Increase tax on tobacco, at least to the point where the revenue raised by the tax pays for the costs to society caused by smoking.

Why is this idea important?

The centre-right think tank Policy Exchange argues that there should be a 5% rise in tobacco duty in this budget, and in the next five, pushing the price of a packet of cigarettes to £7.42. This, it says, would make smoking 'revenue neutral':

"It is a popular myth that smoking is a net contributor to the economy. Our research finds that every single cigarette smoked costs the country 6.5p. In order to balance income and costs, tobacco duty should be progressively increased until the full societal cost of smoking is met through taxation. As a start, the next budget should increase tobacco duty by 5%. This will reduce tobacco consumption by 2.5% and provide an additional £400m for the Treasury."

One Reply to “Raise tobacco tax to make smoking revenue-neutral”

  1. The cited research suffers from two major limitations. First, the cited research measures the potential loss of output caused by the smoker’s early death. However, it does not take into account the savings in pension funds to which smokers contribute throughout their life. This is a major failure of this study. It is absolutely dishonest to “forget” that by dying 10 years earlier, smokers receive, on average, >250.000 dollars in pension funds. Second, everyone dies under some condition eventually. The question is not how much do medical expenditures associated to smoking cost. The question is, are those expenditures larger than living an extra 10 years receiving a pension, staying in elderly centers and hospitals, developing other medical conditions (e.g. cancer) and eventually dying with other conditions. In other words, what is the cost of dying at 65 with a smoke-related issue, against dying at 75 with a range of other healthcare expenditures and pension transfers.

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