When we had a Labour government, the Autumn Statement was an exciting mini-Budget event, with surprise announcements and new legislation. George always promised his Statements would not be any such thing and would merely update the country on his fiscal and economic progress and that’s largely what he has done. No shock announcements (unless the scrapping of the widely unpopular tax credit cuts comes as a surprise to you) but a few little tweaks and adjustments to existing policies to (in most cases) offer a reasonably warming Statement as we head into winter…
So what might you need to know from the Chancellor’s musings earlier today?
No more whiplash cash-for-crash
It seems the government has looked upon the practice of earning a living claiming whiplash quite sternly. Currently those complaining of a non-existent sore neck (at the less horrible end) or those filling cars with non-existent relatives or worse, causing a crash can claim for personal injury from someone’s insurance company and get a cash payout. To try and make it at least a little bit harder for people to claim compensation for exaggerated or fraudulent whiplash claims, the government is ending the right to cash compensation.
However, there is still redress for those genuinely imjured, as instead you will be able to take your case to the small claims court as the upper limit for these claims will be increased from £1,000 to £5,000.
This is, obviously, going to be an inconvenience, and possibly mean that those genuinely affected by whiplash (which really does hurt) don’t get a payout along with the fraudsters, but on the up side the government predict that annual insurance costs for drivers could fall by between £40 to £50 a year. Or they would, if insurance companies were to pass on their cost savings to customers…
More money back for delayed trains and flexible tickets
We’ve told you about how to claim for delayed trains before, but until this summer’s announcement that you will be able to get compo in cash, it was strictly a vouchers-only experience. Now, the Chancellor has announced that in future, commuters will also soon be able to claim compensation from their rail tickets if their train is more than just 15 minutes late, down from an interminable and cold hour-long wait or more.
Also, new flexible season tickets, which would permit part-time season tickets for example, will soon be available on certain lines across the country, including C2C between London and Essex, and the Great Northern Route on Thameslink.
From April 2016, the basic state pension will rise to £119.30 per week, an increase of £3.35. This will be “the highest real terms increase to the state pension for 15 years” and the government are hoping you won’t notice all the current articles about people missing out over the new pension changes…
From 1 April 2016 people purchasing additional properties in which they don’t actually need to love, such as buy to let properties and second/holiday homes will pay an extra 3% in stamp duty. That’s 3% on top of current rates, so if you own a couple of mansions, you will be paying quite a lot of stamp duty from now on.
Money raised from second home stamp duty will be used to help those struggling to buy their first home- like the new Help to Buy equity loan scheme for London which will give buyers 40% of the home value from early 2016, as opposed to 20%, as the current scheme offers.
It is now illegal for young people to be NEETs (Not in Education, Employment or Training) and the Chancellor has previously announced that three million new apprenticeships will be created by 2020, paid for by charging large employers.
The new apprenticeship levy (tax) will come into effect in April 2017, at a rate of 0.5% of an employer’s pay bill, but only where the apprentice tax would come to more than £15,000. This means that it is only really ginormous employers who will have to factor this extra cost, along with the new living wage rates of course, into their wage bill, as it will only be employers whose wage bills are over £3 million; less than 2% of UK employers will therefore have to cough up.
Tampon Tax- a happy compromise?
Last but definitely not least, the Chancellor has decided to appease the little lady, by wading into the tampon tax argument. Around £15 million in VAT is collected each year on sanitary products, just on sanitary products at 5% VAT, and, as we explained to you last month, the the government cannot legally remove all VAT on sanitary products. So instead, they have decided to donate this controversial VAT, or its annual equivalent into a fund that will be donated to women’s charities over this parliament, or until the UK can remove the tax from sanitary products under EU rules. Nice job.
You’d better get your skates on as changes to Insurance Premium Tax (IPT) announced as a surprise in the summer Budget will add £13 to the cost of running a car and £10 for a pet’s medical cover from Sunday, being the 1st of November.
IPT is currently charged at 6.5% but will soon be going up to 9%, an increase which isn’t actually going to hit insurance companies at all, just us poor consumers, as insurers freely admit the additional cost will be directly passed on to customers.
