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U.K. cigarette prices can vary by more than a pound ($1.56) a pack. (Thinkstock)
U.K. cigarette prices can vary by more than a pound ($1.56) a pack. (Thinkstock)

How British tobacco firms stay one step ahead of the regulator Add to ...

You can call tobacco-company executives a lot of nasty names. But you certainly can’t call them stupid. They are constantly coming up with ingenious ways to keep people hooked on their products.

A new British study is a case in point. It found that tobacco firms in Britain fiddled with cigarette prices as a way of sabotaging public-health efforts to reduce smoking.

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Every year, around March and April, the British government nudges up taxes on tobacco. The taxes add to government revenues. But raising the price of cigarettes is also considered one of the most effective means of reducing smoking – particularly among the young and low-income individuals.

However, the companies have not passed on the taxes to all of their products, according to the study published this week in the journal Addiction. Instead, they have been absorbing the tax increases on their lower-priced brands, so that prices of these products have remained almost unchanged since 2006. Yet, during the same period, the companies boosted prices on their premium brands, which tend to be purchased by high-income earners who are unlikely to quit because of an incremental cost increase.

“The tobacco industry is playing a clever game with cigarette prices and undermining the intended impact of public-health policies,” said the study’s lead author, Dr. Anna Gilmore, a professor of public health at the University of Bath. Smoking rates have remained fairly stable in recent years, hovering around 20 per cent of British adults. That indicates successive tax increases have done little to persuade smokers to butt out.

Gilmore said her study represents the first detailed analysis of the price structure of cigarettes sold in Britain. The U.K. consumer price index has traditionally included only the premium brands. So the widening gap between low-end and premium products has remained under the public radar, she said. Prices can vary by more than a pound ($1.56) a pack.

Charging different amounts for their products helps the companies maintain their customers while boosting profits, she said.

“On their more expensive brands, they add their own price increases on top of the tax increase. On their very cheapest brands, they absorb the tax increase and cut prices. The first ensures their profits rise and that consumers are hoodwinked into believing the price increase is due to the government’s tax increase, the second ensures fewer smokers quit than would otherwise, providing a win-win for the industry,” she wrote in a statement released with the study.

The study also found that the market share of lower-priced cigarettes tended to grow over time. That suggests some consumers shifted to the cheaper smokes as the price of high-end products rose. So rather than being enticed to quit because of the price hike in their favourite cigarettes, they simply shifted brands.

“The availability of cheap cigarettes is really important for young smokers,” she said, noting they represent the future market for tobacco firms. “I think a low price keeps customers in the market and potentially attracts new young customers.”

Gilmore believes Britain needs to create a new public agency to regulate how much money the companies make while ensuring tax increases are imposed on all products.

Could tobacco companies in Canada also shift taxes from one product to another so that some brands remain relatively cheap? Rob Cunningham, a senior policy analyst for the Canadian Cancer Society, says that would not be possible in Canada. “Britain has a different tax structure. We just have a certain amount of tax per cigarette,” he said.

“There is no doubt that tobacco companies are very sophisticated in their knowledge of the market and their desire to maximize sales and profits. And if they can have a strategy that keeps people in the market, instead of quitting altogether, you can expect tobacco companies are going to want to use that. And, based upon this study, that is exactly what is happening in Britain.

“I think the approach we have in Canada – a specific tax – is a better approach.” But, he noted, Canadian companies have introduced products at different prices so there are still some similarities with Britain.

“Up until about a dozen years ago, all brands of the major companies in Canada had the same price, except for one or two of the smaller companies. Since then, there has been a lot of price discounting, ” he said. “Discount brands are selling for $10 to $20 dollars a carton less” than premium brands.

 

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