Indexing the Minimum Excise Tax
Published 22 November 2017
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Who is likely to be affected
Manufacturers, importers, distributors, retailers and consumers of cigarettes.
General description of the measure
This measure sets the new Minimum Excise Tax (MET) rate that will apply to cigarettes. A MET sets a minimum level of excise duty due on any packet of cigarettes. This means that the total excise duty on a packet of cigarettes is the higher of either the MET, or the usual application of duties.
Policy objective
The measure supports public health objectives, tackles the very cheapest cigarettes and promotes fiscal sustainability.
Background to the measure
The government announced at Budget 2016 that a Minimum Excise Tax (MET) would be introduced in Finance Bill 2017. This followed a formal consultation with stakeholders. Spring Budget 2017 set the minimum duty at £268.63 per 1000 cigarettes, and came into effect on 20 May 2017.
Autumn Budget 2017 announced that the MET rate will increase (whilst wider duty rates also increase) in line with wider cigarette duty, 2% above the Retail Price Index (RPI) inflation. It will take effect at the same time as other tobacco duty rate changes.
Detailed proposal
Operative date
This measure will have effect from 6pm on 22 November 2017.
Current law
The structures of duties on cigarettes products are set out in the Tobacco Products Duty Act 1979. The duty rates on tobacco products are set out in the table in Schedule 1 to the Tobacco Products Duty Act 1979.
Proposed revisions
Legislation will be introduced in Finance Bill 2017-18 to increase the rates of duty on tobacco products including the MET. The legislation will amend Schedule 1 to the Tobacco Products Duty Act 1979.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| +45 | +35 | +40 | +45 | +40 | +35 |
These figures are set out in Table 2.1 of Autumn Budget 2017 as ‘Tobacco Duty: continue escalator and index Minimum Excise Duty’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.
Economic impact
This measure is not expected to have any significant macroeconomic impacts. If passed on to consumers, the increase in excise duty will lead to a very small positive impact on inflation.
Impact on individuals, households and families
Assuming the duty increases are passed on to consumers, this measure will impact on individuals who smoke cigarettes by increasing their price. As the MET will impact upon the cheapest cigarettes, heavy smokers of cheap cigarettes will face the highest burden from this measure.
This measure is not expected to have an impact on family formation, stability or breakdown.
Equalities impacts
Due to differences in cigarette consumption, any change to cigarette duties will have a small equalities impact that reflects cigarette consumption trends across the adult population. As the MET will impact upon the cheapest cigarettes, heavy smokers of cheap cigarettes will face the highest burden from this measure.
At the same time, evidence suggests that there are significant public health benefits to increasing duties on (and therefore the price of) cigarettes and other tobacco.
Impact on business including civil society organisations
This measure will affect a small number of manufacturers and importers of cheap cigarettes. These businesses will face an increase in tax which they are likely to pass onto consumers. The measure is expected to have a negligible impact on businesses administrative burdens. One-off costs include familiarisation with the increase in the MET. It is not expected there will be any on-going costs.
There is no impact on civil society organisations.
Operational impact (£m) (HM Revenue and Customs (HMRC or other))
There is a negligible cost of uprating the MET to HMRC.
Other impacts
Health impact assessment evidence suggests that there are significant public health benefits to increasing duty rates (and therefore the price of) cigarettes and other tobacco. Any reduction in smoking prevalence will have a positive impact on health and reduce the cost to the National Health Service of smoking-related illness. There may also be reductions in other costs that arise from the health impacts of tobacco use.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups and other interested parties.
Further advice
If you have any questions about this change, please contact the Excise and Customs Helpline on Telephone: 0300 200 3700.