H.M. TREASURY Notes on Clauses

CLAUSE 5: RATES OF TOBACCO PRODUCTS DUTY

INTRODUCTION

1. This clause increases the rates of excise duties on most tobacco products (cigarettes, cigars, other smoking tobacco and chewing tobacco) with effect from 6 pm on 9 March 1999.

DETAILS OF THE CLAUSE

2. Subsection 1 sets out a Table of duty rates to replace that in Schedule 1 to the Tobacco Products Duty Act 1979. The duties on all tobacco products, except for hand-rolling tobacco, are increased as follows:

(a) cigarettes - the ad valorem duty is unchanged at 22 per

cent; the specific duty is increased by approximately 7 per cent

from £77.09 to £82.59 per thousand cigarettes;

(b) cigars - increased by 6.3 per cent from £114.79 to

£122.06 per kilogram; and

by 6.3 per cent from £50.47 to £53.66 per kilogram.

The duty on hand-rolling tobacco is unchanged at £87.74 per kilogram.

3. Subsection (2) makes the new table of duty rates effective from 6 pm on 9 March 1999.

BACKGROUND

4. The Government is very concerned about the rates of death and disease attributed to smoking. These increases reflect the Government's determination to reduce tobacco consumption and help ensure that young people do not become the smokers of tomorrow.

5. The Chancellor's decision to increase duty rates for most tobacco products with effect from Budget Day, is part of his strategy for aligning excise duty increases with the new Spring Budget cycle. Making the change this year further supports the Government's health objective of cutting the rates of death and disease attributable to smoking. It should also help to reduce the large scale fiscal clearance of tobacco products in advance of a duty increase.

6. The duties on cigarettes, cigars, other smoking tobacco and chewing tobacco are increased by approximately 6.3 per cent (5 per cent in real terms). The duty on hand-rolling tobacco is not increased because of concerns over the large scale smuggling of this product.

7. The duty on cigarettes has ad valorem (% of price) and specific (per cigarette) elements. Raising the specific duty by approximately 7 per cent increases the total duty by about 6.3 per cent. The duties on other tobacco products are wholly specific.

8. The estimated full year revenue yield of these changes is £630 million on a non-indexed base in 1999/2000. On an indexed base (i.e. compared to implementation on 1 December) it is worth £620 million in 1999/2000, and £410 million in 2000/2001. The RPI impact of the changes is estimated to be +0.18 per cent.