An extra £500 million a year could be raised in tobacco tax if an independent regulatory agency to cap cigarette manufacturers’ profits was set up, academics have said.
The creation of an ‘Ofsmoke’ agency to regulate the industry – similar to those in force for utility companies – would increase tax revenue and protect public health.
The University of Bath study said the agency would have the potential to increase UK annual tobacco tax revenue by approximately £500 million a year for HM Treasury.
The money would fund, twice over, UK wide anti-tobacco smuggling measures and smoking cessation services in England. Co-authors of the study Dr Robert Branston and Professor Anna Gilmore said regulation would set a maximum price that cigarette companies could charge for their product.
They said that under their plan the retail mark-up would not be affected and neither would the price that consumers pay in shops. Instead a slice of the profits currently accrued by cigarette manufacturers would be transferred to HM Treasury through increased tax. The system would be set up at no cost to the consumer or taxpayer and would be funded instead through a levy or licence fee paid by tobacco companies.
Dr Branston said: “The market has failed to curb cigarette manufacturers in terms of pricing power and profit, and tobacco control policies have unintentionally exacerbated the problem. Clamping down on the extreme profitability of cigarettes would reduce the incentive for tobacco companies to fight public health measures and mean they have fewer funds at their disposal.
“It would also raise the small matter of £500 million for the nation. A move to regulation would make it easier to expand tobacco control policies as companies would be partially insulated against their impact on revenue and, therefore, less able to argue against them.”
Deborah Arnott, chief executive of health charity Action on Smoking and Health, added: “Tobacco multinationals are unique, they make excessive profits despite the fact their products kill half of all their customers.
“They can continue to charge premium prices and make excess profits because their products are cheap to make, highly addictive and competition in such a highly regulated market is so limited. Capping their profits is not extreme it’s essential.”
The study, which has been published in the journal Tobacco Control, is based on the UK – but the researchers are confident the system could be applied to any country where tobacco companies enjoy significant market power.