Budget 2023: Changes to tobacco duty rates from 15 March 2023

Who is likely to be affected

Manufacturers, importers, distributors, retailers and consumers of tobacco products. Tobacco products include cigarettes, cigars, hand-rolling tobacco (HRT), other smoking tobacco and chewing tobacco, tobacco for heating and herbal smoking products.

General description of the measure

This measure sets out how tobacco duties will increase on 15 March 2023.

Policy objective

The government is committed to maintaining high tobacco duty rates. This is an established tool to reduce smoking prevalence and ensure that tobacco duties continue to contribute to government revenues. The tobacco duty escalator, which increases duty in line with the Retail Price Index (RPI) +2% at each Budget, was extended at Budget 2020 until the end of the current Parliament. In addition, increasing the duty rate on HRT and the Minimum Excise Tax (MET) above the duty escalator will narrow the gap between HRT and cigarette duty rates and ensure the METcontinues to be effective in the current market.

The MET on cigarettes supports public health objectives and tackles the very cheapest cigarettes. The MET sets a minimum level of excise duty for any packet of cigarettes. This means that the total excise duty on a packet of cigarettes is the higher of either the usual application of duty, or the MET.

Background to the measure

As announced at Spring Budget 2023, the duty rate on all tobacco products will increase by the tobacco duty escalator of 2% above RPI inflation. It was also announced that the duty rate for HRT will rise by an additional 4%, to 6% above RPI inflation, and the MET by an additional 1%, to 3% above RPI inflation this year.

Detailed proposalOperative date

The new tobacco duty rates will have effect from 6pm on 15 March 2023.

Current law

The table of duty rates on tobacco products is in Schedule 1 to the Tobacco Products Duty Act 1979 (TPDA).

Proposed revisions

Legislation will be introduced in Spring Finance Bill 2023 to increase the rates of duty on tobacco products. The legislation will amend Schedule 1 to the TPDA and make consequential changes to the simplified calculations contained within the Travellers’ Allowances Order 1994.

Summary of impactsExchequer impact (£m)

These figures are set out in Table 4.1 of Spring Budget 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2023.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

Assuming duty increases are passed on to consumers, this measure will impact on individuals who smoke by increasing the price of tobacco products. Heavy smokers will face the highest burden from this measure.

In response to higher prices, some individuals could choose to consume less, some could down-trade from more expensive to cheaper tobacco products and others could engage in cross-border shopping or purchase from the illicit tobacco market. HMRC will monitor and respond to any potential shift in illicit consumption as part of its strategy to combat tobacco fraud.

Customer experience is expected to stay broadly the same as this measure only increases the price of tobacco products.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

Evidence suggests that levels of smoking are slightly higher among men than women. Younger people are also more likely to smoke than older people.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on fewer than 30 manufacturers and importers. They will face an increase in tobacco duty rates that they are likely to pass on to consumers. There will be a negligible one-off cost to these businesses of familiarisation and amending systems to reflect the new rates. It is not expected there will be any continuing costs.

Customer experience is expected to stay broadly the same as this measure does not present a significant change for tobacco manufacturers and importers.

There is no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

HMRC will need to make changes to IT systems to implement this change. Those changes are estimated to cost in the region of £5000.

Other impacts

Any reduction in smoking prevalence will have a positive impact on health and reduce the cost to the NHS of smoking-related illness. There may be reductions in other costs that arise from tobacco use. These costs include losses in productivity from smoking breaks and ill-health absences, the cost of cleaning up cigarette butts, the cost of smoking-related house fires and the loss in economic output from people who die from diseases related to smoking or exposure to second-hand smoke.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from tax receipts.