UK Could Benefit By Up To £5.7bn Through International Tobacco Smuggling Agreement

Main Category: Smoking / Quit Smoking
Article Date: 06 Jul 2009 - 5:00 PDT

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At the start of the next round of international negotiations in Geneva (28 June-5 July) [1], ASH is releasing a major new report showing that if a protocol on tobacco smuggling were to be adopted, it could

- reduce smuggling in the UK by up to 80%;
- save 760 lives a year; and be
- worth £5.7bn to the UK in net present values. [2]

The report [3], commissioned by ASH and produced by Paul Johnson, a former senior economic advisor to the Treasury [4], is a cost benefit analysis of the protocol on the illicit trade in tobacco products. The report focuses on the UK, but also includes a methodology for making similar cost benefit analyses in other countries. It concludes that the benefits of adopting the illicit trade protocol far outweigh the costs of implementation.

Tobacco smuggling is a health as well as an economic problem because illicit tobacco drives down prices, leading to an increase in consumption, which in turn leads to an increase in smoking-related ill-health and premature death.

Because tobacco smuggling is a global problem it requires a global response. Assuming that most countries that are Parties to the Framework Convention on Tobacco Control ratify the new protocol, benefits due to reduced healthcare costs, output gains due to reduced mortality and reduced absenteeism could be worth £5.7 billion or more to the UK in net present values. The costs for the UK of implementing the protocol are estimated to range between £9 million and £53 million annually. Even using the most pessimistic assumptions, benefits are still likely to outweigh costs.

In addition, a widely adopted protocol could increase government tobacco tax revenues by up to £1.3 billion a year. [5]

Deborah Arnott, Chief Executive of the health campaigning charity ASH, said:

"Tobacco smuggling does not just starve the Government's coffers of much needed tax revenues, but more importantly imposes enormous economic and health costs. This study shows that international action to tackle smuggling could result in substantial economic benefits as well as reducing the toll of death and disease caused by smoking. We urge governments to take into account all these potential benefits when making decisions about the relatively modest costs of tackling smuggling through the protocol."

Funding for the report was provided by Cancer Research UK and the British Heart Foundation.

Notes and links:

[1] The third Intergovernmental Negotiating Body (INB) on a Protocol on Illicit Trade in Tobocco Products, being negotiated under the Framework Convention on Tobacco Control.

[2] In order to compare costs and benefits which accrue at different times the stream of costs and benefits are converted into Net Present Values over a 50 year period. Costs and benefits which accrue in the future are discounted back to the present and aggregated. The discount rate used is 3.5% as recommended by the Treasury. The calculation of benefits is conservative as in this cost benefit analysis, unlike many such analyses carried out for the UK government for policy evaluations, a monetary value has not been placed on human lives saved. Overall benefits would be significantly higher if this had been included.

[3] Cost benefit analysis of the FCTC protocol on Illicit trade in tobacco products. London, ASH, 2009. A full copy of the report can be downloaded from the ASH website at http://www.ash.org.uk/itp/cba.

[4] Paul Johnson is an independent economist and prepared this report in that capacity. He is also a research fellow at the Institute of Fiscal Studies and an associate of Frontier Economics. Up until Summer 2007 he was a director, and Chief Micro-economist, at HM Treasury and deputy head of the Government Economic Service.

[5] According to the HM Revenue & Customs, Departmental Report, July 2008, currently the UK is losing an estimated £2 billion a year in revenue due to tobacco smuggling. Taking into account reductions in smoking prevalence due to increases in prices, the central estimate assuming worldwide uptake and a reduction in illicit trade in tobacco of 80% would be an increase in tax revenues of £1.3 billion a year, worth up to £32 billion in net present values over 50 years.

Source
ASH