Smoking costs society dear – so why isn’t Big Tobacco paying its way?

Smoking costs society dear – so why isn’t Big Tobacco paying its way?

It is well known that some of the world’s biggest technical companies pay pitiful amounts of corporate tax. Now our new research has placed the tax returns of tobacco firms under the spotlight.

Despite the enormous harm they cause, and the massive profits they earn, it turns out that multinational tobacco companies pay almost no corporation tax in the UK. Given the deficit in NHS funding, this should spur the government into action.

Our work, supported by Cancer Research UK, drew on publicly available data from 2009 to 2016, a period when corporation tax rates varied between 20% and 28%. It showed that the four tobacco multinationals operating in the UK – two of which have British headquarters – are not paying corporation tax at anything like this rate.

For example, for four of these years British American Tobacco (BAT) paid absolutely no corporation tax and negligible amounts in the other years. Imperial Brands paid, at most, an effective rate of 13% – often much lower – and even received tax credits of up to £112m in some years.

In 2016, Imperial, BAT and Gallagher (Japan Tobacco International’s UK subsidiary) together made UK operating profits in excess of £1 billion – yet paid only £83.6m in corporation tax, a fraction of what might be expected.

No doubt they ensure this is legal, but it cannot be right. These are some of the world’s most profitable companies. They sell a highly addictive product that kills two out of three long-term users, imposing enormous suffering and costs on smokers, their families and society as a whole.

According to recent government analysis, the cost of smoking to the economy was £11bn in 2017 in England alone. Tobacco excise duties generated £9.5bn in the UK that year, leaving a deficit of at least £1.5bn – a deficit barely touched by the negligible corporation taxes paid.

Our research highlights some underpinning problems. First, the whole reporting system for corporation tax and company accounts in the UK is inadequate. It’s almost impossible to know exactly how much corporation tax is due because companies don’t have to report the profits they earn in the UK, nor offer full details of how their corporation tax payments have been calculated.

Second, like many other businesses, tobacco companies have clearly reorganised corporate structures to enable profits to be shifted overseas.

The bigger picture – the market failure causing the rot at the heart of our public health system and our NHS funding crisis – is more alarming still. It is the products of major corporations – not just tobacco, but highly processed foods, sugary drinks, and alcohol – that are the major causes of death and illness in the UK, and indeed globally.

Yet the profit-seeking companies producing these products remain incentivised to cause great harm, because the costs of that harm are offloaded on to others. Until the real costs of selling those products are factored into those companies’ bottom lines, the rot will continue and tax payers will pick up the tab.

Money to burn? Shutterstock

Instead, corporations must be made to bear the costs of the harm they cause. A first step is to mandate more robust country by country reporting of tax and profits so that companies can no longer draw on their vast resources to play the system.

A simple second step would be to impose a corporation tax surcharge on companies whose products are damaging to health, to ensure they start to pay for the harm they cause. An 8% corporation tax surcharge is currently imposed on banks in the UK. This could simply be extended to other companies.

Increase tax, reduce consumption

Increasing taxes on harmful products such as tobacco and alcohol excise duties, and the recent tax on sugary drinks, also plays a vital role in reducing consumption of those products while raising government revenues – a win-win situation. The fact that tobacco duties in the UK (among the highest in the world) only partially meet the true costs of tobacco shows how far we may need to go.

A new proposal to force tobacco firms to pay a levy which will fund efforts to help smokers quit is to be welcomed. While this is unlikely to change the industry’s profit making – as it will be passed on to smokers in the form of higher prices – it would deter smoking while raising much needed revenue.

Price cap systems have also been proposed and have the advantage that they would reduce the perverse profit incentives these companies have while also raising government revenue. In these systems the prices companies can charge on potentially health-damaging products is capped, reducing the profits from those products, but the cost the consumer faces does not drop because a higher excise duty would replace the foregone profits.

The public must make it clear it no longer wants to pay for the harms that these companies cause, and the government must urgently grasp this issue. This will require them to reject the self-interested overtures of the think-tanks promoting tax cuts and claims about their impacts, including that high excise duties are the primary driver of tobacco smuggling.

It is entirely unacceptable that enormously profitable companies are not paying for the harm they cause. Until they are, they remain incentivised to keep selling and promoting their health damaging products to the detriment of individual and global health.