Government policies on tobacco and nicotine products promoted by the European Commission are inadvertently fuelling the illicit trade, an expert has warned
Clive Bates, former director of Action on Smoking and Health and a long-time advocate against cigarette smoking and the influence of “Big Tobacco”, told Brussels Signal on March 14 that high taxation and excessive regulations were pushing consumers to the black market.
Bates emphasised the growing shift in the market structure for nicotine products, with illegal trade expanding as a response to restrictive policies.
“We are likely seeing a significant shift in the structure of the market for nicotine products, with illicit trade becoming a larger-scale response to high taxation or excessive restrictions,” he said.
“This may partly reflect the evolution of networks and systems for conducting illicit trade, including secure communications apps, international payment systems, e-commerce websites — including the ‘dark web’ — and logistics to support internet commerce.”
European authorities have observed three main consequences of strict regulations on tobacco and vaping products, Bates said.
Firstly, restrictions can lead to adverse behaviour changes; bans on flavoured vapes often lead to unintended consequences, such as increased cigarette smoking.
Secondly, in countries including Australia where cigarette taxes are relatively high and legal access to vaping products is tightly limited, the illicit vape market now accounted for more than 90 per cent of sales, he claimed.
In the US, stringent Food and Drug Administration (FDA) regulations have led to an underground market, with only 6 per cent of vape sales coming from FDA-authorised products, Bates added.
Finally, he said, consumers and suppliers have found ways to circumvent bans. For example, the European Union’s menthol cigarette ban led to the rise of “mentholation” inserts.
Vape flavour bans have spurred demand for DIY flavouring agents and the EU’s tank size limit of 2ml has driven innovation in device design to accommodate larger refills, Bates claimed.
“Many of the ideas we had about regulating and taxing the tobacco sector in the 1990s and 2000s are starting to break down now,” henoted. “Trying to solve problems with bans and restrictions is no longer as easy as it once was.”
Tobacco is set to become a hot-button issue in the next legislature after the European Commission signaled it wants to pick up the fight against smoking and everything remotely related to it. https://t.co/iayPf2QXMv
— Brussels Signal (@brusselssignal) November 12, 2024
His warning came as the UK faced a £2.6 billion (€3.09 billion) shortfall in expected tobacco tax revenue, with smokers turning to illegal imports to avoid rising duties.
Under the British Government’s tobacco duty escalator, taxes increase by 2 per cent above inflation annually.
Despite that, critics argued the rates have now surpassed a tipping point, driving consumers towards the illicit market goods instead of boosting government revenue.
According to official figures, at least 14.5 per cent of the UK tobacco market is unofficial, although some estimates suggested the real figure could be closer to 27.9 per cent.
This shift has been blamed for the sharpest year-on-year decline in tax revenue on record, with tobacco duties raising only £8.8 billion (€10,45 billion) — 12 per cent less than the previous year.
The UK Office for Budget Responsibility (OBR) has directly linked this shortfall to increased incentives to purchase illicit products.
Illegal tobacco often includes smuggled brands from Eastern Europe, counterfeit products designed to look like legitimate brands and British cigarettes brought in without duty paid.
Right-wing Reform UK MP Richard Tice pointed to the figures as evidence that high taxation was backfiring.
“This is yet more proof that the government’s addiction to high taxes is costing the country dearly,” he said.
“Instead of boosting revenues, their reckless tax hikes have done the exact opposite—driving smokers into the arms of criminals and creating a gaping black hole in public finances.”
He invoked the Laffer Curve theory, which suggested that excessively high taxes discouraged legal sales and pushed consumers towards illicit alternatives.
“Punitive taxes don’t work. They shrink the tax base, hurt honest retailers, and leave taxpayers footing the bill,” Bates added.
The debate in the UK came as the EC was in the process of updating the Tobacco Products Directive (TPD). The directive, which governs the regulation of tobacco and nicotine products across the EU, was expected to introduce stricter controls on product design, flavours and advertising.
Despite that, Bates argued that excessive regulation risked exacerbating the same problems seen in the UK and other heavily taxed markets.
“Trying to solve problems with bans and restrictions is no longer as easy as it once was,” he said.
Despite the growing controversy, an EC spokesperson declined to comment when asked by Brussels Signal.
Tobacco is set to become a hot-button issue in the next legislature after the European Commission signaled it wants to pick up the fight against smoking and everything remotely related to it. https://t.co/iayPf2QXMv
— Brussels Signal (@brusselssignal) November 12, 2024
