A few days ago I praised Nigel Farage for contemplating what most politicians do not dare – an acceptance that prohibition does not work, the legalisation of drugs. I am now hauled up with the question of taxation as a form of quasi-prohibition. I refer of course to cigarettes.
My local tobacconist in London offers me a choice of regular Marlboro Lights at £8.50 or what he terms “under the counter” Marlboro Lights from Vietnam at £5. I much prefer the Vietnamese Heath Warnings, although I am sure that the smoker depicted is Gollum and I much prefer paying £5 rather than £8.50 and so I buy “Under the Counter”.
It is estimated by the Government that 10% of fags sold in the UK are “under the counter.” I rather suspect that the real number is far higher. Why is this? Because when I pay £8.50 for a legit pack of fags £6.50 goes to the Government in tax. That leaves c£1.40 for the manufacturer and 60p for the newsagent. The “alternative arrangement sees the manufacturer get his £1.40 with the criminal smuggler and the retailer sharing the remaining £3.60. The retailer is far better off and as long as he is not caught had probably trebled his profit margin and the criminal smuggler coins it in. You will have noticed that the big loser is the Government whose take falls from £6.50 to nil.
The point is that so great are the rewards (because tax has been pushed up so high) that crime joins the market. Prohibitive taxation is quasi prohibition. It does not actually work. As a consumer I am less deterred by price because the crims are giving me cheaper goods, the health warnings mean nothing to me and the treasury is losing out on billions of quid in revenue each year.
Successive Governments have happily pushed through inflation busting tax increases on cigarettes. They do so because they can paint themselves as fighting an evil (one that still generates £12 billion a year in tax for them) and because they argue that we addicts have no choice but to pony up. They are wrong – we do have the choice as “under the counter” fags are available all over the place. The more Governments push up tax, the more margin criminals can make and the more demand there will be from pathetic addicts like myself.
Our current system of quasi prohibition makes criminal activity by smugglers and retailers an attractive risk reward trade. No doubt the next budget will make it an even more attractive trade for the criminals, whether it actually generates additional revenue for the Government is another matter.