Quantile regression of tobacco tax pass-through in the UK 2013-2019. How have manufacturers passed through tax changes for different tobacco products?

Estimating the effect of transitioning to a strength-based alcohol tax system on alcohol consumption and health outcomes: a modelling study of tax reform in England

BACKGROUND

Increasing the amount of alcohol taxation is among the most effective measures for addressing the rising global burden of alcohol harm. However, less is known about the effect of changing alcohol tax structures. Substantial reforms to UK alcohol taxation structures enacted in August, 2023, mean that all alcohol is taxed based on its ethanol content, beers and ciders sold in on-trade premises (eg, public houses) are taxed at a reduced rate (hereafter called draught relief), and beer and particularly cider remain taxed at lower rates than other alcohol of equivalent strength. We aimed to model the effect of these reforms on alcohol consumption and health and economic outcomes, and the effects of hypothetical alternative scenarios.

METHODS

The Sheffield Tobacco and Alcohol Policy Model was used to estimate policy effects on alcohol consumption. The model is an individual-based microsimulation that uses data from the Health Survey for England, Living Costs and Food Survey, Hospital Episode Statistics, and the Office for National Statistics. Spending and revenues to retailers and the Government were estimated cumulatively for a 5-year period post-intervention. Policy effects on all-cause deaths, years of life lost, hospital admissions, and admissions costs were estimated cumulatively for a 20-year period post-intervention.

FINDINGS

The reform was estimated to decrease mean weekly alcohol consumption per drinker by less than 0·05 (-0·34%) units (1 unit=8 g/10 mL ethanol), and prevent 2307 deaths and 11 510 hospital admissions during 20 years compared with no policy change. Removing draught relief was estimated to prevent 1441 further deaths and 14 247 further admissions. Hypothetical scenarios showed that removing draught relief would only slightly improve public health outcomes, and increasing tax rates for beer and ciders to match other drinks of equivalent strength would reduce consumption by a further 2·5 units per week (-17%) and deaths by approximately 74 465.

INTERPRETATION

Alcohol tax structures based on alcohol strength enable tax policy to improve public health in a targeted way. However, the UK reforms are unlikely to substantially improve health outcomes as they do not raise taxes overall. Raising tax rates for the lowest taxed beer and ciders, which are favoured by those who consume harmful amounts of alcohol, could achieve substantially greater public health benefits and reduce health inequalities.

FUNDING

National Institute for Health and Care Research and UK Prevention Research Partnership.

Tobacco industry pricing strategies during recent tax adjustments in Mexico: evidence from sales data

INTRODUCTION

Previous studies have identified pricing strategies that the tobacco industry employs to try to minimise the impact of tobacco taxation, but these studies are mostly about high-income countries. This research examines industry price responses to a recent cigarette tax increase in Mexico, including in the capsule cigarette segment that has expanded rapidly in Latin America.

METHODS

Data of cigarette prices and sales in Mexico between October 2018 and September 2021 licensed from NielsenIQ were used following a quasi-experimental design to analyse price changes after excise tax increases with fixed effect models by product. To explore heterogeneous responses, estimates were disaggregated by cigarette attributes such as presence of capsules and market segment. Differential shifting was also assessed.

RESULTS

Increasing the tobacco tax from 2011MX$0.35(≈US$0.02) to 2020 MX$0.4944(≈US$0.0283) in January 2020 was associated with an overall 8% cigarette price increase in real terms. However, some cigarette types, including premium to discount segments, exhibited price increases larger than the tax increase, which reduced the relative price of ultra-low-priced cigarettes. Instead of a single hike, prices were gradually raised throughout the first months of 2020 for all cigarette types. A combination of both pricing strategies was employed for capsule cigarettes. The 2021 smaller tax adjustment for annual inflation was fully passed onto consumer, maintaining real prices constant.

CONCLUSIONS

The industry's ability to raise prices more than the tax increase and manage these price increases smoothly suggests that there was room for larger tobacco tax increases in Mexico. Future developments on tobacco taxes could consider a fully specific tax structure or minimum taxes to mitigate the adverse effects of market segmentation and differential shifting.

Options for modifying UK alcohol and tobacco tax: A rapid scoping review of the evidence over the period 1997-2018

Background

Increased taxation is recognised worldwide as one of the most effective interventions for decreasing tobacco and harmful alcohol use, with many variations of policy options available. This rapid scoping review was part of a NIHR-funded project ('SYNTAX' 16/105/26) and was undertaken during 2018 to inform interviews to be conducted with UK public health stakeholders with expertise in alcohol and tobacco pricing policy.

Methods

Objectives: To synthesise evidence and debates on current and potential alcohol and tobacco taxation options for the UK, and report on the underlying objectives, evidence of effects and mediating factors. Eligibility criteria: Peer-reviewed and grey literature; published 1997-2018; English language; UK-focused; include taxation interventions for alcohol, tobacco, or both. Sources of evidence: PubMed, Scopus, Cochrane Library, Google, stakeholder and colleague recommendations.

