1. Making the Tobacco Industry Pay
Ms. Rachel Foley
Policy & Public Affairs Manager, Irish Cancer Society

2. Making the tobacco
industry pay
Rachel Foley
Policy and Public Affairs Manager
Irish Cancer Society

3. Joint Proposal
• Branston, R. & Gilmore, A. (2010) ‘The case for OFSMOKE: how tobacco price
regulation is needed to promote the health of markets, government revenue and
the public’. Tobacco Control, doi:10.1136/tc.2009.034470.
• Branston, R. & Gilmore, A. (2013) ‘The case for Ofsmoke: the potential for price
cap regulation of tobacco to raise £500 million per year in the UK’. Tobacco
Control, doi:10.1136/tobaccocontrol-2011-050385
Based on the work of UK academics, Dr Robert Branston &
Professor Anna Gilmore, Bath University

4. “These companies remain some of the
most profitable in the world. This is
thanks in part to their endless
inventive ways of undermining and
circumventing regulation.” Anna
Gilmore, University of Bath, UK, 2011

5. What’s the problem?
Market
power
Pricing
power
High price
high
taxes
Significant
profits

6. Price of a packet of 20 cigarettes net
of tax in 27 EU countries, July 2011

7. Tobacco industry
Small
number of
companies
Ability to
manipulate
price
Profits
equal to
Coca-
Cola, Micro
soft and
McDonalds

8. A duplicitous industry

9. Our approach
Tobacco
regulator
Tax
structure
Tax
escalator
Tax
hand-
rolled
tobacco
Illicit
trade

10. Ireland
Profits =
€100 million
a year
Profit margin
= 26-55%
Government
revenue
could
increase by
€41-60
million a year

11. Market share and profitability
2011 Imperial JTI BAT Total tobacco
industry profits
Market Share 33% 46% 10%
Revenue
(after VAT
and duty)
€79,777,706 €112,184,988 €34,538,000 €226,500,694
Profit
actually
made
€32,973,449 €62,280,000 €9,003,000 €104,256,449
Operating
profits
41% 55% 26%

12. A tobacco regulator
New
approach
Cap
profits
Cover
legitimate
costs
Paid for
by the
tobacco
industry
Could be
extended
beyond
price

13. 2011
Imperial JTI BAT Total tobacco industry profits
33% 46% 10%
€79,777,706 €112,184,988 €34,538,000 €226,500,694
€32,973,449 €62,280,000 €9,003,000 €104,256,449
41% 55% 26%
€15,955,541 €22,436,998 €6,907,600 €45,300,139
€17,017,908 €39,843,002 €2,095,400 €58,956,310
€9,573,325 €13,462,199 €4,144,560 €27,180,084
€23,400,124 €48,817,801 €4,858,440 €77,076,365
Impact of price regulation 2011
Optimistic scenario
(12% profit)
Conservative scenario
(20% profit)
Reduction in Profits due to regulation €77,076,366 €58,956,310
Implied reduction in corporate tax @12.5% €9,634,546 €7,369,539
Cost of regulator €7,000,000 €10,000,000
Potential net increase in tax revenue to Exchequer €60,441,820 €41,586,771

14. Benefits
Market
transparency
– shields
Government
from
industry
lobbying
Remove
price as
marketing
tool
Less money
to
undermine
tobacco
control
policies,
lobby and
develop new
products
Additional
revenue for
Government
Correct
market
failure

15. Could these
benefits be
achieved through a
different
mechanism?

16. Wholesale price Total tax
Retail price
Production
Costs
Industry
profit (incl.
retail
margin)
Ad
valorem
excise tax
(9%)
Specific
excise tax
(65%)
Sales Tax
(23%)
79%21%
Tobacco tax structure

17. Specific Tax
Calculated
on volume
Maximum
allowable
level =
76.5%
Could
increase
Government
revenue
without
increasing
price
Industry
could
absorb tax
increase
Reduce
down-
trading

18. RevenueCommissioners
Price
elasticity
of
demand:
-3.6
LandmarkEconomics
Price
elasticity
of
demand:
-0.5
FrankChaloupka
Price
elasticity
of
demand:
-1 to -2.3
Why not a price increase?

19. Structure of tax
Should not
facilitate the
introduction
of economy
products
Should not
encourage
price
competition
Should not
allow tobacco
industry to
absorb tax
increases on
the cheapest
brands

20. PallMall
Reported that PJ
Carroll was
reducing the
recommended
retail price for
Pall Mall by 50
cent from €7.75
to €7.25: ‘Less
money more
quality’.
BensonandHedges
An example of
product
innovation is
Benson &
Hedges’ ‘B&H Big
Box’ in which a
23-cigarette box
is being sold for
€9.75.
MarlboroGoldTouch
Retailing for
€7.80 and is
described as ‘an
innovative new
dimension in
smoking: slightly
thinner than
Marlboro Gold
Original...’.
But doesn’t
Ireland have the
highest price in
Europe at
€9.20?
If the tax structure changed, the price of cigarettes would be relatively uniform

21. Tax Escalator
Real price
hasn’t kept
pace with
nominal
price
High price
but average
affordability
CPI + 5%
Become
policy in the
UK

22. Loose tobacco
Sales
increased
by 71% in
2009
Tax only
60% of
retail
price
1 pouch
= approx.
25
cigarettes
for €4.25

23. Smuggling
Increase
spending by
€8m per
year
Improve
enforcement
Make it
illegal to buy
smuggled
tobacco
De-link
smuggling
from price
Raise
awareness
of industry
complicity
Adherence
to Article 5.3
FCTC

24. Challenges
Public
health and
Dept. of
Finance
objectives
not aligned
Recession
happy
coincidence
Legal
challenges
always
looming

25. Contact me:
Rachel Foley
Policy and Public Affairs Manager
Irish Cancer Society
00 353 1 231 6634
rfoley@irishcancer.ie