Lifestyle Economics

Abolish excise duties on e-cigarettes to reduce harm, argues new report


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https://iea.org.uk/wp-content/uploads/2016/08/Economics-of-tobacco-PDF.pdf
Smoking, along with other tobacco and nicotine use, is often discussed as if it were a disease rather than an individual consumption decision. This disconnect creates confusion and bad government policies, especially in the context of the “tobacco harm reduction” approach of substituting low-risk products, including e-cigarettes and snus, for cigarettes.

A new report from the Institute of Economic Affairs cuts through some of the confusion and shows how many of the debates about tobacco harm reduction can be easily resolved, with some simple economics. The paper, by economist and former public health professor Carl Phillips, shows that a little attention to consumer incentives and choice answers key questions about health and consumer welfare outcomes.

Key points:

  • For most smokers, the best alternative to tobacco is to switch to a low-risk alternative rather than quitting entirely. For some smokers, smoking is the best choice among the three. This is generally ignored by paternalistic authorities and others who seem to think that the only thing in life people care about is maximising longevity.

  • Economic analysis cannot tell us how many smokers will continue to prefer smoking to e-cigarettes, but it does show us that for almost all smokers, complete abstinence produces lower welfare than switching products.

  • Policies that encourage abstinence above all, with switching offered only as an inferior second-best choice, are thus completely backward and impossible to justify.

  • Excise taxes for low-risk products like e-cigarettes should be set to zero, whatever the taxes on cigarettes, whether the goal is to improve public health or consumer welfare.


Economic implication for tobacco harm reduction:

  • The lessons from economics are not all good for advocates of low-risk alternatives. It is often claimed that popularising low-risk products will not lead to an increase in total nicotine consumption, but simple economics tells us otherwise: Lower the cost of consuming a product people like (such as dramatically lowering the costs of consuming nicotine compared to smoking), and people will consume more of it.

  • Those advocates can take comfort in the fact that the overall health impact of popularising e-cigarettes will still be positive because of the very low risk.


Commenting on the report, its author, Dr Carl Phillips, said:

“It is truly remarkable that in discussions about a matter of consumption preference and choice, the science of preference and choice is largely ignored. Public health people are notoriously economically illiterate. Most of the nonsense in the policy discussion, on all sides, stems from ignoring economics. 

“Just because a choice has health implications does not eliminate the value of economic analysis. The concept of addiction only makes sense in the context of economics, so it is obviously not a reason for ignoring economic science. These misconceptions are just used as excuses to protect illiberal policies from serious examination.”

Notes to Editors:

For media enquiries please contact Stephanie Lis, Director of Communications: [email protected] or 07766 221 268

The full paper, by Carl Phillips, can be downloaded here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.



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