Is the smoking ban based on bad economics? Part 2


This blog recently raised the issue of some bad economics behind the smoking ban . But in addition to these previous comments, missing from the whole media/public debate about the smoking ban seemed to be the issue of the massive tax revenues we raise from smoking.

I fully recognise that this is a highly regressive and inequitable tax, but ignoring welfare implications for other people (and other principles), the deciding factor for whether to be supportive of the ban should be whether you as an individual are better or worse off.

For smokers who don’t want to quit, unsurprisingly most are against the ban. The benefit of avoiding passive smoking doesn’t apply when you’re non-passively smoking anyway and for many, the smoking ban is equivalent to an exile from all pubs that don’t have an outdoor area and a winter of drinking at home lies on the horizon.

For non-smokers, there’s the benefit of avoiding passive smoking and avoiding smelling like an ashtray after a night in a pub/club. On this basis alone, all non-smokers I know are massively in favour of the ban, which seems to them to create massive benefits without any costs.

But this misses the potentially massive cost to non-smokers of reduced tax revenues from smoking, which non-smokers will ultimately have to fund themselves by either paying higher taxes or by seeing reduced public spending. Tobacco taxes are forecast to raise £8.1bn in 2007/08. The HMRC national stats pages helpfully provide information on how we might fund any loss of tobacco taxes.

Hypothetically, if the long-run impact of the smoking ban is to cause widespread quitting, we could conceivably lose a few billion of the £8.1bn. For the same tax year, 1% on the basic rate of income tax would raise around £3.3bn, so it’s not implausible that this might give an indication of the long-term impact of the smoking ban. For someone earning (say) £30k per year, this would equate to around £250 extra tax per year. Assuming you already worked in a non-smoking building, as a non-smoker, divide that by the number of times you go to the pub and you have your extra cost per pub visit of the smoking ban. If you go only 2 or 3 times a year (as per one of my non-smoking friends who massively supports the policy), the ban could end up costing you an extra £80-125 per pub trip. Even if you go once a week it’s still an extra £5 per visit, which is worth an least one extra gin & tonic in London and equivalent to 3 pints up North.

So when you add to that the absence of (interesting) smoking friends at the pub or having to stand outside to placate them, as a non-smoker ignoring the welfare of increasing the progressivity of the tax system, the mass support of the smoking ban by non-smokers seems like turkeys voting for Christmas.

PS. if losing smoking tax revenues due to anti-smoking policies could be funded by abolishing DEFRA rather than raising other taxes I might actually be in favour.

PPS. "Cigarette packs to feature graphic pictures".

3 comments:

  1. Anonymous Says:

    At a conference this week a respected tax economist at the IFS outlined some analysis which stated that smokers were actually good for the British economy as they contribute to a substantial chunk of government revenue, as you mentioned, while dying young- before their health care starts costing extortionate amounts. The British public should embrace and encourage the smokers amoung them.

    As a smoker I must admit the smoking ban has lowered the quality of my life and am considering moving to Greece.

  2. f0ul Says:

    Although this study is attempting to uncover some economic realities to counter the public myths, I would state that there are a few myths you've missed yourself.

    Firstly, a recent study found that it is possible up to a third of tobacco product in the UK are duty free. Your figures don't take this into consideration.

    Secondly, there is the issue of smoking and health. Most of the data we have regarding the damage smoking causes is based on biased data. A study of lifestyles from Australia in 1989 using a proper random study, rather than volunteers with axes to grind, found that smokers were not half as unhealthy as we have been lead to believe.
    It also highlighted some of the costs that smoking reduces. These would be the cost of treating conditions such as dementia which are which are reduced in smokers. A reduction in smoking will see the funding from tobacco reducing, which also seeing more financial demands from organisations caring from people with Parkinsons and Alzheimer's

    By playing with statistics, such as removing all accidental deaths from the mortality figures, it is possible to show that smokers life at least 12 months longer than non smokers, however, this fact goes totally against the grain of what the anti smoking lobby would like to do.
    Finally, there is the public cost of implementing this new law and policing it. I understand that figure is in the region of £1.6 Billion, which will be lower next year, but its still a huge figure!

    However, New Labour and Economics never made good bed fellows anyway!

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