Minimum Excise Tax for cigarettes
Published 8 March 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 introduces a Minimum Excise Tax (MET) for cigarettes. A MET will set a minimum level of excise duty for 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
Introducing a MET will support public health objectives, tackle the very cheapest cigarettes and promote fiscal sustainability.
Background to the measure
The government announced at Budget 2016 that a MET would be introduced in Finance Bill 2017. This followed a formal consultation with stakeholders.
This tax information and impact note (TIIN) updates the TIIN published on 5 December 2016.
Detailed proposal
Operative date
This measure will have effect on and after 20 May 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
Finance Bill 2017 will introduce a MET. The new legislation will amend section 6(5)(a) of and Schedule 1 to the Tobacco Products Duty Act 1979.
These changes will allow the government to set a minimum level of excise duty for all packets of cigarettes (the MET). This will mean that, from 20 May 2017, the total excise duty on a packet of cigarettes will be the higher of either the MET, or the usual application of duties.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 |
|---|---|---|---|---|
| negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
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 is expected to have a negligible impact on businesses. A small number of manufacturers and importers of cheap cigarettes will face an increase in tax which they are likely to pass onto consumers. These businesses will also incur negligible one off costs of familiarisation with the new rules and may also need to introduce new processes. On-going costs include completing additional boxes on the TP 7 return and calculating and paying the duty to HM Revenue and Customs (HMRC). Future changes to the rate of the MET are expected to be accounted for in the same way as other tobacco duty changes. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
Introducing the MET will impose a negligible one-off cost on 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 NHS 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.