Featured Research

from universities, journals, and other organizations

Price cap regulations for UK tobacco would raise 500 million every year

Date:
January 14, 2013
Source:
BMJ-British Medical Journal
Summary:
If tobacco products sold in the UK were subject to price cap regulation, the system would generate around 500 million (US$750 million) for the government every year, without affecting the price consumers pay, reveals a feasibility study.

If tobacco products sold in the UK were subject to price cap regulation, the system would generate around 500 million (US$750 million) for the government every year, without affecting the price consumers pay, reveals a feasibility study published online in Tobacco Control.

That amount of cash, which takes account of the costs of running an "Ofsmoke" regulator, would be enough to fund smoking cessation services in England and anti-smuggling activities UK wide, twice over, say the authors.

The most recent market data available for tobacco companies currently selling their products in the UK shows that the tobacco industry is very profitable.

The largest player, Imperial, accounted for just over 44% of the UK tobacco market in 2010, with a profit margin of 67% (net revenue of 911 million; operating profits of 614 million) -- equivalent to 0.67 profit for every 1 the company receives after paying tobacco duties.

The other major players -- Japan Tobacco International, represented by its Gallagher Limited subsidiary; Phillip Morris International (PMI); and British American Tobacco (BAT) -- also enjoy healthy profits.

Taking the RPI-X price cap regulation system, which is widely used in the utilities sector, as a model, companies would be able to charge a price high enough for them to make enough profit to cover their legitimate costs and still make a small return.

To come up with an appropriate level of profitability for tobacco companies, the authors used the profit margins of European firms operating internationally in highly competitive consumer staples markets. These were between 12% (best case) and 20% (worst case scenario) before deduction of taxes, interest, etc.

They then looked at the operating costs of UK regulators for services, such as water supply and the rail network, to calculate the equivalent costs for the tobacco regulator -- "OfSmoke" -- and came up with estimates of between 15 million (best case) and 45 million (worst case scenario) for both 2009 and 2010.

Lastly, they took account of deductions for corporation tax -- 28% of profits in 2009/10 -- to cover the costs of regulation.

In the final analysis, their calculations indicated a total fall in industry profits of 664.7 million and 617 million, respectively, in 2009 and 2010, for the worst case scenario, and of 834.2 million and 782.5 million, respectively, for the best case.

After taking account of regulatory costs, this would leave scope to raise the proportion of revenue the government receives in taxes from tobacco sales by between 433.6 million (worst case) and 585.7 million (best case scenario) every year -- without affecting the price consumers pay, say the authors.

"This would be approximately enough to fund twice over, UK-wide anti-tobacco smuggling measures, and smoking cessation services in England," they write.

Industry regulation would have numerous benefits, they argue. It would expose companies to much tighter scrutiny than ever before, and so curb activities, such as smuggling and marketing to the young.

Price caps would stop industry using price to market its products and undermine the impact of tobacco duties. And price differentials between brands/products would have to be based on production costs, and not deliberate attempts to segment the market, so curbing the switch to cheaper products by smokers, they add.

And if industry has less money, it would have less to spend on lobbying or fighting public health measures, such as plain packaging, they suggest.

"Given the wider health benefits that would also be generated, and also the political benefits inherent to not changing the price that consumers pay, this policy should be given serious consideration," they conclude, adding that although they have used the UK as an example, such a policy could work equally well elsewhere.


Story Source:

The above story is based on materials provided by BMJ-British Medical Journal. Note: Materials may be edited for content and length.


Journal Reference:

  1. J. R. Branston, A. B. Gilmore. The case for Ofsmoke: the potential for price cap regulation of tobacco to raise 500 million per year in the UK. Tobacco Control, 2013; DOI: 10.1136/tobaccocontrol-2011-050385

Cite This Page:

BMJ-British Medical Journal. "Price cap regulations for UK tobacco would raise 500 million every year." ScienceDaily. ScienceDaily, 14 January 2013. <www.sciencedaily.com/releases/2013/01/130114192702.htm>.
BMJ-British Medical Journal. (2013, January 14). Price cap regulations for UK tobacco would raise 500 million every year. ScienceDaily. Retrieved July 24, 2014 from www.sciencedaily.com/releases/2013/01/130114192702.htm
BMJ-British Medical Journal. "Price cap regulations for UK tobacco would raise 500 million every year." ScienceDaily. www.sciencedaily.com/releases/2013/01/130114192702.htm (accessed July 24, 2014).

Share This




More Health & Medicine News

Thursday, July 24, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Idaho Boy Helps Brother With Disabilities Complete Triathlon

Idaho Boy Helps Brother With Disabilities Complete Triathlon

Newsy (July 23, 2014) An 8-year-old boy helped his younger brother, who has a rare genetic condition that's confined him to a wheelchair, finish a triathlon. Video provided by Newsy
Powered by NewsLook.com
Thousands Who Can't Afford Medical Care Flock to Free US Clinic

Thousands Who Can't Afford Medical Care Flock to Free US Clinic

AFP (July 23, 2014) America may be the world’s richest country, but in terms of healthcare, the World Health Organisation ranks it 37th. Thousands turned out for a free clinic run by "Remote Area Medical" with a visit from the Governor of Virginia. Duration: 2:40 Video provided by AFP
Powered by NewsLook.com
Stone Fruit Listeria Scare Causes Sweeping Recall

Stone Fruit Listeria Scare Causes Sweeping Recall

Newsy (July 22, 2014) The Wawona Packing Company has issued a voluntary recall on the stone fruit it distributes due to a possible Listeria outbreak. Video provided by Newsy
Powered by NewsLook.com
Huge Schizophrenia Study Finds Dozens Of New Genetic Causes

Huge Schizophrenia Study Finds Dozens Of New Genetic Causes

Newsy (July 22, 2014) The 83 new genetic markers could open dozens of new avenues for schizophrenia treatment research. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins