Tobacco tax proposals should go up in smoke

A new report from Policy Exchange (strapline: David Cameron’s favourite think tank) has apparently “re-ignited” the “controversial” debate about tobacco.

The document is an enthusiastic embrace of central planning dogma over free market common sense. As Ayn Rand said, if you end with the wrong conclusions you should always check your premises – the authors seem to start with socialist principles and they reach correspondingly extraordinary conclusions.

The British government have got tobacco tax pretty much spot on, the authors have concluded. The only marginal failing is that cigarettes aren’t taxed quite enough – a packet of twenty cigarettes should cost you £6.36 rather than the prevailing price of £6.13.

They have totted up the costs of tobacco consumption to “society” – including (but not limited to) NHS treatment of smoking-related illnesses, house fires, employee absenteeism, litter collection and even lack of economic productivity caused by early death.

The last of these assertions is particularly offensive. If I drop dead in my mid 40s from lung cancer, I have – I’m told – let the side down. I should have been economically productive for another couple of decades, for the sake of the nation’s GDP. The authors do not seem to realise that people get paid to work. They benefit from their own productivity. Their productivity is not a social benefit – except very marginally – from which society as a whole gains.

The cost of smoking-related diseases is very real. And the NHS picks up a fair chunk of the bill. But if every smoker quits their habit tomorrow, they are still going to die of something. The question isn’t how much smokers cost the NHS – but how much less would they cost the NHS if they didn’t smoke. The Policy Exchange research assumes they would cost nothing. But dying of Alzheimer’s as an ex-smoker (or non smoker) in your 80s is going to cost much more than dying as a chainsmoker of heart disease in your 50s. And that doesn’t start to factor in the saving made on state pensions by smokers having the courtesy of dying many years younger.

A second collectivist fallacy perpetuated by the report is to assume that illness or absenteeism (in the form of cigarette breaks) is somehow a burden on society. It is not. It is a matter entirely for the employer and employee – though it could be argued that anti-discrimination legislation prevents employers from choosing (if they wish) to employ only non-smokers. I would have been surprised if the IEA had not hired me on the grounds that I smoke tobacco, but I would have respected their right to reach such a conclusion. If legislation stopped them from not employing me on those grounds, it should be repealed.

With regard to house fires, buildings insurance companies – just like life insurance companies – are certainly entitled to charge higher premiums to smokers if they wish. The fact that they do not suggests that the risk is too trivial – why should the government step in and over-rule them by collecting extra taxes on cigarette smokers to cover the costs of extra house fires (indeed, this raises the issue of whether the tax would be distributed to fire insurance companies…)?

But the most exasperating element of the document is its reliance on the theory of Marxist false consciousness. What we smokers really want is to give up smoking. And what we need is taxpayers’ money spent on encouraging us to do so. It’s not enough that 65% of smokers apparently want to give up. It is not sufficient that pharmaceutical companies can – and do – spend millions advertising their array of chewing gums and nicotine patches on primetime television. You would have thought that allowing Pfizer to advertise nicotine products in the middle of Coronation Street whilst simultaneously banning tobacco companies from being allowed to decorate a Formula One motor racing car would be advantage enough. Not according to this report. The two thirds of smokers mercilessly trapped in their habit need an extra shove from the public purse. So, whilst even the most evangelical public-spenders accept that slashing public information budgets is an easy win, the authors actually advocate increasing the government’s advertising budget by £100m.

It seems that the authors suffer from two problems identified by Hayek. The first is the “fatal conceit”. They believe they have calculated the exactly correct tax to internalise all social costs – an additional 5%. This is remarkable. If a government has the information to do this, then central planning in the Soviet Union would have been effective. And maybe we should do this for all products: 4.3% tax for chips, 11.45% for cream cakes, a 2.657% subsidy for footballs (because of the “social” benefit of exercise). Why pick on cigarettes? Secondly, as Hayek identified, once the state provides and regulates certain things (e.g. the provision of health or labour market contracts) the lovers of state control see external costs and benefits all over the place. There is then literally no limit on the government intervention that can address those costs and benefits and the inevitable result is serfdom.

20 thoughts on “Tobacco tax proposals should go up in smoke”

  1. Posted 19/03/2010 at 11:53 | Permalink

    Hear hear. By the same token, if we didn’t have socialised healthcare, there would be… no social healthcare costs of smoking! That seems to me to be another one for the long list of reasons to get rid of the NHS.
    Back on topic, the ASI/FOREST have also pointed out some of the farcical reasons against raising taxes – it merely plays into the hands of criminal cigarette smugglers. ASH respond by advocating supply side controls on where tobacco cos can sell their products! It’s one step closer to the old Swedish state vodka monopoly, and that works really well, doesn’t it??

  2. Posted 19/03/2010 at 11:58 | Permalink

    This would be quite funny if it were not so serious. The issue about lost GDP due to people dying early is not subjective – it is a straightforward error. This is not a social cost but a cost incurred by the person who dies and can no longer live a productive life earning (and spending) money. Take that away and the “optimal” tax is now less than the current tax. There is now no money to fund all the new programmes. This is a straightforward mistake and ignores the many other mistakes (which lead in the same direction).

  3. Posted 19/03/2010 at 12:00 | Permalink

    A superb riposte to an eye wateringly conceited report from the PE.

  4. Posted 19/03/2010 at 12:10 | Permalink

    How disappointing that Policy Exchange have published this kind of nanny state nonsense. This does not augur well for the attitude of any Cameron administration on personal freedoms.

