Tobacco Smuggling in the UK

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Background

In the UK the latest figures available show that despite the British Government's 10 year campaign to eradicate tobacco smuggling, the problem still costs the taxpayer an estimated £2.2 billion a year.

According to HM Revenue & Customs, "the illicit tobacco market in the UK has changed significantly since 2000. Historically it was made up of genuine UK brands of tobacco smuggled from lower-priced EU countries. Currently, it is much more a mix of genuine UK and non-UK brands of cigarettes, hand-rolling tobacco, counterfeits, and increasingly, illicit whites".[1]

Official figures show that the proportion of genuine UK-made cigarettes being seized has fallen dramatically. In 2002/3 the figure was about 31 per cent of cigarettes being UK-made; 41 per cent being counterfeit and 46 per cent being illicit and non-UK duty paid. In 2009/10, the last year for which figures were available, the proportions had changed dramatically so only six per cent was genuine UK made, 48 per cent was counterfeit and 46 per cent illicit or non-UK made, known commonly as cheap whites. [1]

Whilst the smuggling of genuine UK-made cigarettes has declined, HMRC concedes that "smuggling of genuine UK brands continues to be a particular problem for hand-rolling tobacco, which is relatively small in volume but high in value. In 2009/10, half of HMRC and UKBA seizures of hand-rolling tobacco were genuine UK brands, with the remainder being counterfeits of UK brands (24%) and non-UK brands (26%)".[1]

Anti-Illicit Trade Summit

On 31st January 2011, the think tank Progressive Vision and the Tobacco Manufacturers' Association held an "Anti-Illicit Trade Summit" in London. The meeting seemed to have four purposes:

From Villain to Victim?

Part of the meeting was to continue the campaign by the tobacco industry to show that it is a victim of tobacco smuggling, not just a facilitator, and to encourage it to be part of any coordinated solution.

As Progressive Vision noted in the conference summary: "The Tobacco Manufacturers’ Association (TMA) is particularly keen to encourage the illicit trade prevention community to work with manufacturers in tackling this problem. Progressive Vision shares this objective and therefore organised a summit to bring all stakeholders together."

Get in on the "Deal"

In July 2010 the new Coalition Government in the UK invited the food and alcohol industries to join it in a new ‘partnership’, from which the tobacco industry was excluded. It was called the ‘Public Health Responsibility Deal’.[2] However the tobacco industry and its allies have been trying to get tobacco companies accepted within the Deal.

Progressive Vision urged "HMRC, TS and HMT to work with the Tobacco Industry more closely as the manufacturers not only share the government’s aims in combatting illicit tobacco, but have much to offer by way of information and expertise. There is also scope for inclusion of the tobacco manufacturers in the Department of Health’s Responsibility Deal network, particularly with regard to anti-illicit trade and behaviour change initiatives".[3]

Tax Rethink

The third strategy was for the industry and its allies, like Progressive Vision, to call for a rethink on tax. Progressive Vision called "on the Government to scrap the duty escalator which would see tobacco duty rise to 2% above inflation in the forthcoming 2011 Budget. In the longer term, we would also like the current policy of setting punitive taxes to disincentivise smoking to be revisited, as it has resulted in unintended antisocial consequences that hit the poorest the hardest".[3] The meeting also allowed Simon Clark from Forest and magazines such as Tobacco Reporter to also call for reductions in tax on tobacco.[4]

A Pre-emptive Strike Against Plain Packaging

The fourth reason for the Summit was a pre-emptive strike against display bans and plain packaging. Progressive Vision outlined the industry's arguments against both these issues. These are built around the thought that two proposed changes in legislation designed to dissuade people from buying tobacco could in fact make the sale of illicit tobacco easier:

