Researchers have suggested that if a price-cap for cigarettes is introduced by the government, it will take away the capabilities of companies to fix prices and in turn could help reduce smoking.
Tobacco companies are able to reduce the impact of tax on customers and keep the prices comparatively lower despite that increased taxes. This effectively means that there is no financial deterrent for smokers. There is a wide variation in cigarette prices in the UK, a difference of up to £5 from the cheapest to most expensive brands (from around £9.75 at the lowest end to £14.65 at the highest).
A price cap, by comparison, would effectively mean there was a standardised cost for cigarettes helping to make future tax rises much more effective.
Like regulation for utilities industries, a wholesale price-cap on cigarettes would be imposed by government or a regulatory agency. Excise duty, sales taxes, retailer markups and any other legitimate costs would be added to that price to produce a shop price.
The team behind the study are calling for the UK government to consider proposals which they say could form part of England’s new tobacco control plan currently being developed. This aims to make England ‘smokefree’ by 2030. According to latest analysis from the ONS, as of the first quarter of 2020, around 5.5 million adults (13.5%) smoked in the UK. Despite efforts, smoking rates remain stubbornly high.
UK tobacco duty is already one of the highest in the world and so accounts for a significant majority of the cost of tobacco in shops. However, the tax rate varies between products. For example, previous research from the same team at the University of Bath found that roll-your-own tobacco is taxed at lower rates than factory made cigarettes.
Setting a maximum price cap would require a tobacco regulator to be created that would investigate and rule on what price could be charged. The price would be based on the cost of production allowing only a minimal profit.
The researchers suggest such a move could eliminate the industry’s ability to price discriminate on products, with the price charged to retailers only changed when the taxes or the price cap changed. It would also change the profit incentive behind the sale of these deadly products.
In the study, the researchers point to how tobacco companies in the UK have kept price-sensitive customers by shrinking pack sizes. In Australia, packs come in more than 10 different sizes so that after every tax increase, most smokers could find either a smaller product that is cheaper up front, or a larger product that is cheaper per stick or per gram.