After alienating users of cigarettes and disposable vapes, you would’ve thought there wasn’t much more the Tories could do to make themselves less popular among this demographic. But wait! They could always tax e-cigarette fluid.
According to reports today, that is what Jeremy Hunt will be announcing in the Budget next week. It is a terrible idea for various reasons and shows the Government’s approach to vaping to be an incoherent mess. As a health policy, it is diabolical. There is plenty of evidence showing that raising the price of vapes increases the sale of cigarettes.
This is hardly surprising as they are direct substitutes. Cotti et al. (2020) studied e-cigarette taxes in eight US states and found that ‘for every one e-cigarette pod eliminated due to an e-cigarette tax, approximately 1.9 packs of cigarettes are sold instead’. Pesko et al. (2020) found that ‘higher e-cigarette tax rates increase traditional cigarette use’ and predicted that an e-cigarette tax of $1.65 per ml would increase the number of daily smokers by 1%. Saffer et al. (2019) concluded that a large tax on e-cigarettes in Minnesota prevented 32,400 smokers from quitting. Abouk et al. (2019) even found that e-cigarette taxes lead to more women smoking in pregnancy.
Taxing e-cigarettes effectively taxes people for not smoking. It would make a mockery of the Government’s stop-smoking strategy, taxing people who are willing to pay for vapes while at the same time giving away free e-cigarettes with the Swap to Stop campaign. The UK’s approach to vaping was once seen as evidence-based and world-leading. Under Sunak, it has come to look hysterical and, if vape juice is taxed, it will look cynical and greedy.
Seemingly aware of the concept of cross-price elasticity, Jeremy Hunt will reportedly hike taxes on cigarettes to make them less appealing to would-be smokers. This might have some effect on the margins, but tobacco duty is only paid by people who buy tobacco legally and the Government has steadily priced them out of the market.
The tobacco duty escalator, which raises tobacco tax above the rate of inflation in every Budget, has been in place since 2010 and was super-charged last year. In March 2023, duty on cigarettes rose by 12.1% while duty on rolling tobacco rose by 18.1%. This was followed in November by an 8.1% increase in cigarette tax and another hike of 18.1% for rolling tobacco. Overall, taxes on machine-rolled cigarettes rose by 21% in a single year and taxes on rolling tobacco – which was already heavily bootlegged – rose by 39%. This is more than many smokers can stand. Why would you spend £15 on a pack of cigarettes when you can get a pack of Manchester for a fiver?
The illicit tobacco trade is no longer the preserve of men in pubs. Corner shops are increasingly in on the action (they are also selling illicit vapes that will evade Hunt’s e-cigarette tax). HMRC hasn’t made a serious attempt to measure the size of the tobacco black market for years, and since 2020 all its estimates have been little more than optimistic guesses, but you only need to look at the packs people are smoking from to see that the black market is rampant. (The only useful thing about the daft plain packaging policy is that it made it easier to spot a pack of cigarettes that was not from the UK.)
I have no doubt that Downing Street’s focus groups reacted warmly to the idea of taxing vapes. Majorities are always happy for minorities to pay more tax and vaping is currently in the political dog house. But surveys also showed strong support for the gradual prohibition of tobacco when Sunak announced the idea in September and yet the Tories have been sliding in the opinion polls ever since.
The British public don’t tend to vote for the party they like. They vote against the party they most dislike. Vapers may feel that they would get an equally rough time under a Labour government – and they are probably right – but being punished for the crime of having stopped smoking gives them one less reason to vote Conservative.
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