Velvet Glove, Iron Fist: The economic consequences of clean living

Monday, 7 August 2017

The economic consequences of clean living

I'm pleased to announce the publication of the third part of the IEA's Public Purse trilogy looking at the net cost of bad habits to the nation's finances. We have previously looked at alcohol and obesity. We now turn our attention to smoking which is often said to impose a cost of £13.7 billion per annum on UK taxpayers. That figure comes from a risible Policy Exchange report from 2010 and is overwhelmingly made up of dubious lost productivity costs.

The question we ask in this series of reports is simple and important: what would be the impact on government revenues and spending if the 'public health' lobby won the war on drinking, smoking and obesity? Campaigners often claim, or strongly imply, that costs would fall but this is based on an economic calculation that exaggerates and misrepresents costs while ignoring savings.

Written with Mark Tovey (author of Obesity and the Public Purse), Smoking and the Public Purse takes a full account of the costs, savings and tax revenues associated with smoking and finds that the government would be spending £14.7 billion more per annum if nobody smoked.

In the absence of smoking, the government would spend an extra £9.8 billion annually in pension, healthcare and other benefit payments (less taxes forgone). Duty paid on tobacco products is £9.5 billion a year. In total, the gross financial benefit to the government from smoking therefore amounts to £19.3 billion. Subtracting the £4.6 billion of costs (above) produces an overall net benefit of £14.7 billion per annum.

The report also looks at the impact on the treasury if all three of the most discussed 'lifestyle factors' - obesity, alcohol and smoking - miraculously disappeared.

Alcohol and tobacco duty provide £10.7 billion and £9.5 billion to the government respectively, with an additional £4 billion of VAT charged on this duty. If, as expected, the forthcoming sugar levy raises £500 million per annum, the government will be in receipt of £24.7 billion of ‘sin tax’ revenue by 2018.

Taken together, the net benefit to the government from the three most hotly discussed ‘lifestyle factors’ - alcohol, obesity and smoking - is £22.8 billion.

You can download Smoking and the Public Purse here.

There is some news coverage here, here, here and here.

You can read my blog post for the IEA here.

And you can see Mark Littlewood talking about the findings on Sky News below:

Contrary to popular belief, smoking and drinking is beneficial to the UK economy. @iealondon director @MarkJLittlewood explains the findings pic.twitter.com/gDqR3iAdiw
— Sky News (@SkyNews) August 7, 2017

Smoking and the Public Purse brings this series to an end. You can read all the relevant publications below. Nothing in them should be particularly controversial (see Death and Taxes for a review of the literature). It is obvious that a cost-benefit analysis requires benefits to be included alongside costs. Unfortunately, including benefits and savings doesn't suit single issue campaigners because it shrinks their estimates of the 'burden on taxpayers'. With the exception of obesity, which incurs a relatively small overall cost to the health service, doing the job properly turns a cost into a net saving.

I don't suppose this body of research will make much difference because it doesn't confirm what people want to believe (contrast that with the wafer-thin Policy Exchange document which has been cited hundreds of times in public debate), but I will keep banging this drum because it happens to be true.