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Tobacco companies keep people smoking despite UK cigarette tax increases
Date:4/15/2013

Raising tobacco prices is one of the most effective means of reducing tobacco use, particularly among price-sensitive smokers such as young people and people with low incomes. But when the UK government has been raising cigarette taxes to increase prices and deter smoking, tobacco companies have been absorbing the tax increases on their ultra-low-price (ULP) brands to keep their prices low. As a result, real ULP cigarette prices have remained virtually unchanged since 2006 and their market share has doubled, suggesting that as cigarette taxes rise, many smokers downtrade to cheaper cigarettes and carry on smoking.

Transnational tobacco companies categorise cigarette brands into four price segments: premium, mid-price, economy, and ultra-low-price (ULP). A research report published online today in the journal Addiction reveals that while the real weighted average price of premium, mid-price and economy brands has increased gradually between 2001 and 2009, the real price of ULP cigarettes has barely changed since 2006, greatly reducing the effectiveness of cigarette taxes to deter smoking.

Tobacco companies have achieved this by overshifting taxes on their higher priced brands (increasing cigarette prices on top of the tax increases) and undershifting taxes on their ULP brands (absorbing tax increases so they are not passed on to the consumer) to keep the prices of their cheapest brands low. The former enables tobacco companies to increase their profits while the latter helps keep smokers in the market.

Unsurprisingly, the market share held by price-static ULP cigarettes doubled between 2006 and 2009, while the market share of the other three categories has fallen. But the rising prices of the more expensive brands means that, even with a falling market share, revenue from premium and mid-price brands has increased steadily since 2001.

Says lead author Anna Gilmore, Professor of Public Health & Health Foundation Cl
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Contact: Jean O'Reilly
jean@addictionjournal.org
Wiley
Source:Eurekalert

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