Tab Houses: A Case of Unintended Consequence

OK I will admit it. The study I cited a few days ago – investigating the social costs of “passive non-smoking” – was not entirely factual. In fact you could go as far as to say that it did not exist and there is in fact no Professor Wyfman. What has however been recently released is a study into the trade in illicit tobacco, and particularly its effects on kids. It was found that 30% of young people had bought illicit tobacco, and alleged that ‘tab houses’ – informal premises at which illicit tobacco is sold – are creating the next generation of smokers. Unlike bona fide shops, it is impossible to impose an age limit on who illicit suppliers sell to.

If the analysis is correct, then this represents a spectacular policy failure by the New Labour government. The reason that so many Tab Houses exist is simple and obvious. Quite simply the taxes on smoking are obscene. Raising £7 billion pounds a year – most of which is paid by the poorest members of society – this particular sin tax creates a huge incentive for suppliers to enter the black market, which in turn makes tobacco easily available to kids of all ages.

It is high time the tobacco tax was repealed or at least substantially reduced. The 7 billion that it raises far exceeds the cost of smoking to the NHS. In fact, as some critiques of recent studies have illustrated, the actual financial burden of smoking on the NHS might be close to zero or indeed negative. Put simply, this is because everybody dies of something. People who die of lung cancer potentially save the NHS a huge amount of money by not getting older and dying of dementia. Yet even taking at face value some of the (well critiqued) highest estimates, the public purse still makes a substantial net gain from the smoking minority.

And this is wrong in so many ways. It is wrong because the tax on smokers is extremely regressive, with the poorest 20% of households spending 3.4 per cent of their income just paying the smoking tax. And it is wrong because tax should be a means of providing public services and redistributing income, not policing personal lifestyle choices. If the government want to punish people for smoking – and that’s what this is – they should have the bollocks and the democratic decency to put a law to that effect before parliament. Needless to say they would lose. And so they tack this piece of coercive social engineering onto a budget bill – a bill ostensibly concerned with raising money to fund the state.

And finally, even if, unlike me, you believe that it is the place of government to police people’s personal lifestyle choices, then the smoking tax is a completely ineffective way of doing so. Demand for tobacco is price inelastic – increases in price have very little effect on demand – which means that the smoking tax effectively fines people for their habits while doing nothing to change it.