The Cigarette Prices Remain Stable Despite UK Annual Tax Increase
In spite of annual increase of cigarette taxes by UK authorities tobacco companies manage to keep the prices of the cheapest brands almost at the same level.
According to the UK government opinion increasing taxes for cigarettes is one of the most effective ways to decrease the demand for tobacco products. It refers mostly to teenagers and that group of people whose level of life is lower. But in reality everything is not so simple. Alongside with the actions of UK government directed to raise cigarette taxes tobacco companies have been transferring the tax increases on their ULP (ultra-low-price) brands to support their prices on the previous level. Therefore the prices for ULP cigarettes have been still almost the same since 2006.
Tobacco companies divide cigarettes into four main categories: premium, mid-price, economy, and ultra-low-price (ULP). The magazine "Addiction" notes that while the prices for premium, mid-price and economy cigarette brands have considerably increased till 2009, the actual cost of ultra-low-price cigarettes has remained almost unchanged that made it more complicated to influence somehow the smoking people.
The approach used by tobacco companies was enough simple: they transferred taxes on their expensive brands saving the previous prices for ULP cigarettes. As a result the market share of ULP cigarettes has considerably increased while the market share of the rest of the brands has on the contrary decreased. But all the same it led to the revenue increase of the expensive brands.
According to the opinion of Anna Gilmore, Professor of Public Health & Health Foundation Clinician Scientist in the University of Bath's Department for Health and the UK Centre for Tobacco Control Studies "tobacco companies use their price changes to win two ways". She explained that in order to see the positive results from tax increase the UK government should "narrow the price gap between the cheapest and most expensive cigarettes and prevent tobacco companies from discounting their cheapest brands."