Tobacco industry accused of fueling cigarette smuggling to boost profits

The industry stimulates the illegal market so that it can better argue against tax rises, campaigners claim

The tobacco industry has been accused of “appalling hypocrisy”, amid claims that it is fuelling the illicit trade in cigarette smuggling to bolster its arguments against tax increases and other anti-smoking measures.

In a report published to coincide with World No Tobacco Day, the pressure group ASH (Action on Smoking and Health) claimed that some tobacco companies are flooding foreign markets with more products than there is demand.

The report said that when some of this tobacco is subsequently smuggled back to the UK, it enables the companies to point to the dangers of a burgeoning contraband trade and to say that measures such as increasing tax would only serve to make legitimate cigarettes more expensive.

“They can argue that there is already a lot of smuggling, so you can’t increase duties further,” said Deborah Arnott, chief executive of ASH. “Our paper shows the appalling hypocrisy of the industry: they have been shouting about illicit trade, while remaining up to their necks in it themselves.”

The claims were denied last night, but the ASH report is likely to add to long-standing worries about the tactics of the tobacco industry, which often uses arguments about smuggling and counterfeiting to oppose higher duties and plain packaging.

Criticising an increase in tobacco duties in March’s Budget, for example, the Tobacco Manufacturers’ Association (TMA) said: “The illegal market is clearly growing as consumers seek cheaper products elsewhere. Plain packaging will be a gift to the criminal gangs who wish to flood the UK market with cheap, counterfeit tobacco.”

Suspicions about oversupplying foreign markets to stimulate a return trade in smuggling to the UK have been raised by organisations including HM Revenue and Customs (HMRC), which has reported that the 2011 supply of some brands of rolling tobacco to some countries exceeded legitimate demand by 240 per cent.

In November, British American Tobacco was fined £650,000 by HMRC for oversupplying cigarettes to Belgium, although the company insisted it was “providing a perfectly legal supply to a legitimate demand” and announced its intention to challenge the fine in court.

The ASH claims were backed by the report “Illegal Trade of Tobacco Products”, released last week by the World Health Organisation, which created World No Tobacco Day in 1987. The United Nations organisation claimed: “The tobacco industry covertly and overtly supports the illegal trade, from providing products to the market, to working to block tobacco control by trying to convince governments that measures like health warnings or tax increases will lead to more illicit trade.”

The ASH report also claimed that the tobacco industry regularly exaggerated the extent of smuggling and counterfeiting. It cited the Project Star report produced by the audit firm KPMG for the tobacco company Philip Morris International, which put the illicit cigarette trade at 16.4 per cent of the UK market in 2012 – higher than the HMRC estimate of 4 to 13 per cent.

Ms Arnott said that, despite tobacco companies’ claims of growing illegality, the HMRC mid-point estimates of the illicit trade’s UK market share have fallen from 21 per cent in 2000 to 10 per cent in 2013-14. “But,” she said, “that won’t stop the tobacco industry from routinely using the threat of illicit trade to try to block tobacco control measures.”

Rejecting ASH’s claims, Giles Roca, director general of the TMA, said: “The tobacco industry is firmly committed to tackling illegal trade. Anti-smoking lobby groups such as ASH fail to demonstrate any real understanding of the drivers of the illegal market, such as the UK’s very high tax policy, and instead focus on making unhelpful allegations.”

Citing HMRC figures showing that the “tax gap” caused by the illicit tobacco trade had increased to £2.1bn in 2013-14 from £1.6bn in 2011-12, he said: “The Government’s own data shows that the illegal trade is rising.” KPMG last night stood by the findings of its 2013 Project Star report.