From: The Economist
THEY can be disguised as parcels of toys or board games, or hidden among kiwi fruit, oranges or tea. More than 20 billion smuggled cigarettes and 2,700 tonnes of rolling tobacco have been seized in Britain since 2000. Anti-smuggling agencies boast successes: bootleg cigarettes have shrunk from 21% to 10% of the market, says Her Majesty’s Revenue and Customs. But the decline in black-market tobacco has stalled in recent years. And nearly half of all loose tobacco leaves, a product that has resisted the general decline in tobacco consumption, are contraband.
Smuggling costs the exchequer around £2.2 billion ($3.5 billion) a year in lost revenues. By blunting the effect of price increases, it may also affect attempts to stub out smoking. But tobacco companies are shouting the loudest about smuggling, using the threat of contraband tobacco to lobby against two looming changes.
The first will come in this month’s budget, when cigarette duty is likely to increase by 5%. Tax already accounts for three-quarters of the price of a typical packet of cigarettes, among the highest in Europe. This is supposed to discourage smoking, but tobacco firms argue that the government risks encouraging a different vice: stiff levies increase incentives to bypass legal sellers. Sales of bootleg cigarettes increased in Ireland after large tax increases in 2006-07. Britain’s previous, Labour, government stepped back from steep tax rises in 2001 for fear that smuggling would surge.
A second possible change is more radical. This spring the government will consult on the possible effects of introducing plain packaging for tobacco products. Australia has already passed such a law. From December 2012 all tobacco will be sold in generic olive-green packs with a product name in a plain, uniform font alongside graphic health warnings. France, Finland and Canada are also considering this idea.
Tobacco firms are fuming at the prospect. After years of increasingly tight regulation, cigarette packets are now the main form of product differentiation, a “silent salesman” to customers. Most advertising was halted in 2003. From April all tobacco products sold in supermarkets must be hidden from view; that constraint will apply to small retailers from 2015. Industry figures argue that plain packs are easily forged, boosting the counterfeit trade.
This is unlikely, largely because of the way the illicit cigarette market has evolved. A few years ago most bootleg tobacco was duty-free produce that had been legally on sale somewhere, hawked in Britain for a profit. Now it is counterfeit cigarettes and “cheap whites”, brands not legally on sale, often from China. The gangs that have been drawn by high profit margins to import these sticks are sophisticated—certainly capable of faking branded packs. After all, a paper carton is considerably easier to copy than a handbag.
