Who profits if it’s not a retailer?
Cigarettes and tobacco products are among the most heavily taxed goods in the UK, generating an estimated £10.7 billion annually for the government. However, this revenue highlights significant inequalities. Tobacco companies and the government benefit financially, while retailers and smokers bear the brunt of rising costs and minimal profits. Worse, only a fraction of this revenue is reinvested into healthcare and stop-smoking services.
The Financial Breakdown of Cigarette Sales
The average price of a pack of cigarettes in the UK is £12.84, and this is how it is divided:
- Government Taxes (£10.95):
- Excise duty and VAT account for nearly 85% of the total price.
- Tobacco Company Profits (£0.60 to £1.00):
- Tobacco companies enjoy high margins due to low production costs.
- Retailer Profits (£0.51 to £0.77):
- Retailers make less than £1 per pack, with profit margins of just 4% to 6%.
Despite being the point of sale, retailers see minimal financial benefit, often relying on cigarette sales to drive customer traffic rather than profit.
Smokers Bear the Real Costs
Smokers, many of whom are in lower-income brackets, are the most affected by the high cost of cigarettes. A smoker consuming 20 cigarettes daily spends over £4,600 annually, with a significant portion going to taxes. This financial pressure exacerbates social inequalities, as smokers in deprived areas spend a greater share of their income on cigarettes, often at the expense of other essentials.
Where Does the £10.7 Billion Go?
Contrary to assumptions, most tobacco tax revenue does not go directly to public health. Here’s how it’s spent:
- Stop Smoking Services and Campaigns:
- Local authorities spent £68 million in 2021-2022 on stop-smoking services. An additional £70 million annually has been pledged, totaling £138 million—just 1.3% of tobacco tax revenue.
- National anti-smoking campaigns receive around £15 million annually.
- NHS Costs:
- Smoking-related illnesses cost the NHS around £2.6 billion annually.
Combined, healthcare and cessation services account for less than half of tobacco tax revenue. The remaining billions flow into the general budget with little transparency, raising concerns about mismanagement.
Who Really Profits?
- Tobacco Companies:
- Tobacco companies remain highly profitable, benefiting from economies of scale and low production costs.
- The Government:
- Tobacco taxes provide a dependable revenue stream, far exceeding smoking-related healthcare costs. However, the lack of reinvestment into public health raises ethical concerns.
- Retailers and Smokers:
- Retailers face thin margins and societal stigma, while smokers bear the financial burden with minimal support for quitting.
Why Governments Stall the Smoke-Free Agenda
Efforts to achieve a smoke-free society face delays largely because tobacco taxes are highly profitable for the government. Tobacco tax revenue is not earmarked for healthcare or public health but supports general government spending. Reducing smoking rates would significantly impact this reliable income stream. Key issues include:
- Revenue Dependence:
- Tobacco taxes generate over £10 billion annually, funding unrelated government programs.
- Underfunding Alternatives:
- Stop-smoking services and campaigns receive minimal funding compared to the revenue collected.
- Lack of Transparency:
- An estimated £8 billion surplus from tobacco taxes is difficult to trace, leading to speculation about its use.
Where Does the Surplus Go?
The surplus from tobacco tax revenue, estimated at over £8 billion annually, often disappears into the broader fiscal budget. This money could be used to:
- Expand healthcare services and address other public health crises.
- Invest in education and preventive measures to reduce future smoking rates.
- Support economically disadvantaged communities disproportionately affected by tobacco addiction.
Instead, the lack of accountability undermines public trust and leaves smokers and retailers questioning the impact of their financial sacrifices.
A Call for Fairness
The current system disproportionately benefits tobacco companies and the government while burdening smokers and retailers. To create a fairer framework, several changes are needed:
- Increase Transparency:
- Publish detailed accounts of tobacco tax revenue spending.
- Boost Public Health Funding:
- Allocate a larger portion of revenue to smoking cessation services and preventive healthcare.
- Support Retailers:
- Provide incentives for promoting healthier alternatives like vaping products and cessation aids.
- Protect Smokers:
- Cap annual tobacco tax increases and increase funding for accessible quit-smoking programs.
Until these changes are made, the inequities in the tobacco industry will persist, leaving retailers and smokers to shoulder the costs while the real profits continue to flow elsewhere.