Tobacco Industry Strategies Undermine Government Tax Policy: Evidence from Commercial Data

Abstract

Objective: Taxation equitably reduces smoking, the leading cause of health inequalities. The tobacco industry (TI) can, however, undermine the public health gains realised from tobacco taxation through its pricing strategies. This study aims to examine contemporary TI pricing strategies in the UK and implications for tobacco tax policy.

Design: Review of commercial literature and longitudinal analysis of tobacco sales and price data.

Setting: A high-income country with comprehensive tobacco control policies and high tobacco taxes (UK).

Participants: 2009 to 2015 Nielsen Scantrak electronic point of sale systems data.

Main outcome measures: Tobacco segmentation; monthly prices, sales volumes of and net revenue from roll-your-own (RYO) and factory-made (FM) cigarettes by segment; use of price-marking and pack sizes.

Results: The literature review and sales data concurred that both RYO and FM cigarettes were segmented by price. Despite regular tax increases, average real prices for the cheapest FM and RYO segments remained steady from 2013 while volumes grew. Low prices were maintained through reductions in the size of packs and price-marking. Each year, at the point the budget is implemented, the TI drops its revenue by up to 18 pence per pack, absorbing the tax increases (undershifting). Undershifting is most marked for the cheapest segments.

Conclusions: The TI currently uses a variety of strategies to keep tobacco cheap. The implementation of standardised packaging will prevent small pack sizes and price-marking but further changes in tax policy are needed to minimise the TI’s attempts to prevent sudden price increases.