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Introduce price cap on cigarettes to reduce smoking – study

A price cap set by a tobacco regulator would allow for only a minimal profit for firms, researchers from the University of Bath said.

03 March 2022

A maximum price cap for cigarettes sold in the UK would help cut smoking rates, according to a study.

A price cap set by a tobacco regulator would allow for only a minimal profit for firms, researchers from the University of Bath said.

Currently, tobacco companies have generally been able to cushion smokers from the full impact of regular tax increases on cigarettes by keeping prices on some products low and offsetting costs with increases on their other, higher-end products, the study found.

This means there is currently a wide variation in cigarette prices in the UK – a difference of up to £5 from the cheapest to most expensive brands from around £9.75 at the lowest end to £14.65.

A price cap, by comparison, would effectively mean there was a standardised cost for cigarettes, helping to make future tax rises “much more effective”.

Like regulation for utilities industries, a wholesale price cap on cigarettes would be imposed by government or a regulatory agency. Excise duty, sales taxes, retailer mark-ups and any other legitimate costs would be added to that price to produce a shop price.

UK tobacco duty is already one of the highest in the world and accounts for a significant majority of the cost of tobacco in shops, but this varies between products.

Previous research from the same team at the University of Bath found that roll-your-own tobacco is taxed at lower rates than factory made cigarettes.

The World Health Organisation has raised concerns about the methods used by tobacco companies to counter tax rises, such as over-producing before a tax increase, subtly changing a product’s weight or size so that it falls into a lower tax bracket, using price promotions like discounts, rebates and gifts to counter tax rises, and spreading tax increases by upping prices on luxury brands while absorbing the tax increase on cheaper products.

The researchers said tobacco companies in the UK had kept price-sensitive customers by shrinking pack sizes, while in Australia, packs come in more than 10 different sizes so that after every tax increase, most smokers could find either a smaller product that is cheaper up front, or a larger product that is cheaper per stick or per gram.

Around 5.5 million adults (13.5%) smoked in the UK in the first quarter of 2020, according to latest Office for National Statistics figures.

Dr Rob Branston from the University of Bath’s School of Management and Tobacco Control Research Group, and the author of the study, said: “We know that using tax to increase the price of cigarettes is one of the most cost-effective ways to reduce smoking.

“However, in many countries including the UK we also know that tax increases can often be undermined by pricing strategies by tobacco companies.”

He added: “Countries like the UK, with a strong regulatory tradition, could lead the way and international co-operation could strengthen regulatory capacity, reduce costs through the sharing of analysis, and address industry attempts at transfer pricing.

“At this stage we would like the UK government to announce that they are looking to pursue the policy as part of their new tobacco control plan to make England smoke-free by 2030.”

Simon Clark, director of the smokers’ lobby group Forest, said: “By reducing the number of price points, a price cap on cigarettes would be yet another attack on consumer choice. Worse, it would almost certainly lead to further increases in the cost of lower priced brands.

“This would not only discriminate against smokers who are less well off, it could drive many more consumers to the unregulated black market where criminal gangs will sell cigarettes to anyone, including children.”

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