Why combating tobacco smuggling is a priority

Smoking trends

Prevalence of cigarette smoking in the UK is falling by about 0.4% a year but more needs to be done to speed the rate of decline.2 Smoking remains the single largest preventable cause of premature death in the UK. Latest estimates put the prevalence of cigarette smoking at 22%.3 However, the true figure may be higher as the 2% decline from the previous year was paralleled by a 2% decline in “ever smoking,” which is not plausible. The 2006 Health Survey for England recorded a prevalence of 23%,4 but this could also be an underestimate because some smokers do not disclose that they smoke.5

The current fall in smoking prevalence coincided with the Labour government introducing a comprehensive tobacco control strategy in 1999. Actions included raising the price of tobacco through taxation; banning tobacco advertising; frequent publicity campaigns to promote cessation; and making treatments for nicotine dependence more widely available.6 The implementation of indoor smoking bans in public places across the UK in 2006 and 2007 is expected to reduce prevalence further, although the experience of Ireland suggests that initial falls after the bans may be followed by some retrenchment.7 The UK already has one of the world’s toughest tobacco control policies,8 but greater action on smuggling might help cut smoking further.

Smuggling and smoking

From government statistics we estimate that 21% of tobacco consumed in the UK is smuggled, including 8.5 billion manufactured cigarettes and the equivalent of 7.27 billion own roll cigarettes. (This estimate excludes legal cross border shopping.) The price of smuggled products is about half of the duty paid equivalent.9 This means that the average price of tobacco would be about 11.6% higher were smuggling eliminated (box).

Estimates of price elasticity (the effect of price on demand for cigarettes) vary. The UK government uses a high estimate of −0.72, which means that every 1% increase in price would result in a fall of 0.72% in consumption.10 However, the figure most widely used for developed countries, including by the European Union and the World Bank, is −0.4. If we apply this figure to the demand curve (with the market segmented into legitimate and smuggled sources of tobacco) doubling the price of the 21% of tobacco purchased through smuggling would result in an overall 5% reduction in consumption, or 8.2% using the UK government’s high estimate of elasticity (box). Although smokers may offset the increased cost of their smoking by trading down to discounted legitimate brands or by rolling their own cigarettes, these have always been options, and the elasticity estimates are derived from time series in which the option to trade down is present.

Estimates of the number of deaths averted by a given reduction in cigarette consumption again vary slightly according to the assumptions made, but these estimates converge narrowly to a future steady state figure of about 4000 for a reduction of 5%. The government’s high estimates of the elasticity of demand for tobacco would imply a potential reduction of at least 6500 deaths a year. These figures compare with about 1000 deaths each year from the use of all smuggled illicit drugs.11

Recent evidence shows that low income smokers are the most likely to use smuggled tobacco.12 This means reducing smuggling could reduce health inequalities.12 Low income smokers also seem more responsive than other smokers to price changes13; if they also smoke a disproportionate amount of smuggled tobacco, elimination of smuggling would result in an even larger reduction in smoking and premature deaths than we have estimated.

Government action

Any new strategy to reduce smuggling needs to include clear targets. When the new UK Border Agency takes over part of the responsibility for controlling smuggling later this year, it is crucial that responsibility for meeting targets for the reduction of smuggled tobacco becomes a shared responsibility between HM Revenue and Customs and the new agency. HM Revenue and Customs will remain responsible for setting policy and controlling smuggling inland so effective collaboration between the two bodies and joint targets will be essential.

The UK government has indicated support for the development of an illicit trade protocol for the WHO Framework Convention for Tobacco Control. This should be negotiated and brought into force as quickly as possible. The government should support the strongest possible protocol along the lines of the template produced by the WHO expert working group.14 This sets out comprehensive measures to control the illicit tobacco trade, including overt and covert marking of tobacco products so that they can be tracked and traced from manufacture to point of sale. These markings would enable identification of illicit products, including counterfeit ones, and also help determine the point at which tobacco products are diverted from the legal to the illicit market. The protocol also requires participants in the supply chain to be licensed so that they can be monitored effectively. Manufacturers would have to control the supply chain for their products, with serious financial penalties for those that fail to do so. In addition, enhanced law enforcement measures such as cooperation in investigation and prosecution of offences, information sharing, mutual legal assistance, and extradition arrangements would increase the ability of governments to work together to stop the illicit trade.

The UK government has not yet followed all other European Union countries and signed up to agreements to control supply with the tobacco companies Philip Morris International and Japan Tobacco International. These agreements are legally enforceable and include a requirement for the tobacco companies to tightly control and regulate the distribution system and to stop supplying contractors if they are found to be complicit in smuggling; marking systems allowing customs to independently identify smuggled cigarettes so that they can be traced back to the contractor who originally bought them from the company; and seizure payments. For the first 90 million smuggled cigarettes seized each year (the equivalent of nine 40 ft (12.2 m) container loads), the companies have to pay all taxes and duties due. For any additional amount seized they have to pay 500% of all taxes and duties due (which amounts on average to €7.5m (£6m; $10.4m) for each additional container). These payments provide a strong financial incentive for the tobacco companies to control smuggling of their products.

Tobacco smuggling has reduced considerably since the government announced its first strategy to tackle it in 2000, but much more needs to be done. This will require a substantial increase in resources. There is a real risk that once the Borders Agency takes over responsibility for cross border control, with its main focus on immigration, tobacco smuggling will cease to be treated as the priority it needs to be.