  5. Posted 19/03/2010 at 12:18 | Permalink

    I’ve taken out private travel health insurance a while ago, and their online form included the question “Do you smoke? (yes/no)”. If you click yes, the premium goes up. Costs internalised, problem solved.
    If they disguise an overcharge as a risk premium, there will be other companies who don’t.

  6. Posted 19/03/2010 at 13:17 | Permalink

    […]  “… The question isn’t how much smokers cost the NHS – but how much less would they… […]

  7. Posted 19/03/2010 at 13:50 | Permalink

    An erudite post as we have come to expect from the IEA. In the UK it is quite legal to discriminate against a smoker on employment. In the USA most states allow it too, but some have passed legislation banning it.

    The cost of Nicotine Replacement Therapy (NRT) costs the taxpayer £50 million a year plus £24 million on “Smoke Free” quangos all for quit rates of 1.6%!

    Nanny is an expensive and illiberal intrustion into our lives.–despite-NHS-spending-record-74m-quitting-campaign.html

  8. Posted 19/03/2010 at 14:43 | Permalink

    I think it is worse. I think it displays a mindset that believes it owns us, that we are all chattel of the State and “owe” it something and live only by their permission.

  9. Posted 19/03/2010 at 15:14 | Permalink

    It would be easy to parody the notion that lost GDP due to premature death is somehow a social cost. One would have to do a “loss in GDP due to smoking” calculation that allows for differences in individual productivity. The GDP-maximising tobacco tax structure would then probably be one which exempts net transfer recipients from the tax, or even gives them tobacco vouchers. In contrast, for those with a degree, the tobacco tax would have to be a lot higher. The more you can clamp down on arbitrage, the finer the differentiation structure could be.

  10. Posted 19/03/2010 at 15:46 | Permalink

    As smokers die 10 years younger, how many billions do smokers save the Government in pensions?

  11. Posted 19/03/2010 at 17:27 | Permalink

    Most smokers that say they want to quit are actually lying. If you let them know that you yourself enjoy smoking and do not wish to quit, most will immediately relax and change their tune.

    Many smokers are not aware that secondhand smoke research does not implicate them in murder of their fellow humans. This misunderstanding of publicised risks leads them to feel ashamed of themselves when asked if they want to quit by non-smoking or antismoking interrogators. This defensive cowering attitude evaporates quickly when the questioner is an unapologetic smoker.

  12. Posted 19/03/2010 at 17:33 | Permalink

    I remember several years ago seeing a report which identified health care costs in Ontario, Canada by “age brackets”. As I recollect, almost 80% of all health care costs were attributed to the very young (Under 10 years old) and the very old (Over 70 years of age). Although I cannot remember the exact figures, the 70+ bracked accounted for the lions share of these costs.

    Don’t get me wrong, we will all get old and incur significant health care expenses unless we are either very lucky or something kills us off when we are younger. From this standpoint it makes a great deal of sense that dying younger saves the state money. We are constantly informed that smokers (on average) die younger.

  13. Posted 19/03/2010 at 17:41 | Permalink

    To value lost “paid” productivity in the context of robbing society could easily be compensated for by bringing in similarly qualified immigrants from the third world on a free ticket. What absolute balderdash from The Policy Exchange.

    I left the UK as a result of Harold Wilsons Labour government in the 1970’s. However, I continued to retain my British pride. Developments in the UK since New Labour (”Hollywood” Blair and “Nanny” Brown) have made me ashamed of my British origins.

  14. Posted 19/03/2010 at 19:23 | Permalink

    As someone who is nearly ‘very old’ (according to Nigel), I’m thinking of writing in to claim my refund from the government for giving up smoking 25 years ago. I must have saved the NHS a packet!

  15. Posted 19/03/2010 at 21:58 | Permalink

    @D.R. Myddelton,

    Be careful, they might send you a bill for all the tobacco duty they never collected…

  16. Posted 20/03/2010 at 10:15 | Permalink

    The only saving grace is that it was tax avoidance not evasion.
    I think.

  17. Posted 20/03/2010 at 16:05 | Permalink

    If two-thirds of smokers want to give up, as is claimed this is in part because the government has chosen to make smoking so expensive. For many of us however smoking is a pleasure. In my own experience it is a less damaging pleasure than alcohol used to offer. I’ve been smoking quite heavily for more than half a century and intend to go on doing so. Our prisons by the way are full of people who committed violent crimes under the infuence of alcohol , and illegal drugs. Smoking doesn’t lead people to commit such crimes any more than drinking coffee or tea does.This is because it’s a soothing or relaxing pleasure.

  18. Posted 20/03/2010 at 23:21 | Permalink

    The more I’m told to quit the more I smoke! Do I buy cigarettes from the shop?….not if I can help it. Do I encourge my son to smoke? NO I TELL HIM IT IS HIS CHOICE BUT MY ADVICE IS NOT TO AS IT IS SO HARD TO STOP. Why should we be taxed to the hilt? Even house insurance now asks if you smoke and even if you smoke outside it does not reduce the premium………….to be honest we smokers are being persecuted and it’s about time it stopped…….you got what you wanted with banning smoking in enclosed public places…………it’s time you left us alone!!
    Also, if you really want us all to quit make it FREE to have the required nicotine replacement. Have clinics like you do for drug rehab!

  19. Posted 21/03/2010 at 18:29 | Permalink

    Ah, so house insurers now charge extra to smokers. This, then is another so-called social cost in the Policy Exchange report which is nothing of the kind. Smokers already seem to pay for the extra risk of house fires. Maybe Policy Exchange will ask all the newspapers that covered the report to issue a correction.

  20. Posted 21/03/2012 at 14:38 | Permalink

    Surely if we became a non-smoking nation we as a nation would be skint who would they tax then

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