Last minute plea to the Chancellor: Cut the smoking tax now

This post was written by Reuben on March 23, 2010
Posted Under: Puritanism

It’s well known that Allistair Darling is a regular visitor to The Third Estate, and with Labour’s budget due tomorrow I thought I would hit him with a last minute plea. For the sake of millions of low earners, cut the smoking tax now.

It does not need repeating that the tax raised by smoking far exceeds the cost to the NHS. What fewer people know is quite how hard the smoking tax hits the poor. The poorest 20 per cent of households spend 3% of their disposable income just paying the smoking tax. (See Office of National Statistics data – flick to p12)

As things stand a cut in tobacco tax is not only fair: it makes good economic sense. The dilemna currently facing the  government is this: on the one hand they need to keep taxes relatively low so as to stimulate demand in an economy with 8% unemployment. On the other hand they need to find ways to start paying down the national debt. What they need, then, is need to maximise the bang they get for their buck – to stimulate demand as much as possible for every pound that people don’t pay in tax.

The point is that equivalent tax cuts on different groups don’t necessarily provide the same stimulus to demand. This is because some people save a higher proportion of their incomes than others. Cut tax on the super-rich and much of that will be saved. On the other hand the poorest spend a much higher proportion of what they have and save less – try living in London on £200 a week and you will see why. As such a tax cut on tobacco – which will predominantly flow to the poorest – will be a fiscally efficient way of stimulating demand.

Right now the centre-right think tank Policy Exchange is calling for a 5% increase in the smoking tax. It’s doing on the back of some dodgy stats that put the social cost of smoking at £13 billion. The total includes:

the cost of treating smokers on the NHS (£2.7 billion); loss in productivity due to smoking breaks (£2.9 billion); increased absenteeism (£2.9 billion); the cost of cleaning up cigarette butts (£342 million); the cost of smoking-related fires (£507 million); and the loss in economic output from the deaths of smokers and passive smokers (£4.1 billion and £713 million respectively).

Let’s start with the easy stuff: smoking related fires. There are around 10 million smokers in Britain and ever year around 4,000 fires. In other words every year 0.05% of us will cause fires by smoking. It is absolutely ridiculous to present this as a general cost of smoking. You might as well tax people for owning cookers.

Meanwhile the idea of taxing people for their lost productivity, and the loss of labour power that derives from their early deaths is disturbing and frankly feudal. Many things I do potentially limit my life time productivity. I  sometimes drink a little too much and I do not eat all my greens. The approach of policy of policy exchange appears to be that every citizen, by virtue of being born, owes the state/business his maximum possible labour power, and that he should have to cough up for anything that limits that - including dying young. It treats a persons potential life time labour power not as something that he or she may sell but something that they owe.

As for me, I will soon be off to complete a two hour holiday in Belgium, where cows roam and baccy is cheap.

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Reader Comments

“The poorest 20 per cent of households spend 3% of their income just paying the smoking tax.”

Link please? Where did you get this from?

Written By jim jepps on March 24th, 2010 @ 12:03 am

office of national statistics I will go get it now.

Written By Reuben on March 24th, 2010 @ 12:50 am in 2007/8 it accounted for 2.9 per cent of disposable income for the bottom quintile group

Written By Reuben on March 24th, 2010 @ 1:01 am

Thanks for the link Reuben. Interesting.

Point one:
So the figures show that the bottom 20% have an earned income of 4,651 GBP and after tax and benefits etc they have a final income of 14,297 GBP – so the tax man is more than tripling the income of this quintile even after taking into account direct and indirect taxation.

Point two:
Page four states that for poor households “To express the payment of indirect taxes as a percentage of gross or disposable income is potentially misleading” which is what you’ve done.

The figure you’re looking for is 1.9% according to this paper. This is the proportion of expenditure (it does state this explicitly in the text).

Written By jim jepps on March 24th, 2010 @ 11:48 am

You mak a good point and have read this better than I had. One thing to be clear abour though is that Gross/disposable income includes cash benefits. It appears that the disparity between income and expenditure arises primarily from the poor borrowing money or running down their savings. As such the claim made by the document that measuring indiret taxes against expenditure gives a better indication of their impact on people’s standard of living, is not unproblematic, since this disparity will eat into their future standard of living.

Written By Reuben on March 24th, 2010 @ 12:37 pm
jonathan colwill

What of the wild increase in tax on cider, I feel this is aimed at the poor and also west country people, tobacco needs to be imported but the cider industry mainly uses English apples .

Written By jonathan colwill on March 24th, 2010 @ 3:00 pm

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