Saturday, October 31, 2009

Victims Of High Taxation

The Village Postmaster and his family are still recovering from their 1am encounter with the robbers who smashed into their shop. Needless to say, the police have yet to apprehend anyone.

The gang were after cigarettes, and it turns out this was one of a huge number of such robberies taking place right across the country. Just in the last few months, small shopkeepers have been hit in Croydon, Oxfordshire, Glasgow, Sussex, Devon, Gloucestershire, Liverpool, Yorkshire, and back in Sussex again. AND THAT'S JUST THE FIRST PAGE FROM HUNDREDS OF GOOGLE RESULTS.

This is a massive crime wave.

WTF is going on?

The VP has already blogged his own highly plausible theory. Just like back in the eighteenth century, extraordinarily high taxes on tobacco have nurtured an extensive black market. And as before, this market has been supplied principally by smugglers bringing in untaxed stock from overseas.

It is a highly organised business. As described here, it has progressed way beyond a few amateurs loading up their white vans in Calais. Indeed, it is no longer driven by the difference in duty between the UK and our EU "partners", such differences having been largely eliminated (tax now accounts for 70-80% or more of the retail price right across the EU).

No, what's driving this is that organised criminal gangs have found ways of obtaining large quantities of cigarettes and tobacco without paying duty at all.

Of course, some is counterfeit. But much is the genuine article, manufactured and branded by the big international tobacco companies, and reportedly sourced from their legitimate factories in countries such as Ukraine. Here's a graphic summarising one estimate:

Obviously, the customs authorities all over the EU are working to clamp down, and over the last few years, HM Revenue and Customs have stepped up their efforts significantly. Quite right too.

But every success means that black market distributors in pub carparks and bootsales across the country find themselves short of product. So as the VP points out, the market has come up with a neat solution - stealing from legitimate suppliers here in the UK.

We've blogged the black market in tobacco before (eg here and here). Fundamentally, with tax now accounting for three-quarters of the price of cigarettes, even normally law abiding folk like the parson and the clerk can convince themselves such taxes are onerous and unnatural, and that it's reasonable to resort to the black market. After all, it isn't as if the black market is real crime, like murder or something.

We have moved beyond the realms of workable taxation. High taxes become the excuse for criminality.

And tobacco is such a great product for criminals. It's both light and high value (cf the mobile phones used in VAT carousel fraud). In one recent case, customs officers "found 74,000 cigarettes in the luggage of a Newcastle couple travelling from the Canary Islands". Something that easy to smuggle is very difficult to stop.

So what to do?

Well, since Tyler doesn't himself smoke, he strongly supports taxing smokers to buggery. Let 'em pay, says Tyler - less taxes for the rest of us to stump up.

But as we can see, that approach has opened the gates to a crimewave. And whatever the buyers of black market ciggies may tell themselves, it's not a victimless crimewave - just ask the VP and his family.

Worse, the black market in tobacco is just one part of Britain's burgeoning black economy. As we blogged here, most serious estimates have put the size of our black economy at 10% of GDP or more. But those estimates were made pre-recession and pre-Polish plumbers. Our guess is that it's now much bigger, and our forthcoming tax hikes will make it bigger still.

Which is very worrying.

High taxes fuel the black economy.

And the black economy fuels crime.

Yet another reason why Cam and Oz need to get a lot more serious about cutting spending rather than raising taxes yet further.

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