Charting methods

Excel spreadsheet structured using PICO framework, recording source characteristics and content.

Results

Ninety-one sources qualified for inclusion: 49 alcohol, 36 tobacco, 6 both. Analysis identified four policy themes: changes to excise duty within existing tax structures, structural reforms, industry measures, and hypothecation of tax revenue for public benefits. For alcohol, policy options focused on raising the price of cheap, high-strength alcohol. For tobacco, policy options focused on raising the price of all tobacco products, especially the cheapest products, which are hand-rolling tobacco. For alcohol and tobacco, there were options such as levies that take money from the industries to help reduce the societal costs of their products. Due to the perceived social and economic importance of alcohol in contrast to tobacco, policy options also discussed supporting pubs and small breweries.

Conclusions

This review has identified a set of tax policy options for tobacco and alcohol, their objectives, evidence of effects and related mediating factors. The differences between alcohol and tobacco tax policy options and debates suggest an opportunity for cross-substance policy learning.

How cigarette excise tax pass-through to prices responds to the uptake and evolution of e-cigarettes (ECs)

BACKGROUND

How excise taxes are passed through to prices determines whether tax policies will be effective in changing smoking behaviours. Though previous literature has documented that cigarette taxes are overly shifted to prices, there is limited evidence on how cigarette tax pass-through to prices is affected by the uptake and evolution of e-cigarettes (ECs) in the US market.

OBJECTIVE

This study investigates how cigarette excise tax pass-through rate varied by price levels (the 25th, 50th, and 75th percentile prices) and the uptake and evolution of ECs.

METHODS

Tax pass-through rates were assessed using ordinary least squares regressions while controlling for state, year and month fixed effects. Different trends were then tested for the pre-EC uptake era (2006-2011), EC uptake era (2012-2016) and the evolution of nicotine salt-based ECs era (2017 and later).

FINDINGS

Cigarette excise taxes were fully shifted to the 25th and 50th percentile prices and overly shifted to the 75th percentile prices at a 1:1.1 rate. While cigarette excise taxes had a continuous impact on raising prices, the tax pass-through rates were lower for lower priced cigarettes, and states imposed lower taxes.

CONCLUSIONS

Continuing to raise cigarette taxes may be needed to create financial incentives to encourage people who smoke to switch to ECs. In addition, continuing to raise cigarette taxes and additional pricing policies such as price promotion restrictions are needed to increase retail prices and reduce price minimisation opportunities.

How has the tobacco industry passed tax changes through to consumers in 12 sub-Saharan African countries?

INTRODUCTION

Tobacco taxation is only effective in reducing consumption when it is translated into higher prices. This study aims to investigate to what extent the tobacco industry (TI) passes tax increases over to consumers by increasing the retail price of cigarettes in 12 sub-Saharan African (SSA) countries.

METHODS

African Cigarette Prices Project and WHO's Global Tobacco Epidemic Reports data were used to calculate the rate of tax pass-through by decomposing the retail price of cigarettes into tax and net prices between 2016 and 2020. Percentage change in net price was used to identify industry pricing behaviour, in both packs and single-stick sales. TI pricing strategies were examined by country, producer type, producers, and cigarette price segment.

RESULTS

There were mixed TI strategies, with taxes primarily overshifted (Botswana, Madagascar, Tanzania, Zimbabwe), undershifted (Ethiopia, Lesotho, Mozambique, Namibia, South Africa, Zambia) or a mix of both (Malawi, Nigeria). The detail varied between countries, over time, and between the different brands/segments offered. Patterns for single-stick sales were broadly similar to that of packs but with some differences observed in particular countries/years. Pricing strategies for the various transnational tobacco companies and domestic producers were similar but the changes in net price for the latter were larger. The country tax level/type and the size of tax change did not seem to be an obvious influence.

CONCLUSION

This paper provides an overview of TI pricing strategies in response to tax increases in SSA. Governments must monitor how the TI responds to tax changes to ensure that tax increases are effective in impacting price.

Tobacco industry pricing strategies in response to excise tax policies: a systematic review

OBJECTIVE

To explore what is known about the tobacco industry's (TI) price-based responses to tobacco excise tax policies and whether these vary by country income group using a systematic review.

DATA SOURCES

Studies assessing TI pricing tactics were identified via searches of five online databases using a combination of search keywords.

STUDY SELECTION

Inclusion criteria were applied by two reviewers independently who screened all search results (titles and abstracts) for possible inclusion. They identified 37 publications that reported TI pricing tactics.

DATA EXTRACTION

Study details were tabulated, and information was extracted on the country income group, population characteristics, excise tax structure, and pricing strategies.

DATA SYNTHESIS

Of the 37 publications identified, 22 were conducted in high-income countries, while 15 covered low-income and middle-income countries (LMICs). Major pricing strategies employed were: differentially shifting taxes between products (35 studies); launching new brands/products as pathways for downtrading (six studies), product promotions and different prices for the same products for different customers (six studies); price smoothing (two studies); and changing product attributes such as length/size of cigarettes or production processes (three studies).

