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Tuesday, 21 March, 2000, 14:37 GMT
Up in smoke and down the drain

By BBC News Online's Ryan Dilley

For all the Budget day coverage of increases in stamp duty, changes to the married couples' allowance and tax rises on non-negotiable widget bonds, most of us just want to know how much extra we will have to pay for booze and fags.

While the Conservatives decry the government's supposed zeal for hidden or "stealth" taxes, some of the chancellor's duty increases, those on cigarettes and alcohol, are often proudly announced.

Westminster pundits regard so-called "sin" taxes on these items as a "politically painless" way for the Treasury to increase revenues while proving the government's public health credentials.

Is there an "inelastic demand" for cigarettes?
Britons already pay significantly more for their drink and tobacco than many of their European neighbours, with each year's Budget usually bringing another inflation-busting rise in the retail price.

However, the debate surrounding this tax burden has become increasingly complex, with its effect on the health of the nation, the economy and the Treasury's coffers all in dispute.

Cigarettes, and to a lesser extent alcoholic drinks, are often held up by economists as products with an "inelastic demand", willingly bought by consumers whatever the price.

An essential habit?

This principle is also used to explain consumer behaviour when purchasing such essentials as bread.

Anti-smoking campaigners point to a recent World Bank study which queries tobacco's status as an essential. It found a 10% rise in cigarette prices prompted a 4% drop in the number of smokers.

Jean King from the Cancer Research Campaign, which has pushed for a 20p increase in the duty on a packet of cigarettes, says high prices can act as an incentive to quit.

Nicotine patch
Should smokers be taxed to help them quit?
"We know increasing prices helps people who are already thinking about kicking the habit to give up. We do, however, realise that for low income smokers who aren't ready to quit it can be a struggle."

Ms King says smoking remains a habit of poorer Britons, with the pressures and strains of living on a low income making the beating of a nicotine addiction all the more difficult.

Campaigners are calling for some of the money from a duty increase, which would amount to about 300m if 20p were added, to go to smoking "cessation" projects.

Kicking the habit

"Those on low incomes can budget for their cigarettes across the week, but they can't fork out for nicotine replacement therapy all in one go," says Ms King.

A study by scientists at the University of Maryland into the effects of taxation on smokers found the health benefits less conclusive.

Looking at those in America's "high tax" states, it was found that although smokers bought fewer cigarettes, they opted for stronger brands on which they inhaled longer and more often.

British shopper in France
A "booze cruise" could cost the taxman 460
The tar and nicotine intake of some smokers actually increased after a tax increase.

Cigarette manufacturer Gallaher found sales of its low-cost brands rose as larger duties were imposed.

In common with anti-smoking pressure groups, Alcohol Concern also stands by studies which show that price increases curb consumption of drink.

"We are in favour of alcohol prices rising with inflation, so its cost remains at a realistic level. However, since 1994 excise duty on many products has fallen by 6% in real terms," says Lisa Leonard.

Drink up

Drinkers digging deep into their pockets may have "rip-off Britain" rather than Gordon Brown to blame on this score.

Either way, more and more Britons are looking further afield to supply their vices.

The Wine and Spirits Association estimates that for every estate car which goes on a "booze cruise" across the Channel, the Treasury loses 460.

HM Customs warehouse
HM Customs makes "large seizures" of smuggled cigarettes
At the same time, France makes 150 in taxes and duties.

Although up to three million cars make the trek each year, the government is more concerned about the smuggling of tobacco and alcohol into Britain for resale.

HM Customs and Excise says up to one in five cigarettes smoked in the UK and a staggering 80% of rolling tobacco is brought in by duty evaders.

"The battle against smuggling is going well and we're making increasingly large seizures. Last year we dealt with 589 cases where the tax revenue at stake was more than 50,000," said a Customs spokesman.

A taxing problem

However, by taking advantage of the freedom of movement offered by Europe's single market, smugglers are thought to be denying the UK Government 3.5bn this year, up from 2.5bn last year.

Former chancellor Kenneth Clarke, now deputy chairman of British American Tobacco, says the policy of taxing cigarettes has been a "disaster".

Forme chancellor Kenneth Clarke
Kenneth Clarke says excise duty policy is a "disaster"
"The tax differences are now so great between Britain and Europe that it encourages organised criminal activity."

With a carton of 200 cigarettes costing just 19 in Belgium, half the British price, smugglers can offer top brands at a healthy profit while still undercutting legal retailers.

More than 8,000 UK tobacconists have gone to the wall because of this illegal competition, says the Tobacco Alliance.

With three-quarters of the money you hand over for legally-brought cigarettes already going to the taxman, it seems whatever happens to the excise duties in the coming years, not everyone will be raising a glass to the chancellor.

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See also:

21 Mar 00 | Budget2000
Cigarettes up 25p a packet
21 Mar 00 | Budget2000
Drinkers raise glasses to Brown
08 Nov 98 | The Company File
Cigarette giants in smuggling scandal
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