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Research paper
Tobacco industry strategies undermine government tax policy: evidence from commercial data
  1. Rosemary Hiscock1,2,
  2. J Robert Branston3,
  3. Ann McNeill2,4,
  4. Sara C Hitchman2,4,
  5. Timea R Partos2,4,
  6. Anna B Gilmore1,2
  1. 1 Department for Health, University of Bath, Bath, UK
  2. 2 UK Centre for Tobacco & Alcohol Studies, University of Nottingham, Nottingham, UK
  3. 3 School of Management, University of Bath, Bath, UK
  4. 4 Institute of Psychiatry, Psychology & Neuroscience, King’s College London, London, UK
  1. Correspondence to Dr Rosemary Hiscock, Department for Health, University of Bath, Claverton Down, Bath BA2 7AY, UK; r.hiscock{at}bath.ac.uk

Abstract

Objective Taxation equitably reduces smoking, the leading cause of health inequalities. The tobacco industry (TI) can, however, undermine the public health gains realised from tobacco taxation through its pricing strategies. This study aims to examine contemporary TI pricing strategies in the UK and implications for tobacco tax policy.

Design Review of commercial literature and longitudinal analysis of tobacco sales and price data.

Setting A high-income country with comprehensive tobacco control policies and high tobacco taxes (UK).

Participants 2009 to 2015 Nielsen Scantrak electronic point of sale systems data.

Main outcome measures Tobacco segmentation; monthly prices, sales volumes of and net revenue from roll-your-own (RYO) and factory-made (FM) cigarettes by segment; use of price-marking and pack sizes.

Results The literature review and sales data concurred that both RYO and FM cigarettes were segmented by price. Despite regular tax increases, average real prices for the cheapest FM and RYO segments remained steady from 2013 while volumes grew. Low prices were maintained through reductions in the size of packs and price-marking. Each year, at the point the budget is implemented, the TI drops its revenue by up to 18 pence per pack, absorbing the tax increases (undershifting). Undershifting is most marked for the cheapest segments.

Conclusions The TI currently uses a variety of strategies to keep tobacco cheap. The implementation of standardised packaging will prevent small pack sizes and price-marking but further changes in tax policy are needed to minimise the TI’s attempts to prevent sudden price increases.

  • tobacco industry
  • price
  • taxation

This is an open access article distributed in accordance with the terms of the Creative Commons Attribution (CC BY 4.0) license, which permits others to distribute, remix, adapt and build upon this work, for commercial use, provided the original work is properly cited. See: http://creativecommons.org/licenses/by/4.0/

https://doi.org/10.1136/tobaccocontrol-2017-053891

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    Footnotes

    • Contributors ABG designed the study. ABG, RH and JRB contributed to the development of the analysis plan. RH conducted the review of commercial literature, the analysis of Nielsen data and the drafting of the paper. ABG and JRB also contributed to the drafts. JRB provided economic expertise. AM, TRP and SCH commented on the analysis at all stages and drafts of the paper.

    • Funding This project is funded by the National Institute for Health Research (NIHR) Public Health Research (PHR) programme (grant number 13/43/58). NIHR is funded by the UK Department of Health to improve the health and wealth of the nation through research.

    • Disclaimer The views and opinions expressed therein are those of the authors and do not necessarily reflect those of the Public Health Research programme, NIHR, NHS or the Department of Health. AG, RH, SH, AM and TP are members of the UK Centre for Tobacco & Alcohol Studies, a UK Clinical Research Collaboration Public Health Research: Centre of Excellence whose work is supported by funding from the Medical Research Council, British Heart Foundation, Cancer Research UK, Economic and Social Research Council, and the National Institute for Health Research under the auspices of the UK Clinical Research Collaboration (MR/K023195/1).

    • Competing interests All authors have completed the Unified Competing Interest form (available on request from the corresponding author) and declare no financial relationships with any organisations that might have an interest in the submitted work in the previous three years and no other relationships or activities that could appear to have influenced the submitted work.

    • Ethics approval Ethical approval was obtained from the University of Bath Ethics Committee.

    • Provenance and peer review Not commissioned; externally peer reviewed.

    • Author note The lead author (the manuscript’s guarantor) affirms that the manuscript is an honest, accurate, and transparent account of the study being reported; that no important aspects of the study have been omitted; and that any discrepancies from the study as planned (and, if relevant, registered) have been explained.

    • Correction notice This article has been corrected since it published Online First. The sentence “RYO segment widened from 10 p to 16 p per stick" has been corrected to “RYO segment widened from 2 p to 3 p per stick". At the end of the following paragraph, the sentence "Nevertheless the gap between the cheapest FM and most expensive RYO changed little, again the result of the lack of price growth in the FM subvalue segment. " was added.