CONCLUSIONS

While there is limited evidence to fully ascertain industry responses to tax increases, this review suggests that the TI widely uses a multitude of sophisticated pricing strategies across different settings around the world with the intention of undermining tax policies, thereby increasing tobacco consumption and maximising their profits. There is a need for further research in this area especially in LMICs so that effective policy responses can be developed.

Addressing lower-priced cigarette products through three-pronged comprehensive regulation on excise taxes, minimum price policies and restrictions on price promotions

The prices that smokers pay out-of-pocket for their tobacco products ultimately influence their smoking behaviour. Although cigarette excise taxes are arguably the best and most used policy to increase cigarette prices, taxes are only one component of retail cigarette prices. The persistence of lower-priced products, disproportionately purchased by lower-income smokers, in jurisdictions with high excise taxes is an Achilles heel for tobacco tax policy. When governments raise excise taxes, the tobacco industry responds. The industry reduces tax pass-through to minimise the price increases for lower-priced brands and offers price discounts to retailers and coupons to consumers. In addition, smokers who do not quit after tax increases may downshift brands, purchase in bulk or substitute lower-priced tobacco product types. This may be particularly true for price-sensitive smokers, including those with lower incomes. We propose that raising excise taxes will be more effective in reducing the persistence of lower-priced products and income-based smoking disparities when taxes are designed to raise prices frequently and substantially for all products and are combined with (a) minimum price laws and (b) bans on coupons, discounts and other promotions. In combination, these three complementary policies restrict the tobacco industry's ability to undermine the impact of higher excise taxes upon consumer prices. Very few jurisdictions have implemented comprehensive three-pronged tobacco price regulation, but doing so would likely address many of the limitations that come with a sole focus on raising excise taxes.

Do dual purchasers behave differently? An analysis of purchasing data for households that buy both alcohol and tobacco in the United Kingdom

BACKGROUND AND AIMS

Dual purchasers of alcohol and tobacco are at increased health risk from the interacting health impacts of alcohol and tobacco use. They are also at financial risk from exposure to the dual financial cost of policies that increase alcohol and tobacco prices. Understanding whose alcohol and tobacco use exposes them to these health and financial risks is important for understanding the inequality impacts of control policies. This study explores the extent to which household spending on alcohol and tobacco combined varies between socio-economic groups and compares this with results for households which purchase only one of the commodities.

DESIGN

Cross-sectional analysis of household-level alcohol and tobacco purchasing data.

SETTING

United Kingdom, 2012-17.

PARTICIPANTS/CASES

A total of 26 021 households.

MEASUREMENTS

We analysed transaction-level data from individual 14-day spending diaries in the Living Cost and Food Survey (LCFS). We used this to calculate expenditure, volumes of alcohol and tobacco purchased, and the price paid per unit of alcohol (1 unit = 8 g) and per stick of tobacco. This was compared with equivalized total expenditure and quintiles of equivalized household income. Prices were calibrated and pack sizes were imputed using empirical sales data from Nielsen/CGA to correct for reporting bias.

FINDINGS

Dual purchasing households spent [95% confidence interval] more on alcohol and more on tobacco than their single-purchasing counterparts. In general, lower-income households spent less on both alcohol and tobacco than higher-income households. Furthermore, dual purchasing households in the lowest income group were most exposed to potential increases in price than were other income groups, with (CI = 12.41-13.15%) of their total household budget spent on alcohol and tobacco.

CONCLUSIONS

Dual purchasers of alcohol and tobacco in the United Kingdom appear to be concentrated evenly among income groups. However, dual purchasers may experience particularly large effects from pricing policies, as they spend a substantially higher proportion of their overall household expenditure on alcohol and tobacco than do households that purchase only one of the commodities.

What does Brexit mean for UK tobacco control?

In January 2020 the UK left the European Union (EU), although a transition period extends EU rules/regulations until the end of 2020 while a longer-term relationship agreement is negotiated. After almost 50 years of membership the UK economy is tightly integrated into that of the EU single market, and many UK laws and regulations have their origins in the EU, including those concerning tobacco. This paper provides an overview of potential implications of Brexit for UK tobacco control. We examine the key areas of the supply, cost, taxation, and regulation of tobacco products, and the impact of commitments in regards to the border between Ireland and Northern Ireland (NI). We find that Brexit provides an opportunity for improved tobacco control with potential for particular enhancements in the areas of taxation and product regulation. However, commitments in regards to NI mean these benefits either won't extend to NI (which will continue to follow EU rules), or could lead to the whole UK having to follow most EU rules/regulations despite no longer being involved in the decision making process. The details of any future deal will be important, especially since virtually all UK tobacco products come from the EU, and hence would be subject to disruption/considerable new tariffs (i.e. taxation on imports) without a trade deal. We conclude that political will by the UK government to secure conditions which protect the UK's world leading tobacco control measures will be key to whether Brexit helps or hinders tobacco control in the UK. In this regards the signs are mixed.