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Quitting Smoking

The Exchequer, cigarette sales and the vape industry

Question:

Is the revenue lost to the Exchequer on cigarette sales from a growth in the vape industry – a healthy deficit?

As a large part of society moves from smoking tobacco to smoking alternative products such as vaping, the tax revenues from cigarettes must be seeing a steady decline. It is possible the vape industry may be one of the factors involved.

In 2019/20, taxes raised from tobacco consumption in the United Kingdom reached approximately 8.8 billion British pounds.

This is lower than the previous financial year which raised 9.29 billion pounds.

In the 2011/12 tax year the Exchequer collected 9.68 billion pounds with cigarettes and other tobacco products.

This coincides with the beginning of the boom in vaping and e-cigarettes. We may presume there may be a trend of falling revenue in tobacco taxes as vaping becomes the more popular alternative.

Benefits of reduced smoking to public health

The most popular perspective considers that reduced smoking will mean:

  • Less sick pay
  • Reduced cancer treatment costs
  • Lower rates of Heart disease
  • Other benefits to society, such as civic happiness where smoking prevalence falls

Nevertheless the figures may give us a different picture.

Does Smoking Provide a Net Economic Surplus to Society?

There is plenty of research on the cost of smoking to society. Here is one study carried out by the Institute of Economic Affairs London.

• We estimate a net saving of £14.7 billion 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.

Smoking and the Public Purse, Institute of Economic Affairs London.

Healthcare and other costs

The NHS spends £3.6 billion curing diseases related to smoking.

The government also spends up to £1 billion collecting cigarette butts and extinguishing house fires provoked by smoking.

Early Death Savings

These costs mentioned above are covered more than four times over by more people dying early which represents savings in pensions, healthcare and other benefit payments.

To reach this 4x figure we must also include revenue from taxes on tobacco.

If smoking ceased in society all together, 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 represents £9.5 billion per year.

Financial Benefit

The total financial benefit to the Exchequer therefore amounts to £19.3 billion.

Subtracting the £4.6 billion of healthcare and other costs (above) equates to a net financial benefit of £14.7 billion per year.

• 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.

Smoking and the Public Purse, Institute of Economic Affairs London.

This paper concludes that the UK would be £14.7 billion pounds worse off if there were no smokers in society.

If we consider the UK’s 66.65 million current population that would amount to £220 pounds per person.

Hence, UK citizens are 60 pence better off per day due to smokers.

Does the vape industry bring in less money than tobacco?

Let’s consider the health and financial costs of this new phenomena called vaping on society.

According to this other paper – Vaping in England: an evidence update February 2019 A report commissioned by Public Health England – we must also challenge the fact that vaping actually replaces smoking.

Is it just another additional form of smoking rather than a replacement?

In stop smoking services, the proportion of quit attempts using an EC remains very small (4.1% of all quit attempts in stop smoking services).

Public Health England Study

The evidence is inconclusive as to whether EC has contributed in the decline in demand for stop smoking services in England.

Smoking On The Decline

This Guardian article quotes experts with the view that the use of tobacco products was on the decline in any case. It also quotes other experts challenging that belief.

Evidence exists that smoking is decreasing as people use more e-cigarettes. This is based on research in the UK and US.

In 1942, 82% of British men smoked. By 2006, when e-cigarettes first appeared, 22% of adults in England smoked. The number of smokers is now at an all-time low of 14.7%, while 7% of the UK population are vaping regularly.

The Guardian

The fact that smoking has been banned in public places, extensive anti-smoking campaigns such as cigarette packaging with gruesome pictures, and a general shift in society have all played a part.

Many believe e-cigarettes have also played a role.

Vaping Risks

Assuming that vaping is replacing tobacco smoking, we must then consider if vaping itself poses safety risks or may be harmful to an individual’s health.

“There was fresh alarm in the US last year when 2,500 cases of lung disease and 55 deaths were associated with vaping.”

The Guardian

Scientific experts are debating both sides in the argument often according to their prior beliefs.

One figure that is often thrown around is Public Health England’s “95% safer” figure, which states vaping as 95 perceng safer than smoking tobacco.

Nevertheless many challenge this conclusion, with more research necessary.

In terms of potential costs on the NHS and so forth by this new wave of vapers, there is not enough information yet and not enough studies have been carried out.

Is Vaping Creating a Deficit or Surplus?

We could do some quick math based on the figures, and we do have to infer some possible conclusions. But taking a glance at conventional electronic cigarette sites online, we can gauge pricing and likely spend per user.

If vaping is 95% safer then it would theoretically only represent aprox 5% the cost of smoking on society. This is assuming there is a direct correlation between safety and cost on society.

That would place it at roughly 5% of the £4.6 billion cost of smoking stated previously, so maybe about £230 million pounds.

If the vaping alternative only accounts for 4.1% of those who have quit smoking, then using that £4.6 billion figure again it is only saving around £188.6 million pounds to the tax payer, hypothetically.

The U.K. e-cigarette market was valued at $2.0 billion (£1.477 billion pounds) in 2018, and is projected to exhibit a growth of 19.6%, during the next few years.

Given a standard 20% VAT rate on vaping products that represents roughly £295.4 million pounds in revenue.

If we balance those three key figures we might come at a very quick and rough conclusion for the sake of argument.

  • £188.6 million pound saving from less smokers
  • £295.4 million pounds in VAT revenue
  • £230 million pounds in extra costs in healthcare and to society at large.

£188.6 m + £295.4 m – £230 m =

£254 million pounds extra to the British tax payer.

Vaping therefore might actually represent an extra £3811 pounds in every UK citizens pocket!

That may mean that thanks to vapers every UK citizen is a full £10.44 better off each day!

So yes, vaping may actually represent more revenue to the Exchequer than smoking tobacco.

Obviously, don’t quote us on this, these statistics are far too rough to be taken seriously. Nevertheless they might be giving us a few clues about this new trend in society.

Interested in knowing how much smoking tobacco affects your personal finances?

Check out this article we wrote on the subject: