Budget reaction: drinking, gambling and smoking

Today’s budget was another curate’s egg from the perspective of lifestyle liberty. The decision to scrap the alcohol duty escalator is very welcome, as is the freezing of spirits and cider duty. But what the Chancellor gives with one hand, he takes with the other by increasing the tax on Fixed Odds Betting Terminals and committing himself to the regressive tobacco duty escalator which will increase the tax on cigarettes by two per cent plus inflation every year for the life of this parliament and the next.

The budget was characterised by tinkering, micromanagement and capitulation to special pleading. Osborne seems intent on subsidising declining industries while penalising the successful, leading him to cut the tax on bingo while raising it on gambling machines. But it is the smoking ban that crippled the bingo industry (as even the BBC now admits) and a tax cut is not going to make the punters come flooding back. In so many words, Osborne admitted that the tax on FOBTs is going up for no other reason than that they are making a lot of money. That is looting, pure and simple.

Rather than pandering to competing industries in each sector, Osborne should be creating a level playing field. Every part of the gambling sector – bookmakers, casinos, bingo and the lottery – should be taxed at the same rate. Likewise, if we must have alcohol duty then every category  – spirits, beer, cider and wine – should be taxed according to alcohol content; it is, after all, the alcohol that is supposed to being taxed. Britain’s traditional policy of penalising wine and lager in favour of beer and cider is a jingoistic anachronism. As for tobacco duty, the government must come to terms with the fact that it cannot set tax rates at a vastly higher rate than our European neighbours without encouraging smuggling and cross-channel ‘tab runs’. Osborne has scrapped the duty escalator on fuel and alcohol. The tobacco escalator should be next.

A penny off beer is always popular and will get the headlines, but the benefit to drinkers will be negligible. Even if the 1p reduction is passed on to customers (which is far from certain), the pint-a-day drinker will have saved a mere £25 by the end of the decade. By contrast, the tobacco duty escalator will have relieved 20-a-day smokers of £1,400 (in today’s prices) in the same period. This is on top of the £2,500 per year that they already pay in tax on their cigarettes. To put it another way, smokers would have to drink 55 pints of beer a day for the next seven years before they claw back the money Osborne has taken from them with the tobacco escalator.

Something has to give. Britain cannot continue extorting money from smokers at this rate, not least because they are, on average, least able to afford it. The last time a British government experimented with a tobacco duty escalator, it was ditched after the extraordinary levels of black market and cross-border activity which became too severe to be ignored. With the government also toying with counterfeiter-friendly policies such as plain packaging, this duty escalator may not survive the decade.

Head of Lifestyle Economics, IEA

Christopher Snowdon is the Head of Lifestyle Economics at the IEA. He is the author of The Art of Suppression, The Spirit Level Delusion and Velvet Glove; Iron Fist. His work focuses on pleasure, prohibition and dodgy statistics. He has authored a number of papers, including "Sock Puppets", "Euro Puppets", "The Proof of the Pudding", "The Crack Cocaine of Gambling" and "Free Market Solutions in Health".

1 thought on “Budget reaction: drinking, gambling and smoking”

  1. Posted 20/03/2014 at 20:26 | Permalink

    I not normally at a loss for words, Chris, but I think you’ve said it all

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