That’s not great news for those insuring the 7.3 million cars, 4.7 million households and 3 million pets who will be affected, according to ABI estimates.
Although the increase will affect most types of insurance, including medical insurance and motorbike insurance, if you ever need to insure your spacecraft or lifeboat equipment, you can breathe easy as these are actually completely exempt from IPT. Travel insurance and insurance of warranties will also escape an IPT rise- but only because these products are already charged at a premium rate of 20%
So is it worth buying your policy now? Well if you buy a policy effective immediately either today or tomorrow you will escape the charge, but the increase will affect any policy starting from 1 November regardless of when a customer bought the policy, so it’s no use trying to buy in advance. If you don’t need insurance until after 1 November, buying now to beat the rise is unlikely to be cheaper than the additional cost of being insured twice for the overlap period. And even if you do beat the deadline now, you will have to pay the increased amount on your next renewal.
So what does the 2.5% price rise look like in cash terms? The average annual car policy will go up to £392 from £379 today, an increase of £13. It’s worse news for younger drivers though, who could see premiums increase by £42 a year, according to the AA, as they already get stung pay the highest premiums of any age group. Their new average premium will now be £1,319, up from £1,278. In fact, some insurers have lobbied the Treasury to exempt younger drivers from insurance premium tax for at least the first year of their first car insurance policy. A mere drop in the ocean perhaps.
But still, when it’s a tax on a compulsory insurance, it’s pretty much a compulsory tax rise for all car owners, like it or not. “Millions of people across the country face being hit in the pocket by this rise,” said James Dalton of the Association of British Insurers (ABI).
“Whether it’s a legal requirement or you want to buy extra cover, insurance is a financial safety net, not a luxury,” he finished, folding his arms.
Politics has never been so exciting. Not only do we have unconstitutional Lords, but we also have erstwhile Payday loans campaigner Stella Creasy delivering heartfelt pleas to ministers comparing sanitary products to jaffa cakes. So what is her beef and is it going to get sorted?
Over 250,000 people signed a petition calling for the Government to stop treating women’s sanitary products as ‘a luxury’ and to scrap the VAT on them. It sounds a reasonable request and yet the Government (this one nor its predecessors) has consistently failed to do anything about it. Why deliberately nark half the electorate? The answer, as ever, is to do with the EU.
The problem is that the UK zero rate of VAT is actually illegal under EU law. We aren’t allowed to have it- member states may only have a main rate of 15-20% ish and a reduced rate of 3-5% ish. However, back in 1972 when we joined our Euro friends, a compromise was reached whereby the UK was allowed to keep the things which had been zero rated as zero rated, but no new items could be so designated. This is why ebooks (never even dreamt of in 1972) are standard rated at 20% yet books are zero rated. And tax cases have found ebooks to be sufficiently different that it would constitute a new item being classed as zero rated which we can’t do. Jaffa cakes won an exciting VAT case (yes, really) by being designated as a cake instead of a biscuit, as cakes are zero rated but chocolate covered biscuits are standard rated.
Currently in the UK, sanitary ware is charged the reduced rate of VAT as that is as low as we can legally do so- to make them standard rated would theoretically require all member states to vote on a resolution on just this issue. However, there may be some hope on the horizon as the European Commission has responded to the current flare up by saying that a review of the VAT rules will take place in 2016. Perhaps they will allow us out of 1972 for a few minutes to reassess what is crucial for VAT charging purposes.
It sounds like a silly question, as surely you either are a Scottish taxpayer or are not. However, HMRC has just published new guidance for people who might or who might not be Scottish and who need help working it out.
Of course, the guidance isn’t just for nationality purposes, but is rather to determine who is liable to pay the new Scottish rate of income tax. For those of you currently scratching your heads, one of the things that came out of the devolution battle was the fact that Scotland would be allowed to levy it’s own rate of income tax (even though it has atually had this power in theory since 2012).
