Vaping Products Duty consultation

The UK government plans to slap a big tax on quitting smoking via vaping. The proposal is wrong in principle and will not do what they expect. But it turns out that is a good thing.

See Abridged Consultation Response: Clive Bates [PDF 10 pages]

Excerpt: will the proposal meet its six objectives?

Objectives of the duty. There are problems with both the selection of policy objectives and the likelihood that the Vape Duty proposal will contribute to meeting them. I will consider each stated objective in brief.

The government establishes six objectives.

1. To reduce the number of non-smokers and young people that vape by reducing the affordability of vaping products in recognition that vaping is not risk free. Vaping is an economic substitute for smoking.  The duty may have the effect of increasing smoking among youth, causing an increase in the availability of illicit products to serve the much larger adult market and triggering workarounds, such as the illegal trade in nicotine concentrates. In terms of societal costs and benefits, the Vape Duty effects on smoking will dominate its overall impacts. Any effect it has on reducing vaping in youth and non-users will likely be overwhelmed by unintended public consequences.

2 . To encourage consumers to choose lower strength or nicotine-free vaping products over higher strength ones due to the harms from nicotine addiction. The choice of this objective is based on a simplistic misunderstanding of nicotine-using behaviours.  Higher-strength nicotine does not mean “more addictive”. Users generally “titrate” nicotine to absorb the dose they want – using larger volumes of weaker liquids and lesser volumes of stronger liquids. Officials will be familiar with this concept: drinkers consume smaller quantities of whiskey than beer, but equivalent inebriation is possible with both. Users compensate for liquid strength by subconsciously varying the depth, duration and frequency of puffs. This basic understanding of nicotine-seeking behaviour is missing throughout the consultation. Users of weaker liquids will generally consume larger volumes with higher energy input and will be more exposed to toxicants, contaminants and products of pyrolysis. In general, it is better for health if users are encouraged to use stronger liquids – especially when they make the initial switch and need to replicate the effects of smoking. The incentives established by the Vape Duty are mixed, and the response is indeterminate – see answers 6 & 7 below.  The headline price incentive to move to weaker liquids will be moderated or reversed by the costs to users, which is a function of strength and volume consumed. The Vape Duty also creates an inappropriate implicit risk communication and creates incentives to switch away from taxed vapes to other nicotine products or untaxed vapes.

3. To encourage manufacturers of vaping products to reduce the nicotine content of their products. The manufacturers will respond to consumers’ preferences (see 2. Above) and maintain the current lawful choices from 0-20 mg/ml. There is no valid analogy with the intention of the Soft Drinks Industry Levy to promote product reformulation.  As discussed above, the duty does not, in fact, encourage migration to lower-strength liquids because a given user will consume larger volumes if switching to a lower-strength liquid. The government should not promote the consumption of larger liquid volumes in higher-powered devices as this will likely lead to greater exposures to contaminants and products or pyrolysis.  Once the volume of liquid consumed is considered, it is far from clear that Vape Duty incentivises the use of weaker liquids.  It is possible, therefore, that a poorly specified objective is matched with an approach that will not achieve it, and therefore, the two failures may cancel each other out.

4. To raise revenue to fund vital public services such as the NHS and smoking initiatives supporting a smokefree generation. This claim is a baseless emotive play and would only apply if the Vape Duty was funding activity that would not be funded in the counterfactual world without the vape duty – in other words, the lowest priority spending. It is more likely to reflect a redistribution within the tax base and likely to be strongly regressive, given that smoking and vaping concentrate in low-SES and otherwise disadvantaged populations. It may help to protect revenue from tobacco duties by reducing the propensity to switch or increasing the tendency to relapse, though that will also be felt as a burden on the NHS. It will also depend on how the Vape Duty stimulates illicit trade in vapes, behaviour change and the products on the market. There is no sign that the public finance consequences have been worked through.

5. To ensure the duty is proportionate to administer for both businesses and HMRCThe design means the duty must be collected from importers or the last entity that mixes a liquid for onward sale. Some small businesses are likely to drop out to avoid tax administration costs. No estimates were presented for consultative purposes, but it should be for HMRC/HMT to present estimates for the administrative burden of a policy to assess value-for-money and viability before it is announced as an irrevocable policy.

6. To ensure the introduction of the duty does not make smoking more attractive. A substantial body of literature shows a positive price cross elasticity between smoking and vaping products as these are economic substitutes [see answer to Q59]. Even if some price gap is maintained, the price differential will narrow under the proposed duty regime, and the price increase for vapers will be substantial and non-marginal. Some additional smoking should be assumed, and because of the high cost attributable to a change in smoking status, then high unintended costs are likely. £70,000 per smoker is used in the Impact Assessment for the Plain Packing Legislation).  “223. […] For every additional adult smoker who quits, there is a lifetime benefit through increased life expectancy of 2.0 years (1.2 years discounted), valued at around £70,000 (£60,000 per year).” The problem is that there should have been a proper consultation on Vaping Products (and tobacco) duty focussed on achieving the appropriate public policy goals. But as often with budget announcements, it was produced on Budget Day with only cursory and incidental prior discussion.

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