Background: Tobacco companies claim that higher taxes will force smokers into buying illicit tobacco, but if they were truly concerned about increasing illicit sales with higher prices they would only increase retail prices in line with changes in taxation. In this paper, we explore UK pricing of both factory-made cigarettes (FM) and roll-your-own tobacco (RYO) to explore the extent to which price increases were due to government tax rises or industry strategies to increase profit per pack.
Method: Nielsen commercial data on UK tobacco sales data (2010-2015) were combined with official UK data on inflation and tax rates, to identify the source of real price increases.
Results: Between 2010 and 2012, when there were unexpected large tax increases, industry driven price changes were small (16% of the price rise in FM and 20% in RYO), and changes were similar between market segments. Between 2013 and 2015, when tax increases were smaller and expected, industry behaviour generally accounted for a larger share of price rises (33% FM, 48% RYO), but changes varied considerably by segment.
Conclusion: The industry has increased its prices beyond that required by tax changes, even when tax rises were larger and unexpected, although were notably smaller in such conditions. This suggests (1) that the industry is not actually concerned by the threat of illicit, especially since RYO had the highest levels of industry driven price increases despite higher levels of illicit, and (2) there remains scope for further tax increases, which should be relatively large and unexpected.
Keywords: hand-rolled/RYO tobacco; illegal tobacco products; price; taxation; tobacco industry.
© Author(s) (or their employer(s)) 2019. Re-use permitted under CC BY-NC. No commercial re-use. See rights and permissions. Published by BMJ.