So how do you know if you’re a Scottish taxpayer or not. Apparently it’s more than a feeling as HMRC state clearly that “none of the following will make you a Scottish taxpayer:
national identity – you regard yourself as being Scottish
location of work – you work in Scotland
you receive a salary or pension from a Scottish employer or pension provider
you travel in Scotland – for example, driving a lorry in, or frequent work visits to Scotland”
Generally you are a Scottish taxpayer if you live in Scotland. If you only have one home, and that is in Scotland, you are a Scottish taxpayer. If you have more than one home, it is a little bit more complicated, but basically you are Scottish in taxpaying terms if you live in Scotland at least as much as you live anywhere else in the UK.
If you have no home, then if you spend more time in Scotland than anywhere else in the UK in terms of day counting, again you are Scottish. The reference to elsewhere in the UK is not because the Government doesn’t believe that Scots can own homes in Spain or Tuscany or Bulgaria, rather that if you were spending more time outside the UK than in it, then that would be a UK residence issue, rather than a Scottish issue. You can read the minute detail in the Scotland Act 2012 if you are so inclined.
So, being fiscally Scottish or not is a matter of fact, and if you are Scottish, you will have to pay the Scottish rate of income tax on earnings and pensions (but not savings and dividends) from next April. Except they haven’t quite figured out how much that Scottish rate will be just yet…
The tax credit argument has been rumbling on for some time, with everyone except MPs it seems having some issue with the plans to cut tax credits put forward by Chancellor George Osborne in his summer budget. In a shock move the House of Lords have now forced George to “lessen” the impact of tax credit cuts on families and to provide some kind of “transitional help” for those affected.
Mr Osborne, during Treasury questions, said: “We will continue to reform tax credits and save the money needed so that Britain lives within its means, while at the same time lessening the impact on families during the transition.”
The savings from his plans totalled £4.4bn, so he’s going to have to find a more palatable way to save the cash when announced revised and softened plans in his Autumn Statement due at the end of November.
How will it affect me?
Under George’s plans, the income threshold for receiving Working Tax Credits and Child Tax Credit was due to be dramatically cut from April next year, along with a sharper rate of reduction in credits once the income threshold was reached.
Plans were criticised as they affected mainly those working but at low rates and the plans were such that low-income workers were facing losing £1,300 a year, which is a considerable sum when you don’t actually earn very much.
While the Chancellor would have time to draft new legislation to accompany his Autumn statement, and get it passed into law (assuming the Lords do not intercede again) ahead of the scheduled April 2016 date for changes, it is likely that anyone affected will see at least a softening of the severity of the changes, together with some kind of transitional help to protect those for whom tax credits are crucial- at least until the new living wage has its intended effect for lower income workers.
Why is it such a big deal?
As part of a gentlemen’s agreement, established as a principle in 1911 during the constitutional gridlock that followed a decision by peers to block the Liberal Party’s “people’s budget”, the Lords do not interfere with financial matters that have been agreed by MPs. The tax credit changes have been approved by the commons three times, owing to the Government’s majority, which is sorely lacking in the House of Lords. However, a gentlemen’s agreement only works if both parties believe the other to be acting in a gentlemanly manner. Here, the government was convinced the Lords would sit quietly and the Lords felt the government had not duly considered all the relevant impacts.
Part of the problem is that the Tax Credit changes were not included in a Finance Bill, which gets debated and allows time and opportunity for tweaking of legislation, but was instead pushed through as an unamendable take-it-or-leave-it statutory instrument. And the Lords left it, with two motions passed which will force the Government to delay the cuts until an assessment of their financial impact is carried out, as well as implementing provisions that will provide financial redress to the millions of tax credit claimants who will be affected when their entitlements are reduced.
Now, of course, the Government is livid with the Lords, claiming that is is unconstitutional for an unelected body to overturn decisions of the elected body of MPs. No comment was made on the constitutionality of electoral promises that are subsequently welched on. In any case, both David Cameron and George Osborne are of the opinion that the Lords need to be “dealt with” for daring to overturn their decision.
But what do you think? Are the delay and adjustments to the cuts a good thing or a bad thing?
The good thing about living in a democracy, even one run by politicians, is that there is some scope for people power, and burning issues dear to the hearts of the electorate can become pressing issues for parliament. Take the current debate on cutting tax credits- rumour has it that the House of Lords is set to step outside its accepted jurisdiction in order to stand up for the people.
