Tobacco Duty Rates Autumn 2020
Published 12 November 2020
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1. 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.
2. General description of the measure
This measure sets out how tobacco duties will increase from 16 November 2020.
3. Policy objective
The government is committed to maintaining high tobacco duty rates as this is an established tool to reduce smoking prevalence and to ensure that tobacco duties continue to contribute to government revenues. Increasing hand-rolling tobacco (HRT) 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.
4. Background to the measure
As announced on 12 November 2020 the duty rate on all tobacco products will increase by 2% above Retail Price Index (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 2%, to 4% above RPI inflation this year.
5. Detailed proposal
5.1 Operative date
The new tobacco duty rates will have effect from 16 November 2020.
5.2 Current law
The table of duty rates on tobacco products is in Schedule 1 to the Tobacco Products Duty Act 1979 (TPDA).
5.3 Proposed revisions
The legislation introduced in The Tobacco Products Duty (Alteration of Rates) Order 2020 will increase the rates of duty on tobacco products. The legislation will amend Schedule 1 to the TPDA.
5.4 Summary of impacts
5.5 Exchequer impact (£ million)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
5.6 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.
5.7 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. HM Revenue and Customs (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.
5.8 Equalities impacts
Due to differences in tobacco consumption, any change to tobacco duties will have equalities impacts. Men are slightly more likely to smoke than women. Younger people are also more likely to smoke than older people.
5.9 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.
5.10 Operational impact (£ million) (HMRC or other)
HMRC will need to make changes to IT systems as a result of this change which are estimated to cost £10,000.
5.11 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.
6. Monitoring and evaluation
The measure will be monitored through information collected from tax receipts.
7. Further advice
If you have any questions about this change, please contact the Excise and Customs Helpline on Telephone: 0300 200 3700.