Tobacco's tough future

Britain's tobacco companies, Imperial Tobacco and Gallaher, face an unsettled future if Labour wins the election.

Recent developments in the US, where the tobacco companies have entered into negotiations under the supervision of President Bill Clinton's White House, with thousands of plaintiffs and US health authorities, could bring about a $300bn (pounds 180bn) settlement in the coming months.

Labour has said it will ban all tobacco advertising if it is elected, with its focus aimed at reducing deaths from smoking by targeting the under-age smoker. Research suggests that teenage smokers are not "price sensitive" to the product, and are most influenced as to what brand to smoke by advertising.

However, with the public finances likely to come under extreme pressure in the next two years, tobacco, which pays pounds 9bn into Treasury coffers, is an important source of state revenue.

A spokesman for Imperial said the company would not comment on developments in the US, where it does not have any operations.

However, Paul Sadler, manager for external affairs, said the company denied a causal link between smoking and serious health injuries, including cancer: "There is a statistical link between smoking and cancer, but no causal link has been proven." He said the concept of nicotine addiction was a "meaningless discussion". "We accept that some smokers find it hard to give up smoking, but then some people find it hard to give up watching Neighbours, or drinking coffee."

However, the UK is the only country outside the US to have a significant class action being brought against the two major suppliers.

On Friday, Martyn Day, of lawyers Leigh, Day & Co, the firm handling the only UK class action, dispatched another 13 cases for the courts, taking to 36 the number where statements of claim have been issued. He said a Labour victory would inevitably turn the heat up on the UK's big two. "In the US, it has been a combination of greater financial and legal pressure and political scrutiny that has led to this latest development."

He predicted the process for compensation under Labour would intensify in the UK. The Conservatives have been seen as more relaxed about cigarettes, while Baroness Thatcher did the party no favours with the anti-smoking lobby when she became a consultant to the US giant Philip Morris.

Keith Barron, shadow minister for public health in Tony Blair's cabinet, had some solace for the industry. "We are in constant dialogue with the tobacco companies, and it is an industry that is going to be around for a while yet."

Gallaher, which is owned by American Brands, is due to be floated on the stock market this summer, in a deal likely to value it at upwards of pounds 1.3bn.

The deal is likely to go ahead despite the developments in the US. Investors have reacted positively to the news, which has triggered something akin to euphoria on the stock market.

The price of BAT rose from 511p on Monday morning to close at 531p, while Imperial gained 9.5p to 422.5p over the same period.