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This anti-business idea is illogical and ignores a major cause of lost tobacco tax, the illegal market.


Britain's tobacco industry reacted with fury to the plan by the Labour leader, Ed Miliband, to tax British cigarette companies to pay for NHS spending, branding the move anti-business and unjust.

Imperial Tobacco, the company behind brands including Lambert & Butler and Golden Virginia, said Labour plans to raise at least 150m by taxing companies according to market share amounted to an attack on a legitimate business sector.

A spokesman for the company said: "The idea ... is totally unwarranted and unjust, and should be dismissed immediately.

Imperial is already one of the largest contributors of tax to the UK government in the FTSE 100, contributing billions of pounds in tax and excise every year. The UK tobacco industry is subject to a punitively high rate of excise, meaning the average total tax take on a pack of cigarettes is 86%.

"The idea put forward today fails to acknowledge the wider contribution made by Imperial to society, and will place further pressure on jobs and livelihoods," the spokesman said. "Earlier this year we announced the closure of our Nottingham cigarette factory, citing in part the impact of excessive tobacco regulation and taxation."

Miliband told delegates at the annual party conference in Manchester that it was fair to impose additional costs on an industry that makes "soaring profits on the back of ill health".

The industry argues that it contributes 12.3bn a year to the exchequer, while the costs of smoking to the NHS are estimated at between 2.7bn and 5.2bn.

The industry trade body, the Tobacco Manufacturers' Association (TMA), rejected the idea. Giles Roca, director general, said: "This anti-business idea is illogical and ignores a major cause of lost tobacco tax, the illegal market."

"Rather than coming up with ways to attack a legitimate UK business sector, selling a legal product which already contributes 12.3bn per year in tax, the Labour party should be thinking of how to claw back the billions in revenue the government loses through sales of illegal tobacco in the UK. The latest HM Revenue & Customs data shows that the illegal market cost up to 2.9bn in 2012-13."

The TMA represents companies including the FTSE 100's British American Tobacco and Imperial, whose share prices were down more than the wider market following Milband's comments, by 1.7% and 1.6% respectively.

David Hayes, an analyst in the London office of the Japanese bank Nomura, said that Imperial and Japan Tobacco International would be hardest hit by Labour's plan because between them they controlled about 85% of the UK market.

"It is not insignificant. The obvious solution for companies is likely to be a pass-on of the cost through higher prices, so you would expect the consumer to ultimately bear the cost."

Analysts at Goldman Sachs warned in a note that Labour's plan might be less effective than Labour intended: "For instance, [tobacco companies] could lower tobacco prices to reduce profits in the UK, and compensate by raising prices more significantly in other markets to make up the shortfall."

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