In modern electronic times, getting the Government’s attention has never been so easy- with the online petition system, you just need to find 9,999 like-minded people to get a response from government or 999,999 other people to get a motion tabled in parliament. Easy peasy. And you would think that a petition calling for a reduction in tax rate would be incredibly popular, racing to those 10,000 signatures within hours and 100,000 in a matter of days right? Er no.
A new petition calling for a reduction in tax rate for those earning over £100,000 a year has attracted the whopping sum of 11 signatures. Not 1100 or 11,000, but the petitioner and ten of his friends.
The specific issue William Mahony, the founder of the petition, is disgruntled about is the so-called 62% tax rate applied to those earning between £100,000 and (currently) £121,200. At this point you may be scratching your head in confusion, as you probably understood that there were three rates of income tax, 20% (between £10,600 personal allowance and £42,385), 40% (between £42,385 and £150,000) and 45% (for income over £150,000). None of these rates are 62% so what is the guy talking about?
While he may be ranting, however, he is not raving. The “62%” applies only to that very narrow band of income as it is here that the personal allowance is tapered away, meaning that, proportionately, there is more tax paid in this band. As the rate of taper is £1 reduction in allowance for every £2 of income, that essentially adds 50% of the actual tax rate (40% at those income levels) on to the effective tax rate, making 60%. He then bungs on the 2% Class 1 national insurance cost paid by employees for good measure, to get to 62%.
However the petition, which was started on October 12th, only received 11 supporters, leaving it a long way to go to get to even the first milestone within its six-month validity period.
Mahony, a chartered surveyor from London, said: “I am happy to pay my share within a progressive tax system, but that it’s not right that people in this bracket pay a higher marginal rate than those earning above £150,000 a year.”
But is this true? The constructed 62% rate only applies to £21,200 worth of income, that falling between £100,000 and £121,200; the rest is taxed at 20% or 40% (plus any national insurance, as appropriate, which is also payable in exactly the same amounts by even higher earners). Those earning over £150,000 do not get the benefit of the personal allowance either, so claiming these people are paying more tax is, essentially, a fallacy.
Mahony continued, endearing himself to the majority of the UK electorate:
“Nobody should pay over half of their income in tax. I also think it’s unfortunate that most people will think that earning £100,000 a year is a lot. They would probably be rather surprised at London house prices. We are not rich.”
In case you have any sympathy left, or you just have a morbid curiosity, the petition can be accessed here . Note that since the petition was reported in the Telegraph, it has been deluged with a swathe of new signatories. It might even reach 300 before the end of the month…
Obesity is still a crisis, apparently, and a new clandestine report by Public Health England for the government includes concrete recommendations for a sugar tax. But worse, much worse, than that is the call for the assassination of the Coco Pops monkey.
As part of their child obesity strategy, ministers asked Public Health England to look at ways to reduce sugar consumption. PHE duly did so, but the contents of the report have so far remained secret, with the findings not yet published by either PHE or the government.
However, PHE has now confirmed a sugar tax is one of its recommendations after their director of diet and obesity Jane Tedstone appeared before MPs on Tuesday saying the organisation “does see a role for a fiscal approach” and the higher the tax increase “the greater the effect”.
This was further confirmed by “sources” at PHE who stated that the report specifically called for a sugar tax, with Dr Tedstone adding that:
“PHE does see there is a role for a fiscal approach in reducing sugary drink consumption” pointing out that a fizzy drink tax in Mexico had led to a 6% fall in consumption, with the biggest impact on the fattest poorest people.
“The point of the tax is to nudge people away from purchasing these things towards purchasing things that are more consistent with a healthy balanced diet,” she finished, stating the obvious.
But it’s not yet time to panic, as a sugar tax was described as “only the fourth most effective way to fight obesity.”
Other areas focussed on by Dr Tedstone included taking necessary action on promotions and advertising, with heinous examples given as
jumbo bags of crisps
“bottomless cup” all-you-can-drink fizzy drink promotions
free-chocolate promotions in newspapers
sports personalities advertising junk food
She also has a problem with the Coco Pops monkey mascot. It’s now time to panic.
