Wednesday 29 May 2024

Vape tax consultation - my response

The vape tax consultation closes today, so hurry if you want to respond to this awful idea (which Labour is also keen on). Clive Bates has put his excellent submission online here, but here's what I sent them...


5. Do you agree that the rates and structure outlined in Chapter 3 will achieve the stated objectives of the duty?

Yes and no.

The stated objectives are ‘to reduce the number of non-smokers and young people that vape’ and to shift vapers towards lower nicotine products. Further objectives include raising tax revenue and not making smoking more attractive. It is notable that the government’s stated objectives do not include reducing smoking rates among middle-aged and elderly adults who are at most risk from smoking-related harm, nor improving the health of the nation.

Substitution effects

It is well established that vaping is much less harmful to health than smoking and that e-cigarettes and cigarettes are direct substitutes (McNeill et al. 2022). It is also well established that switching to e-cigarettes is a highly effective way of quitting smoking (Hartmann-Boyce et al. 2022) and it is highly likely (though difficult to prove categorically) than the use of e-cigarettes by nonsmokers who would otherwise have started smoking has a prophylactic effect, i.e. it prevents smoking uptake. Ample evidence for this exists in the public health and economics literature and can be inferred in the UK from both routine statistics and general observation.

Any policy that deters consumption of e-cigarettes is therefore likely to result in more people smoking. This effect has been shown in several studies looking specifically at e-cigarette taxation (eg. Pesko et al. 2020; Saffer et al. 2019; Cotti et al. 2022). The extent to which this will occur if the UK introduces a vape tax is difficult to predict since illicit e-cigarettes make up a large share of the market and existing laws are poorly enforced.

The government acknowledges that e-cigarettes are direct substitutes for cigarettes and that there is a cross-price elasticity issue that means that a vape tax will make smoking relatively more appealing. This is correct and the government proposes yet another tobacco duty rise to offset this. The proposed rise is relatively small compared to the proposed vape tax. For example, the e-cigarette fluid I use will rise from £3 per bottle to £6.60 per bottle while a pack of cigarettes will rise from around £16 to £16.50. This still represents a substantial price difference, but the gap is relatively much smaller. Moreover, it is easy to buy a pack of cigarettes in the shadow economy for £5. Official retail prices are increasingly irrelevant as a comparator.

Nicotine levels


The government appears to believe that lower nicotine vapes are somehow more addictive or more harmful than higher nicotine vapes and that e-cigarettes will be consumed less if high-nicotine fluids are discouraged. This is the same mistake that was made when nicotine yields in cigarettes were lowered by law, although this did at least have the effect of simultaneously reducing tar yields. There is no such compensating benefit from lower-nicotine vape juice since lowering the nicotine will not reduce exposure to the other substances in e-cigarettes. In practice, vapers (and smokers) titrate nicotine to achieve the optimal level of nicotine consumption (which varies from person to person). Those who have a higher tolerance/demand for nicotine will vape more if they can only access low-nicotine fluid.

A vape tax may well switch consumers towards lower-nicotine vapes, but this is not an objective worth pursuing and could be counter-productive. Insofar as vaping causes harm to health (which remains unproven), it is not from the nicotine but from the other ingredients, flavourings, etc. in the fluid, which users will be more exposed to if they are priced out of buying higher-nicotine fluid. They will certainly end up spending more money.

It should be mentioned that high-nicotine fluid cannot legally be sold in the UK as a result of the EU’s Tobacco Products Directive which caps fluids at the relatively low level of 20mg/ml.

Tax revenue

A vape tax will obviously raise tax revenue. It will be a significantly regressive tax because vapers, like smokers, tend to be disproportionately on lower incomes. It will also be, in effect, a tax on quitting smoking and will be seen as a cynical and hypocritical cash grab by the general public.

6. Do you agree that the rates and structure will encourage manufacturers to reduce the nicotine content of their products?

No. As mentioned above, this is not a worthwhile objective. Manufacturers will follow demand. They already sell vapes and vape juice with a range of nicotine strengths. They do not need to do any reformulation. They will simply sell more of one type and less of another.

7. What do you think the likely impact the rate structure will have on consumers’ vaping behaviours?

Those who have a higher demand for nicotine will vape more, buy vapes from informal, untaxed sources or buy vapes from abroad by mail order.

8. Should production of vaping products by individuals for their own use be within scope of the duty?

No.

How exactly are you going to do that? It is completely impractical. The vape tax and the government’s other anti-vaping policies will very likely lead to more home production and more illicit sales, but the failure to enforce existing laws suggests that the state will be powerless to stop it. Billions of pounds of tobacco and e-cigarette sales take place in the shadow economy every year and this trend will doubtless continue. The government explicitly intends for all tobacco sales to be conducted on the black market eventually. It may hope to keep some sort of a grip on the e-cigarette market, but the vape tax and other anti-vaping policies currently proposed make it very likely that it will loose control of a growing share of vape sales too. Australia’s neo-prohibitionist approach to vaping has been an absolute fiasco. There are lessons to learn from that benighted country if politicians had the eyes to see.

9. Are there any other factors concerning home production/blending that should be considered?

Yes. It will encourage the sale of pure nicotine which will be mixed ineptly by enthusiastic amateurs and any harm that results from this will be your fault.

58. Do you believe the introduction of the new duty would lead to consumers switching to alternative nicotine containing products?

Yes. Cigarettes.

59. Unless already covered in your responses to other questions within this document, is there anything else you would like us to note about the impact of the duty?

There are legitimate concerns about underage vaping in the UK, rates of which have increased sharply in the last three years. Those concerns should not lead to a knee-jerk reaction that throws the baby out with the bathwater. There are no Pigouvian grounds for a tax on e-cigarettes and no non-trivial negative externalities to be addressed. A vape tax would amount to a tax on smoking cessation and would take hundreds of pounds from those who can least afford it. These are people who have already done what the government demanded and given up smoking. They are now to be punished for it in an attempt to prevent those who are already forbidden from buying vapes from doing so.

The public at large would like something to be done about underage vaping. So do I. But the laws already exist to make an sizeable impact on the problem. Illegal vapes are being sold illegally to children up and down the country. The laws are simply not being enforced. Further legislation and taxation will not address this problem.



References

Cotti, C., Courtemanche, C., MacLean, J. C., Nesson, E., Pesko, M. and Tefft, N. (2022) The effects of e-cigarette taxes on e-cigarette prices and tobacco product sales: Evidence from retail panel data. Journal of Health Economics 86: 102676.

Hartmann-Boyce, J., Lindon, N., Butler, A. et al. (2022) Electronic cigarettes for smoking cessation. Cochrane Database of Systematic Reviews Issue 11.

McNeill, A., Simonavičius, E., Brose, L., Taylor, E., East, K., Zuikova, E., Calder, R. and Robson, D. (2022) Nicotine vaping in England: an evidence update including health risks and perceptions. Office for Health Improvement and Disparities. 29 September.

Pesko, M. F., Courtemanche, C. J. and MacLean, J. C. (2020) The effects of traditional cigarette and e-cigarette tax rates on adult tobacco product use. Journal of Risk and Uncertainty 60: 229-58.

Saffer, H., Dench, D., Grossman, M. and Dave, D. (2020) E-cigarettes and adult smoking: Evidence from Minnesota. Journal of Risk and Uncertainty 60: 207-28.



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