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Analysis of government stake in tobacco sales

Discussion in 'The ECF Library' started by rolygate, May 14, 2012.

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  1. rolygate

    rolygate Forum Manager Verified Member ECF Veteran

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    Sep 24, 2009
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    In many countries the government is the major stakeholder in cigarette sales, not the tobacco industry. In the West, some governments are a 90% stakeholder, because about 85% of revenue goes to them, as virtually all of the cost price is tax, and there are substantial additional benefits and savings for government - such as not having to pay pensions or social support to smokers who die early.

    The tobacco industry gets just 10% - 15% of the purchase price, and may end up, when the maths is done, as an 8% - 10% stakeholder in tobacco sales overall. In reality, you purchase your pack of cigarettes from the government.

    In China, as the government is also a major shareholder in the tobacco companies, it is probably an even bigger stakeholder in cigarette sales. It doesn't own any ecig companies though; and it may act even more strongly to protect tobacco tax revenues than governments in the West.

    The exact figures in the UK are available as it's a relatively small place with good statistics collection. The stats are not universally agreed (there are multiple sources for the same figure, which all differ slightly) - but in a given year around 2012 they would be:

    • Total income from tobacco sales is around £14bn (14 billion GBP) / $22.5bn [1]
    • The industry gets about £2bn / $3.2bn from sales
    • The government gets about £12bn / $19.3bn
    • Cost of treating sick smokers is said to be £2.7bn, let's round it up to: £3bn / $4.8bn per year.
    • Government savings on social support of all types due to smokers dying early is estimated at £10bn / $16bn per year.
    So: the government takes 85% of sales - about £12bn / $19.2bn from tobacco sales vs the industry's £2bn / $3.2bn.
    Total UK government gain however = ~£22bn (22 billion GBP) / $35.3bn per year.
    The UK government total tax income per year is forecast as £588bn currently [2].
    Per day from all sources is about £1.6bn / $2.5bn.
    The UK government makes approximately 2.1% of all tax income from tobacco, plus an additional £10bn savings, but minus £3bn costs.

    The UK government, by virtue of tax and expenditure savings, is around a 90% stakeholder in tobacco sales. Cigarettes are, in effect, bought from the government; and this provides at least one reason why cigarette sales are protected.

    [1] UK tobacco market summary » Tobacco Manufacturers' Association

    UK tax receipts since 1963: full data | UK news |
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