The tobacco industry has bumped up prices for its products beyond that required by tax changes, even when tax rises were large and unexpected, reveal the findings of research published in the BMJ journal Tobacco Control funded by the National Institute for Health Research.
‘Roll your own’ tobacco had the highest industry driven price rises, despite higher levels of illicit trade for these products. This refutes industry’s stated concerns that price rises fuel the illicit tobacco trade ⎼ an argument they have used to lobby against tax hikes, say the researchers.
Before 2010, in Britain and Ireland, the tobacco industry regularly increased cigarette prices over and above the level required by tax rises, accounting for almost 50% of the total price increase in the UK. Since then, manufactured cigarette sales have fallen by 17%, while sales of cheaper ‘roll your own’ have increased by 46%.
But the government has been reluctant to increase taxes further on ‘roll your own’ for fear of pushing smokers towards the illegal market, which is already larger than that for manufactured cigarettes.
To explore the extent to which price rises since 2010 have been due to tax increases or industry strategies to boost profits, the researchers at the University of Bath and King’s College London analysed UK data on inflation, tax rates, and sales of ‘roll your own’ tobacco and manufactured cigarettes between 2010 and 2015.
Between 2010-12 when there were large and unexpected tax increases, industry-driven price changes were small, accounting for 16% and 20% respectively of the price increases in manufactured and ‘roll your own’ tobacco. Changes were similar across pack sizes and price segment.
But from 2013-15, when tax increases were smaller and planned, almost a third (33%) of the price increase for manufactured cigarettes was industry-driven, rising to nearly half (48%) of the price hike for ‘roll your own’ tobacco.
The authors of the new study suggest: ‘This implies that the industry does not believe [its] own argument that higher taxes/prices encourage illicit tobacco purchasing. This is further supported by a higher proportion of the total price increase being attributable to industry revenue increases for ‘roll your own’, despite the illicit market share for ‘roll your own’ being substantially higher.’
The findings also suggest that there is still scope to further increase taxes, even in a high tax and high price environment like the UK. Based on previous related research they suggest that such increases should be sudden and unexpected for maximum impact in changing behaviours.
Dr Rob Branston from Bath's School of Management explains: “If the tobacco industry was really concerned about higher prices driving the market for illicit tobacco, they would only increase their prices whenever they were forced to do so by higher taxes.
“But the results of our paper show that the industry has a track record of going beyond tax rises when it comes to price increases in order to enhance their profits.”
Co-author from King’s College London, Professor Ann McNeill adds: “The actual pricing of products by tobacco companies goes against the industry’s own well-worn arguments that higher prices – caused by taxation - risk pushing people towards illicit tobacco.”
The researchers have previously argued that taxation on tobacco is the ‘best weapon’ against smoking and in reducing the public health burden it causes.
The latest paper ‘UK tobacco price increases: driven by industry or public health’ is published Friday 26 July in the BMJ journal Tobacco Control.