Cigarette tax and smoking rates

In the UK, smoking rates have fallen significantly over the past 40 years. A combination of factors has led to a reduction in smoking rates.

  1. Higher taxes
  2. Health campaigns that warn of the dangers of smoking.
  3. Rules to ban smoking in many public areas, which makes smoking less attractive.
  4. Change in social attitudes and reduction of the smoking trend.
  5. Campaigns and new products to offer help people quit smoking.

It is difficult to separate the causes of why smoking rates have decreased. But tax rates on smoking have played an important role in reducing the demand for smoke.

Isn’t the demand for cigarettes inelastic?

Tobacco is a good example of inelastic price. It is compelling and there are no tight substitutes, so we would expect that a higher price would lead to a lower percentage drop in demand. However, we must make a distinction between the elasticity of short-term demand and the elasticity of long-term demand. It is unlikely that a smoker will change his habits due to a 10% price increase. However, if there is a persistent increase in the price, it can be a motivating factor to quit smoking, but this could take a long time. However, although demand may be very inelastic in the short term, in the long term it is likely to become more price sensitive.

The price of cigarettes in the UK

In the UK, taxes account for 77% of the price. The tobacco tax has increased significantly more than the inflation rate.

Tobacco taxes give the government an estimated tax revenue of £ 10 billion in 2014/15. (Sources of tax revenue)

Social benefits of the tobacco tax

This ASH report suggests that the tobacco tax can lead to a significant increase in welfare: a reduction in smoking rates leads to a better life expectancy and less time lost due to absenteeism.

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