Consolidation of Rates into Finance Bill 2021 for Tobacco Duty
Published 3 March 2021
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Who is likely to be affected
Manufacturers, importers, distributors, retailers and consumers of tobacco products. Tobacco products include cigarettes, cigars, hand-rolling tobacco, other smoking tobacco and chewing tobacco, tobacco for heating and herbal smoking products.
General description of the measure
This measure consolidates the duty rates contained in The Tobacco Products Duty (Alteration of Rates) Order 2020 into Finance Bill 2021.
The Summary of Impacts table contained within this document mirrors that published on 12 November 2020 within the Tax Impact and Information Note which accompanied the Tobacco Products Duty (Alteration of Rates) Order 2020. It has been updated to reflect the estimated Exchequer and Operational Impacts. All other impacts shown reflect the position when the duty rates took effect on 16 November 2020.
Policy objective
The government is committed to maintaining high tobacco duty rates as an established tool to reduce smoking prevalence and to ensure that tobacco duties continue to contribute to government revenues.
Background to the measure
On 12 November 2020 the government announced an increase to the excise duty rate on all tobacco products. This increase took effect from 16 November 2020 by virtue of the Tobacco Products Duty (Alteration of Rates) Order 2020.
The Order increased the duty rates on all tobacco products by the tobacco duty escalator of 2% above Retail Price Index (RPI) inflation. In addition, the duty rate for hand-rolling tobacco increased by a further 4%, to 6% above RPI inflation and the Minimum Excise Tax (MET) by an additional 2% to 4% above RPI inflation. Implementing these increases through the Order helped to protect revenues in the absence of an autumn Budget in 2020.
The Tobacco Products Duty Act 1979 limits the lifespan of such an Order to one year and it is necessary to consolidate these rates in legislation through a Finance Bill.
Detailed proposal
Operative date
The consolidation of the tobacco duty rates will take effect when the Finance Bill receives Royal Assent. The Tobacco Products Duty (Alteration of Rates) Order 2020 will be revoked at the same time. There will be no changes to the rates in force.
Current law
The current tobacco duty rates were introduced in The Tobacco Products Duty (Alteration of Rates) Order 2020 in November 2020.
Proposed revisions
The rates of duty previously implemented through the Tobacco Products (Alteration of Rates) Order 2020 will be consolidated into Finance Bill 2021. This consolidation will update the Table in Schedule 1 to the Tobacco Products Duty Act 1979 and revokes the Order.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| -5 | +5 | +5 | +5 | +5 | +5 |
These figures are set out in Table 1.1 of Spending Review 2020 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spending Review 2020.
Economic impact
This measure is not expected to have any significant macroeconomic impacts. If passed on to consumers, the increases in tobacco duty rates will lead to a very small positive impact on inflation. The costing includes a behavioural effect to account for the reduction in consumption resulting from higher prices.
Impact on individuals, households and families
Assuming duty increases are passed on to consumers, this measure will impact on individuals who smoke by increasing the price of tobacco products. Heavy smokers will face the highest burden from this measure.
In response to higher prices, some individuals could choose to consume less or switch to reduced risk nicotine delivery systems, some could down-trade from more expensive to cheaper tobacco products and others could engage in cross-border shopping or purchase from the illicit tobacco market.
HMRC will monitor and respond to any potential shift in illicit consumption as part of its strategy to combat tobacco fraud.
Customer experience is expected to stay broadly the same as this measure only increases the price of tobacco products.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Smokers are represented in each of the groups sharing protected characteristics and so the measure is expected to have disproportionate negative impacts for those in all groups depending on tobacco consumption.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on fewer than 30 manufacturers and importers. They will face an increase in tobacco duty rates that they are likely to pass on to consumers.
There will be a negligible one-off cost to these businesses of familiarisation and amending systems to reflect the new rates. It is not expected there will be any continuing costs.
Customer experience is expected to stay broadly the same as this measure does not present a significant change for tobacco manufacturers and importers.
There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
Changes to HMRC’s IT systems have been made as a result of this change at a cost of £1400.
Other impacts
Health impact assessment: any reduction in smoking prevalence will have a positive impact on health and reduce the cost to the NHS of smoking-related illness.
There may be reductions in other costs that arise from tobacco use. These costs include losses in productivity from smoking breaks and ill-health absences, the cost of cleaning up cigarette butts, the cost of smoking-related house fires and the loss in economic output from people who die from diseases related to smoking or exposure to second-hand smoke.
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax receipts.
Further advice
If you have any questions about this change, please contact the Excise and Customs Helpline on Telephone: 0300 200 3700.