- The proposed ban on product displays is intended to minimise the ‘advertisement’ of the product on the shop shelves. However, moving the stock to under the counter reduces the customer’s ability to discern whether they are getting a genuine product, makes it harder for enforcement officials to spot counterfeit goods, and makes it easier for illicit ‘under the counter’ sales to take place.
- The proposal to remove all forms of branding from cigarettes and instead have simple, identical packaging would make it far easier to produce a counterfeit product.[3]

Government Announces New Structures To Stop Manufacturers Exploiting Duty On Tobacco Products

In March 2011 George Osborne, Chancellor to the Exchequer, announced new structures to stop manufacturers "exploiting" the duty regime which he said would "reduce smoking and improve the nation's health". However, in an article in The Grocer [5] this action was quoted as being feared by retailers who saw it as "the moves will simply push cash-strapped smokers towards the cheaper illicit trade". It went on to say that the increases would "undermine the effectiveness of the government's new Tackling Tobacco Smuggling Strategy". An opinion shared by Christopher Ogden, the Tobacco Manufacturers' Association chief executive, who described the 2011 Budget as "complete lack of joined-up thinking" because taxation was "the acknowledged driver of the illicit tobacco trade".

Tax Hikes 'will Undermine' War on Tobacco Smuggling

In May 2011 Justine Greening, the Economic Secretary to the Treasury, reported in The Grocer that the government was looking to protect retailers from the illicit trade. In the same article, Christopher Ogden, the Tobacco Manufacturers' Association's Chief Executive, said that the body had been working with the HMRC on understanding the illicit trade market, but added "January's increase in VAT and subsequent tax hike ... incentivise smokers to seek cheaper illicit products ... greater profit motive for organised criminals".[6]

Make Your Own

The April 2011 The Grocer reported that 12 million UK adults smoke tobacco and the tough economic conditions were forcing people to buy illegal tobacco. In response Imperial Tobacco launched a novel cigarette "Make-Your-Own" cigarette machine and JPS Silver roll-your-own in its supposed "fight back" against the illicit tobacco trade. [7] Make-Your-Own tobacco works out considerably cheaper than traditional cigarettes.

"Over a Quarter" is Smuggled, So Don't Raise Taxes or Introduce Other Regulatory Measures

In March 2012, according to Japan Tobacco International over a quarter of tobacco smoked in the UK was smuggled. The company then used the figure to attack the latest tax increase in the Budget, the proposed Point of Sale Display Ban and Plain Packaging. Martin Southgate, managing director of JTI UK said: "There is a tobacco display ban on the horizon and a consultation planned for the spring to discuss options to introduce uniform packaging, increasing the tax just doesn't make any sense. Why make it easier for criminals to make money."[8]

Related TobaccoTactics Resources

  • This page is part of the section of Tobacco Smuggling, which includes a section on History of Smuggling.

TCRG Research

TCRG Blogs

Notes

  1. 1.0 1.1 1.2 HM Revenue & Customs and the UK Border Agency, Tackling Tobacco Smuggling – building on our success, April 2011, accessed September 2011
  2. A. Gilmore, E. Savell, J. Collin, "Public health, corporations and the New Responsibility Deal: promoting partnerships with vectors of disease?", Journal of Public Health, 2011, 33(1), 2-4, doi: 10.1093/pubmed/fdr008
  3. 3.0 3.1 3.2 Progressive Vision, Report on the Progressive Vision Anti-Illicit Trade Summit, 31 January 2011
  4. G. Gay, Elephant in the Room, Tobacco Reporter, March 2011, p40-41
  5. G. Walker, Chancellor targets cheaper tobacco, The Grocer, 30 March 2011, accessed 26 July 2011
  6. R. Hegarty, Tax hikes ‘will undermine’ war on tobacco smuggling, The Grocer, 7 May 2011, accessed 26 July 2011
  7. B. Phillips, "Imperial fights illicit traders with Make Your Own range," The Grocer, 26 March 2011, accessed 25 July 2011
  8. Wholesale News, "JTI provides estimate on UK revenue loss," March 2012, p9