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."