“We think there could be bigger impacts [on obesity] from getting a handle on promotions, and of getting a handle on the deep, consistent advertising our children are exposed to on unhealthy foods,” she said.
The research found that about 40% of food sold in England was discounted and these deals were “heavily weighted” towards sweet and fatty products, which did not save us money, according to Dr Tedstone, but just meant that we buy more food.
The full report and its findings are now rumoured to be schedules for release alongside the government’s child obesity strategy in January.
European competition commissioner Margrethe Vestager said that these deals that Starbucks had in Holland and Fiat had in Luxembourg were basically state aid. Now, the Netherlands and Luxembourg disagreed with the Commission, and Starbucks are likely to appeal.
For now though, they’re all in trouble and investigations into tax deals are continuing, with Amazon and Apple under the spotlight.
“Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today’s decisions, this message will be heard by member state governments and companies alike,” Vestager said.
“All companies, big or small, multinational or not, should pay their fair share of tax,” she added.
The Dutch government are “surprised” by this decision, and they’re pretty sure that their arrangement with Starbucks doesn’t contravene international standards.
The Luxembourg Ministry of Finance said the Commission had “used unprecedented criteria in establishing the alleged state aid”. ”Luxembourg disagrees with the conclusions reached by the European Commission in the Fiat Finance and Trade case and reserves all its rights.”
While Google have sneakily dropped their ‘don’t be evil’ motto, they’re finding that people are coming after their tax, along with other companies like Starbucks and Apple.
Basically, big-ass businesses have been enjoying a variety of loopholes so they can sidestep billions in tax, but that could well be a thing of the past, thanks to a worldwide clampdown. World trade body the Organisation for Economic Co-operation and Development (OECD) announced that they are looking at getting back some of the £160billion they reckon they’ve lost to tax avoidance by multinational companies.
The OECD say that this ‘seismic shift’ in international tax rules is going to force the hand of these massive companies, where they’ll have to cough-up the money that is due, as they ban ‘brass plate’ operations in low-tax territories and outlaw dicky loans between companies.
“This is coming to an end,” said OECD head of tax Pascal Saint-Amans, aiming to help “local companies that cannot benefit from loopholes in the international system”. Finance ministers from around the world are going to meet up, to look over the plans. Over 60 countries have already agreed to them.
Saint-Amans added that many tax laws date back to the 1930s and are “not fit for purpose”, which has led to “more and more aggressive planning from companies”, which will have “a major behavioural impact” on large firms.
Next week: Huge businesses find a different way of not paying taxes.
Things are looking up! Even HMRC are getting better at dealing with customers, even if the proportion of complaints upheld by the Adjudicator’s office has only dropped by 5% it’s a start. Right?
The adjudicator’s office has just released its annual report for 2014/15 which shows similar numbers of complaints about HMRC, although a slight improvement on last year’s report with now only 85% of complaints being upheld. While the adjudicator acknowledges that many of the serious complaints about HMRC relate to one specific bad-apple department (benefits and credits), sha also noted that HMRC show “a somewhat limited appetite for reflection and learning from their interaction with customers.” Nice. 1108
Out of the 1,102 total complaints received by the adjudicator’s office, 95% related to HMRC- 1,044 new complaints, just slightly fewer than the 1,087 received in 2013/14. Of the cases cleared this year, the adjudicator upheld a whopping (although improved) 85% either partially or substantially.
The adjudicator also mediated 39% of cases directly between customers and the department and praised HMRC for getting much better at dealing with customers and complaints around PAYE but noted that the latter half of 2014/15 saw a rise in complaints from Benefits & Credits customers about tax credits. But these two areas are still very much determined in the customers’ favour- the number of PAYE complaints upheld decreased to 91%, but for Tax Credits the upheld rate increased to 93%.
