Anna Gilmore attempts some economics again

Anna Gilmore's latest effort has received virtually no press attention, but it's another gloriously inept entry into her canon. She argues that recent tobacco industry warnings about high taxes fuelling the illicit trade are hypocritical because nearly half the rise in cigarette prices is due to industry price-gouging.

She sets the scene by introducing a report that was produced by JTI in 2012...

In November 2012, Japan Tobacco International (JTI), which has approximately a 40% share in the UK market, published a report, The Billion Pound Drop, on tobacco smuggling in the UK, which claims, inter alia, that tobacco tax increases fuel the illicit tobacco trade. Statements such as ‘the tax on a pack of premium brand cigarettes...has risen by more than £1... As a result, we have seen levels of non-UK duty paid consumption increase by almost 20% so far this year,’ litter the report.

She then examines cigarette price data...

We took brand-specific cigarette price and sales data from Nielsen covering the period November 2006 to November 2009 in Britain... Table 1 shows that across this 3-year period, approximately half (48%) of the total price increase across all brands combined was due to the tobacco industry increasing prices, the other half (52%) being attributable to tax increases.

Can you spot the trick? Here's ASH to give you a clue...

From 2001 until 2008 tobacco taxes rose only in line with inflation.

In fact, there was no above-inflation rise until the budget of November 2009 which—by an amazing coincidence—is when Gilmore stops analysing the data. Thereafter, there was a slew of tax hikes...

In 2009, tobacco duties were increased by 2% on the basis of a deflationary forecast in the Retail Price Index of -3%, thus representing a 5% increase in real terms. In 2010, the Chancellor announced that tobacco duty would rise by 1% above inflation for the current year and made a commitment to raising tobacco duty by 2% above inflation from 2011 to 2014. This was implemented by the new Conservative-led coalition Government in the 2011 Budget. In addition, duty on hand-rolled tobacco was increased by 10%. In 2012, the Chancellor raised tobacco duty by 5% above inflation.

That's a lot of tax rises in four years and if you read the JTI report, it's obvious that these are the tax rises they're talking about. The following is the full text of the report's introduction which Gilmore quotes selectively (see above)...

When we published our last report on the UK’s illegal tobacco market in 2010 we were greatly concerned about what might happen to levels of smuggling and cross-border shopping if the Government went ahead with a) plans to increase tobacco taxes and b) proposals to ban the display of tobacco products in retail outlets.

Since then the tax on a pack of Premium brand cigarettes, for example Benson & Hedges Gold, has risen by more than £1, an increase of 20%, and now sells at £7.72 RRP1. As a result, we have seen levels of non-UK duty paid consumption increase by almost 20% so far this year.

Gilmore could have easily obtained the relevant data for November 2009 to November 2012, but she chose not to. Funny that. Instead she goes back to the Blair/Brown years when the tobacco duty escalator had been abolished and tax on cigarettes was rising only in line with inflation.

And why was the tobacco duty escalator scrapped in 2000? Because the illicit trade was getting out of hand.