Five Forces

The tax, both excise duty and VAT, raised through the sale of tobacco products continues to be a major source of revenue for the Government, contributing around Ð'Ј10 billion annually. This is, according to the Treasury, equivalent to almost 3 pence on the basic rate of income tax or 12 pence on the top rate of income tax.

On a typical pack of 20 cigarettes the total tax burden of Ð'Ј4.33 accounts for 76% of the recommended retail price (RRP) of Ð'Ј5.66. On some of the least expensive brands the total tax burden accounts for up to 90% of the RRP.

It has been the policy of successive Governments to maintain a high level of tax on tobacco products in order to reduce tobacco consumption and the prevalence of smoking. Between 1993 and 2000 a tobacco duty 'escalator', which saw year-on-year increases in tobacco duty ahead of inflation, was implemented with the aim of reducing consumption still further.

This policy has resulted in taxes on tobacco products in the UK being amongst the highest in the world and comfortably ahead of those in other EU Member States. For example, in late January 2008 the price of a typical pack of cigarettes in the UK was Ð'Ј5.55 while in Belgium the price was about Ð'Ј3.35 and in Spain it was around Ð'Ј1.85. Prices in many of the newer Member States were even lower. The differences in the price of handrolling tobacco (HRT) were even more marked. A 50g pouch cost Ð'Ј11.20 in the UK but could be