In particular, the adjudicator “remains critical” of the number of complaints where HMRC staff failed to consider the circumstances of their ‘vulnerable customers’, and urged the departments to use their discretion. What has also been highlighted in this year’s report is the amount of compensation paid by HMRC in respect of their rubbishness- on occasion, the adjudicator may recommend that HMRC pay a monetary sum to customers in recognition of the poor level of service they received, and any relevant costs. And this compo adds up to quite a tidy sum:
However, the report does suggest that HMRC have implemented new customer care procedures, meaning that this time next year it’ll be a totally different story. Right?
The boss of the Wetherspoons pubs is not happy about having to pay his staff more money. Tim Martin, the chairman of the budget pubs, has reported that the chain has seen a 25% fall in profits, and this National Living Wage isn’t helping.
Martin says that pubs are under too much unnecessary pressure, thanks in part, to the VAT that pubs are charged, compared to supermarkets.
Of course, the National Living Wage is a hot topic at the moment, with Costa and Next giving everyone the doe-eyes, talking about how much it will hamper their profits. Tim Martin is echoing that, reporting a drop in pretax profits to £58.7m for the year to 26 July.
Now, looking at the numbers, Wetherspoons have seen a rise in bar and food sales, with revenue from their gamblers down. The biggest loss actually came from one-off items, which included an £11.2m write-down on the value of pubs that are under-performing. When you lose all this lot, profits were actually down 2%, thanks in part to higher wages.
That’s not to say that Martin doesn’t have a point about the disparity between the VAT paid by pubs and supermarkets. Pubs are charged 20% VAT on food sales, while supermarkets are charged nothing, which means the shops can subsidise their booze. Supermarkets then, will be better equipped to deal with the National Living Wage better than pubs will, in his eyes.
He said: “By pushing up the cost of wages by a large factor, the government is inevitably putting financial pressure on pubs, many of which have already closed. This financial pressure will be felt most strongly in areas which are less affluent, since the price differential in those areas between pubs and supermarkets is far more important to customers.”
“It is certain that high streets in less affluent areas, which already suffer from serious problems of empty shops and dereliction, will suffer further if pubs and other labour-intensive businesses close.”
Looks like the helpful sorts over at HMRC have excelled themselves again. This time it’s Citizens Advice having a go, claiming that their latest social media research shows an average call wait time when ‘phoning HMRC of over 45 minutes, which is still, clearly, not good enough.
The Twitter study of 34,000 tweets made between August 2014 and August 2015 compiled by Citizens Advice, showed that over the last year 11,500 frustrated callers turned to Twitter to complain, where on average, those who tweeted had to wait an average of 47 minutes before their call was answered. The official waiting time is supposed to be 10 minutes. Citizens Advice further calculated that hanging on the line to HMRC for 47 minutes will, in many cases, cost consumers £4.66 in call charges.
In one case, someone tweeted that they had tried to get through to HMRC on four occasions, and waited an hour each time.
“People are paying the price for not getting through to HMRC,” said Gillian Guy, the chief executive of Citizens Advice.
“From fines for not completing a tax return in time, to under or overpayments for tax credits, people can be left out of pocket because they cannot speak to HMRC on the phone.”
In June, HMRC official figures showed that 17 million calls to HMRC went unanswered in the previous year- out of the 64.7 million calls made by taxpayers between April 2014 and March 2015, 27.5% – 17.8 million – were either unanswered or resulted in a busy tone.
This caused Chief Executive Lin Homer, who is due to appear before MPs on Wednesday afternoon, to apologise for a service that was “not up to scratch”, with HMRC setting a target to answer 80% of calls, which might sound impressive, but would still potentially represent almost 13 million missed calls.
An HMRC spokesperson pooh-poohed the Citizen’s Advice figures, saying: “We are sorry that some customers have struggled to get hold of us, but this unscientific and out of date survey of tweets does not represent the real picture now.”
“In reality, answer rates on our phones are improving and wait times are falling.” HMRC said it had recently taken on an extra 3,000 staff to try and lessen the delays.
We talked about airport shops doing you out of money, and now, the government have actually noticed. No, honestly.
Government people are now joining in the complaints that are saying airport shops need to cut their prices after it turned out they weren’t passing on VAT discounts to passengers.
