19 January 2011

Time to cut tax on fags (and possibly booze)

While listening to radio 5 live earlier this evening they ran a piece on a BBC Scotland investigation into the counterfeit tobacco trade. More details about it here.

The documentary will also be available on i-player from Thursday.

But the salient points are that 80% of the cost of tobacco is tax and duty, so the incentives for criminal gangs to bypass the taxman are huge.

As a result half of all handrolling tobacco is now illegitimate and 20% of cigarettes. This costs the Exchequer £4 billion a year in lost revenue.

It seems to me a clear example of the Laffer curve in action so sensible public policy should be to reduce duties to a level that maximises revenue and drives out the incentives for the criminal gangs.

But what about the health effects of cheaper fags you'll hear the health lobby say in a flash?

Well given the investigation found that the counterfeit tobacco sold in Ayr market contain more than 30 times the lead levels of duty paid tobacco and high levels of toxins, including arsenic and cadmium, meaning that smoking a packet of 20 counterfeit fags is as harmful as smoking 600 legitimate ones. The health effects of this - given that one in five cigarettes are now counterfeit - will soon surely outweigh the effects of a marginal tick up in smoking as a result of a lowering in the cost of tobacco.

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