UK will pay almost £25 billion in 'sin taxes' next year

Summary: 

  • This discussion paper provides the first estimate of the net effect of smoking on UK taxpayers per annum. Up until now, estimates have used a methodology that typically includes intangible costs, including costs to smokers themselves, while ignoring tangible savings to the state and tax revenues from tobacco duty.

  • We estimate a net saving of £14.7 billon per annum at current rates of consumption, with the costs smokers incur significantly outweighed by the sum of tobacco duty paid and old-age expenditures avoided due to premature mortality.

  • The government spends £3.6 billion treating smoking-attributable diseases on the NHS and up to £1 billion collecting cigarette butts and extinguishing smoking-related house fires. But these costs are covered more than four times over by early death savings and tobacco duty revenue.

  • In the absence of smoking, the government would spend an extra £9.8 billion annually in pension, healthcare and other benefit payments (less taxes forgone). Duty paid on tobacco products is £9.5 billion a year. In total, the gross financial benefit to the government from smoking therefore amounts to £19.3 billion. Subtracting the £4.6 billion of costs (above) produces an overall net benefit of £14.7 billion per annum.

  • We estimate 15.9 per cent of deaths in the UK (96,045) were attributable to smoking in 2015, in line with previous studies. Each individual lost 13.3 years of life on average. Net government spending data were used to estimate the amount saved by the health and welfare system per life year lost, and a three per cent discount rate was applied to turn the flow of foregone entitlements into present values.

  • Previous cost-of-smoking studies for the UK have universally ignored savings from premature mortality, meaning their results showed an incomplete picture of the situation faced by taxpayers. Ours is the only study that shows the impact on government finances of a counterfactual scenario in which there is no smoking.

  • This paper is the final instalment of a three-part series looking at three lifestyle factors that are said to be a drain on taxpayers. The first two papers looked at alcohol and obesity respectively. The former incurs a gross cost which is amply offset by alcohol duty revenues. The latter incurs an annual net cost of up to £2.5 billion. The current paper finds that smoking results in a net saving of £19.8 billion. Taken together, Britain’s public finances would be £22.8 billion worse off if there were no drinking, smoking or obesity.


This report featured in The Sun on Sunday, The Telegraph, The Sunday Express and City AM.

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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 publications including Sock Puppets, Euro Puppets, The Proof of the Pudding, The Crack Cocaine of Gambling and Free Market Solutions in Health.