Treasury minister, David Gauke, said: ”The VAT relief at airports is intended to reduce prices for travellers, not as a windfall gain for shops. While many retailers do pass this saving on to customers, it is disappointing that some are choosing not to.”
“We urge all airside retailers to use this relief for the benefit of their customers.”
Of course, you can urge businesses all you want and they still might not listen. Obviously, to make something happen, you need to threaten them with something. As yet, no-one at the government is promising to do anything official, other than moan about it and hope that businesses have a sense of fairness.
Steve Baker, a Conservative member of the Treasury select committee, echoed the sentiment of being diddled out of pennies, saying that passengers were being “ripped off”, adding: “Consumers are entitled to expect that tax savings will be passed to them rather than become another addition to the bottom line for companies.”
“I always thought that showing a boarding pass was an official requirement.”
The boarding pass issue focuses on the fact that airport shops ask to see your boarding card, even though it isn’t an actual requirement. Basically, the only reason airport shops ask to look at them, is so them can use them to claim VAT relief on all sales relating to people who are travelling outside the EU.
Seeing as it isn’t a legal requirement for passengers to show their boarding cards when buying stuff at airports, next time you’re in one, try telling them that you’re not prepared to show them and see what happens.
Everyone now knows that smoking is A Very Bad Thing, and the Government have been taking this as carte blanche to slap as much tax as humanly possible on those evil little sticks of icky stuff. In fact, over the past five years, taxes on tobacco products have risen by 40%, meaning that tax is now around three-quarters of the price of a packet of cigarettes- the highest in the 28 states of the EU. But have the Government pushed smokers too far? A major new survey of over 12,000 adult smokers suggests that consumers are now turning to‘non-shop sources’ to avoid paying the excessive taxation-resulting in a massive loss to Treasury coffers.
The poll, by Mitchla Marketing/Survey Sampling International, is one of the largest of its kind and received input from law enforcement officials and surveyed smokers nationwide.It found almost one third (29 per cent) of smokers are now buying tobacco products from ‘non-shop sources’ due to the excessive costs in the UK.
While cigarettes (and to a lesser extent, alcohol) have always been seen as a no-brainer for levying taxes- after all the demand is considered ‘inelastic’, meaning no matter how much the price rises, the demand will stay the same- it seems there does become a tipping point at which demand doesn’t fall, but desire to do the right thing in respect of UK duty, does. This large increase in ‘non-shop’ alternative shopping has caused the Treasury to lose an estimated £2.6 billion of tax revenue every year.
The survey found that the primary reason smokers were buying non-UK duty paid products was due to the high prices in the UK – UK smokers buying a premium brand of 20 cigarettes duty-paid are charged over £9, while 87% of those buying from ‘non-shop’ sources pay under £5.
The survey also found that over half of smokers (51%) plan to buy tobacco products from abroad and bring back as many as they legally can (although almost half of those don’t actually know how many they can bring back, which depends whether you are travelling from inside or outside the EU, of course). Almost one in five smokers (17%) now regularly buy their tobacco from abroad to avoid paying UK duty and 78% of smokers said they had no objections to buying fags without UK tax, so long as it was legal, i.e. from abroad rather than from the back of a van.
Of course, cigarettes for ‘personal use’ can be brought back in potentially unlimited quantities from EU countries, but even within the EU, UK fags can cost up to sixteen times more- in Belgium smokers pay £4, in Spain £3.80 and in Moldova just 57 pence for a packet of 20 cigarettes- so it’s no wonder savvy smokers are buying cheap without paying UK tax.
Giles Roca, Director General of the Tobacco Manufacturers’ Association (TMA) said: “This survey shows that excessive taxation on tobacco products is forcing up prices and driving consumers away from legitimate sources. This is clear proof that the government’s high tax tobacco policy is not working.”
Naturally, non-smokers are probably far happier with the amount of tax levied on cigarettes, given the amount of revenue it brings in that can be used to fund the NHS for example, treating all those nasty smokers’ coughs. But what happens if the balance tips and the maximum revenue is earned at a slightly lower tax rate, meaning smokers can’t be bothered to try and get their fix cheaper?