Thursday, June 22, 2006

Choking Smokers

Because of punitive taxation, Britain has the most expensive cigarettes in Europe. Quite right too you say - disgusting habit that costs the NHS a fortune. And as a non-smoker, obviously I agree. In fact, I doubly agree because the more tax smokers pay, the less I have to.

The problem is that our dirty rotten smokers won't play ball. They look at the five quid for twenty they have to shell out here, and wonder why they don't buy for two quid from Spain. Or even 50p from Latvia. And getting on for 20% of them do just that, via those guys down the pub/car boot sale.

The consequence- as the Public Accounts Committee reminds us today- is a big loss of tax revenue. Customs and Excise put the overall loss at £2.9bn pa- no less than 27% of the tax due- and the tobacco companies reckon it's even more. So pretty well the equivalent of 1p on the standard rate of income tax.

C&E claim they're getting a grip on the situation, which is vital if the Chancellor's optimistic revenue projections are to have any chance. But as Rummie puts it, we don't know what we don't know: in reality, it could easily be heading the wrong way.

What this illustrates is the limits to taxation. Because even though the government has got political support for a punitive tax on a beleaguered minority, it doesn't actually have the ability to make it stick. The tax is at such an unreasonable level that normally law-abiding citizens are quite prepared to circumvent it. And as high tax countries such as Italy learned long ago, once public acceptance of high tax is lost, it gets fiendishly difficult to maintain fiscal order. Not to mention the broader issue of bringing the law into disrepute.

The final irony here is that many of the black market ciggies now sold in Britain are cheap forgeries containing camel dung and shredded Egyptian underpants. Nobody knows what the long-term health effects are, but issuing free Capstan Full Strength would probably work out cheaper for the NHS.

PS Ciggies are not the only products subject to punitive taxation of course. When you fill up with unleaded, getting on for 70% of what you pay is tax. And ironically- because of the 50p flat rate duty- if the pump price falls, the percentage taken by the government increases. At 70p, roughly 85% goes to government. The problem for us is that it's much more difficult to smuggle.


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