No tax rises on cigarettes- why the tobacco companies will miss out
Winter Autumn Statement has not been hailed as a Statement for the people, unless of course you happen to be rich, corporate-owning people, but nevertheless there will be one group of punters who will have been very happy with a particular omission. Smokers.
Normally, smokers get hammered every time, with the rate of tobacco duty currently standing at an eye-watering £4.59, plus 92 pence VAT per £7.50 pack price. However, possibly mindful of last March’s 37p rise per pack of 20, the Chancellor has decided to leave the fags alone for now. But this is certainly not going to make one particular group happy- the tobacco companies.
Of course, theoretically the increase in UK duty on cigarettes should have little effect on poor old Big Tobacco, but the reality is that most of them rely on the Chancellor to sneak in a price rise of their own.
“If tax goes up by 12p, they will increase the pack price by 13p, so operating margins go up too,” Ed Salvesen, analyst at broker Brewin Dolphin told the FT. “The smoker believes it’s just the government. That’s why it’s rare to get price increases at any other time except after the Budget when it’s headline news.”
Sneaky. This is also how the companies have managed to maintain their income, even increasing their operating profit despite a drop in the number of consumers. Both Imperial Tobacco and Japan Tobacco International have increased their profitability over the five years to 2011 by as much as ten percentage points.
Importantly though, the exclusion from the Autumn Statement does mean that, even for premium brands, the cost per pack remains below £8. However, although the market is declining, it seems the magic tipping-point has not yet been reached; however high the price has risen, it has not been sufficient to stop millions of smokers coughing up. Receipts from tobacco duty continue to rise year on year, with official figures for 2011/12 showing duty paid in the UK of £9,551 million. Plus VAT.