Andrew Rosindell has been Member of Parliament for Romford since 2001.
Keir Starmer and Rachel Reeves are fond of reminding us there is an alleged £22 billion black hole in the nation’s finances. Since becoming Chancellor, Reeves has specifically spoken about being committed to ‘honesty’ and making ‘tough decisions’ to get the economy back on track.
Buzzwords are all well and good, but if this new Labour government wants to generate more revenue for the exchequer for its spending plans, it needs new ideas besides cutting winter fuel payments for pensioners. Perhaps an answer might be found in fact, as opposed to ideology.
A new IFS report shows revenues from tobacco duty have fallen by nearly a third in real terms over the last decade. Paul Johnson, Director at the Institute for Fiscal Studies offered up a solution at a Spectator panel at Conservative Conference, saying that cutting tobacco duty would actually boost the Treasury coffers.
The discriminatory smoking ban will cut revenues even faster if successful, not to mention the impact that this has on individual liberty.
The question is whether the Chancellor will put fiscal responsibility ahead of left-wing ideology. Cutting sin taxes like tobacco duty to a proportionate level makes sound economic sense and will stop the leak of money away from the exchequer.
Taxes on tobacco have already been hiked to an extent that revenues are declining. Tobacco sales revenues for 2023-24 were £8.8 billion, which is £2.6 billion lower than OBR forecasting from November 2022. The consistent rises in excise have also contributed to higher inflation and at least an additional half a billion in government spending. The OBR itself has said that raising duty is no longer sufficient to offset declining consumption.
But is consumption declining, or are eye-watering prices pushing consumers to more sinister avenues? Research by market information firm Circana shows that spending on illegal tobacco in 2023-24 was £5.7bn, up from £4.2 billion the year before, and only £3.5 billion in 2020. Tobacco is taxed at around 75%, which leaves £4 billion lost in foregone revenue. Almost 20% of the supposed fiscal black hole is in lost tobacco tax revenue. This is a consequence of the government’s obsession with curbing consumer choice with nanny statism. Once again, the new Labour government appears to be putting ideology above reality!
The Labour government is bolstering the nanny state with puritanical policies, and paying little heed to the harm caused to our nation’s finances. Disappointingly, the Labour government is ignoring cautionary tales from other countries. Australia’s smoking policy is similar to the UK, and yet actual revenue has been lower than forecast in Australia every financial year since 2020-21.
As with all prohibition measures, all rising duty has achieved is a black-market boom, growing every year. A new Tobacco Manufacturers Association poll of 12,000 UK smokers conducted in 2024 found that 83% of respondents had purchased tobacco in the past twelve months that was not subject to UK tax. That is a 3% increase on the previous year.
There is little hope of policing this exploding black market. A previous investigation by Conservative Home found that 20 percent of local authorities reported a record number of tobacco seizures in 2023. One in nine of the local authorities who responded to Freedom of Information requests reported having only one Trading Standards officer. What chance do these enforcement officers have of tackling this issue with rising prices driving more consumers away from legal routes of purchasing tobacco?
We can again look to other countries for further evidence of how overly punitive tobacco measures are ineffective and fuel the growth of the illicit market. South Africa introduced a wholesale ban on tobacco sales, which saw 93% of smokers source illegal tobacco products instead of quitting smoking. The ban lasted only five months. Australia’s measures have opened the doors to criminal gangs, with more than one hundred fire bombings taking place in the state of Victoria attributed to the illicit market. Is this the vision of change that Labour has for our great country?
There is now pressure from the health lobby to introduce a profit levy, despite current taxation causing revenues to fall. This was previously floated around a decade ago, with HMRC concluding that a profit levy would simply work like an additional excise tax and be passed onto consumers. The proposed solution is to introduce price controls to cap profit margins at a level the government deems appropriate. This amounts to price controls on a consumer goods industry where illicit sources of supply are available, making it extremely difficult and expensive to administer, monitor, and enforce.
This is a sector that needs a proportionate approach, not more regulation, if the government is to address declining revenues.
All of these issues will become more pronounced when the Tobacco & Vapes Bill returns to Parliament. We will have the Generational Smoking Ban – which will be impossible to enforce for retailers. We will have the pub garden smoking ban – which will be impossible to enforce for publicans. And we may also have further excise increases and the introduction of a profit levy – blunt instruments that will increase costs for consumers and act as a fillip to the black market.
These policies show a complete disregard of individual liberty and economic reality, driven by Labour’s ideology.
Rachel Reeves must put ideology to one side and follow the economic evidence if she is to dig her government out of the fiscal black hole they are stuck in as a result of their own choices. The answer cannot be more of the same, with the nation and its hard-working people harmed in the process.
