Monday, 28 November 2016

Tobacco tokens

My IEA colleague Len Shackleton has dug up an interesting debate from 1957 about tobacco coupons for the elderly.

In 1947 Hugh Dalton, then Chancellor of the Exchequer, used the budget to raise tobacco duty very sharply, by nearly 50%. This was largely to save foreign exchange at a difficult time, and to raise revenue: at that time the health dangers of smoking were not widely accepted. Indeed, during the war that had just ended, those in the armed forces had been provided with ‘smokes’ as part of their ration.

Dalton’s measure was, technically, a ‘regressive’ tax, in that it hit the poor relatively harder than the rich. Unsurprisingly, voices were raised against this. In particular, politicians were concerned about pensioners. Many of them were habitual smokers and the new charges would be a significant chunk out of what were then pretty meagre state pensions.

Accordingly Dalton was persuaded to institute what now seems to us a bizarre process of subsidy. On application to the Post Office, and signing a declaration that the tobacco was for their own use, pensioners would receive ‘tobacco tokens’, enabling them to purchase tobacco at the pre-duty-hike price.

This subsidy continued for eleven years, during which the number of pensioner-smokers benefiting rose from 1.4 million to 2.6 million, with the cost to the Treasury rising year on year. Eventually Harold Macmillan’s government decided to bite the bullet and scrap tobacco tokens. It fell to the lot of Enoch Powell, then the Financial Secretary to the Treasury, to lead in Parliament. The debate was to be a stormy one. The government was accused of ‘penny pinching from the poorest of the poor’, imposing a ‘heavy blow and a great hardship’. Dalton, by then on the backbenches, claimed that his measure had ‘brought great comfort and satisfaction’ to millions. Powell was accused of ‘sniggering’ and ‘sneering’ as he listened to the highly emotional case being made to continue with the subsidy.

As Len says, this highlights how difficult it is for governments to withdraw hand-outs once they have begun. It is also an example of a government cushioning the blow of regressive taxation for political reasons and then taking away the cushion. Either way, the full parliamentary debate is worth a read for anyone interested in the history of smoking, as is Len's blog post.

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