Changes to tobacco duty rates
Published 27 October 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 (HRT), other smoking tobacco and chewing tobacco, tobacco for heating and herbal smoking products.
General description of the measure
This measure sets out how tobacco duties will increase on 27 October 2021.
Policy objective
The government is committed to maintaining high tobacco duty rates. This is because duty rates are an established tool to reduce smoking prevalence and to ensure that tobacco duties continue to contribute to government revenues. The tobacco duty escalator, which increases duty at the Retail Price Index (RPI) +2% at each Budget, was extended at Budget 2020 until the end of the current Parliament. In addition, increasing hand-rolling tobacco and Minimum Excise Tax (MET) above the duty escalator will narrow the gap between HRT and cigarette duty rates and ensure the MET continues to be effective in the current market.
Background to the measure
As announced at Autumn Budget 2021, the duty rate on all tobacco products will increase by the tobacco duty escalator of 2% above RPI inflation. It was also announced that the duty rate for HRT will rise by an additional 4%, to 6% above RPI inflation and the MET by an additional 1%, to 3% above RPI inflation this year.
Detailed proposal
The new tobacco duty rates will have effect from 6pm on 27 October 2021.
Operative date
The table of duty rates on tobacco products is in Schedule 1 to the Tobacco Products Duty Act 1979 (TPDA).
Current law
The table of duty rates on tobacco products is in Schedule 1 to the Tobacco Products Duty Act 1979 (TPDA).
Proposed revisions
Legislation will be introduced in Finance Bill 2021-22 to increase the rates of duty on tobacco products. The legislation will amend Schedule 1 to the TPDA and makes consequential changes to specified rates in the Travellers’ Allowances Order 1994.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| +15 | +25 | +25 | +25 | +25 | +25 |
These figures are set out in Table 5.1 of Autumn Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2021.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
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, 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
Evidence suggests that levels of smoking are slightly higher among men than women. Younger people are also more likely to smoke than older people.
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 £5000.
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 General Enquiries Helpline on Telephone: 0300 200 3700.