Another price hike for Tobacco in Budget 2012

23 March 2012

Matt Harper

Matt Harper

Delivery Director

This weeks budget was good and bad for different groups of people. Duty on all tobacco products has risen by 5pc above inflation - 37p on a pack of cigarettes, so what does this mean to the industry?

To the 20 per day smoker

37p a day
£2.59 a week
£11.10 a month
£135.05 a year

To the retailer

Not that much, as the 37p per pack is passed immediately onto the consumer. Demand for tobacco is not very price elastic, so the 37p increase is not going to stop many smoking, as most people will look at the impact and probably be able to swallow this latest increase. They will probably stay on the same brand and not even look for a cheaper alternative. However, the difference is perhaps not what one should focus on right now, in these times of austerity. More interesting to look at the overall cost, based on the cost of a pack being £7.50.

£7.50 a day
£52.50 a week
£225 a month
£372.50 a year

These numbers make a bit more of an impact, so it depends whether push comes to shove in the weekly shop as to whether the smoker gives up or cuts down.  It may be enough to change the behaviour of lower wage earners whose disposable income is already very stretched, or be the final nudge for a few who decide to kick the habit, but not something that will send a shockwave through the industry.

One thing is for certain, the price increase will not encourage people to smoke any more. So this is not great news for the manufacturers, who already contribute a large chunk of their revenue to duty & excise - now it's a bit more. It won't be too long until a pack costs £10, with the only beneficiary of these increases year on year being the government. Some would argue that these funds go towards the NHS to treat the patients who have a smoking related illness.

As cost seems to be only going one way for tobacco, how does the excise & duty compare to other countries, and is there not an alternative way of buying for UK smokers? In the age of the Internet, is this an emerging channel to source tobacco for those who want to pay less, for the same product? Is it legal, and if so, why do more smokers not source their tobacco via this method? Aside from this, I'm sure plenty of people stock up with cheaper tobacco either locally, or from Duty Free when on a trip abroad...

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