Finance Bill 2002: EXPLANATORY NOTE
CLAUSE 1: RATES OF TOBACCO PRODUCTS DUTY
SUMMARY
1. Clause 1 increases the rates of excise duty on tobacco products (cigarettes, cigars, hand-rolling tobacco and other smoking tobacco and chewing tobacco) with effect from 6pm on 17 April 2002.
DETAILS OF THE CLAUSE
2. Subsection (1) sets out a Table of duty rates to replace that in Schedule 1 to the Tobacco Products Duty Act 1979. The duty rates on all tobacco products are increased as follows:
(a) cigarettes - the ad valorem element is unchanged at 22 per cent; the specific duty is increased by approximately 2.2 per cent from £92.25 to £94.24 per 1000 cigarettes;
(b) cigars - increased by approximately 1.9 per cent from £134.69 to £137.26 per kilogram;
(c) hand-rolling tobacco - increased by approximately1.9 per cent from £96.81 to £98.66 per kilogram; and
(d) other smoking tobacco and chewing tobacco - increased by approximately 1.9 per cent from £59.21 to £60.34 per kilogram.
3. Subsection (2) makes the new table of duty rates effective from 6pm on 17 April 2002.
BACKGROUND
4. Keeping tobacco duty levels high is one of a number of measures set out in the Government White Paper on tobacco, Smoking Kills, intended to help existing smokers quit the habit and help children and young people not to become addicted in the first place.
5. Research has consistently shown that the price of cigarettes affects demand. Cigarette prices in the UK are now at historically high levels. This resolution increases excise duty on all tobacco products in line with inflation, thereby helping to maintain their real price, as well as maintaining their contribution to government revenues.
6. The duty on cigarettes has ad valorem (per cent of price) and specific (duty applied per quantity of product) elements. Raising the specific element by approximately 2.2 per cent and maintaining the ad valorem element at 22 per cent increases the total duty by about 1.9 per cent in line with inflation. The duty on other tobacco products is wholly specific.
7. The duty increase, together with consequential VAT, is equivalent to:
6 pence on a typical packet of 20 cigarettes;
2 pence on a pack of small cigars;
5 pence on a 25 gram pack of hand-rolling tobacco; and
3 pence on a pack of pipe tobacco.
8. The estimated revenue yield from these changes is nil against an indexed base. The RPI impact of the changes is estimated to be + 0.04 per cent (nominal effect).