online Safety Act. Remember that?). In his early morning address to the nation, Starmer urged us to not make the perfect the enemy of the good. Teenagers sometimes drink alcohol, he said, but that was no reason not to ban the sale of alcohol to children. 

Fair enough, you might say, but leaving aside the fact that children can legally drink alcohol in Britain from the age of five, reducing some teenagers’ access to social media is clearly not perfect, but is it even good? The consequences of Australia’s “world leading” social media ban have been largely ignored by those who seek to emulate it, but any attempt to create evidence-based policy must start there. The Australian government’s eSafety commissioner found that 70 per cent of parents said their children still had active social media accounts three months after the “social media minimum age” was introduced. If, like Wes Streeting, you think that social media is as bad as tobacco, this sounds like a modest but non-trivial improvement, but who are the teenagers being denied this means of communication and what platforms are the rest using? 

 

Do read the rest. 

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David Hockney, enemy of the dreary

I'll be writing more about the great, late David Hockney next week. But for now, enjoy this interview from 2004.

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