Budget strategies for alcohol and tobacco tax in 1987 and beyond

Pre-budget months of recent years have seen the opposing factions of industrial and public health lobbies jostling for influence over the Chancellor's alcohol and tobacco tax policy. Industry petitions for lower tax rates, citing factory closures and redundancy figures as evidence of the consequences of past budget decisions. The public health lobby demand increased taxation, citing rising trends in indicators of alcohol and tobacco related harm as evidence for a public health approach. In the 1986 Budget there was a large increase in cigarette tax but no increase in the excise tax levels on alcoholic drinks. Will this strategy be repeated in 1987? Recent trends in the alcohol and tobacco markets, examined in this paper, indicate that industrial factors are likely to outweigh health factors in March. Consumption of beer has fallen and exports of spirits continue to decline. Although the tobacco industry has faced declining home consumption for more than ten years, exports have helped to sustain production levels. In 1986, however, exports of manufactured cigarettes began to decline with imports still at a high level. Employment has contracted in both industries. Consumption of tobacco has also fallen since the historical peak of 1979, but has shown a resurgence since 1983. Preventing health problems and protecting industry are just two of the objectives that the Chancellor could explicitly or implicitly seek to satisfy in the Budget. Reductions in income tax, however, are expected to form the hub of the 1987 budget. To achieve this objective the Chancellor must maintain revenue from other sources. Decisions on the levels of alcohol and tobacco tax may well depend on the buoyancy of other revenue sources. Public opinion may also be important if the 1987 Budget is the last before a General Election. Whereas prevention of health problems has been generally accepted as a reason for increasing tobacco tax, raising alcohol tax remains unpopular. The state of the alcohol and tobacco markets amongst other factors, suggests that the Chancellor may repeat the 1986 strategy. This implies no increase in alcohol tax and some increase in cigarette tax, although probably less than since 1986. An incoming government could re-examine its budget strategy on alcohol and tobacco taxation. The main alternative to the revenue and trade based policy of recent governments would be a prevention strategy. The theoretical arguments outlined briefly in this paper suggest revenue and prevention objectives need not conflict. However, there are practical and methodological problems involved in implementing both policies which will lead to conflict in reality. Governments must therefore develop more generalised rules to achieve less specific objectives. Two operational rules for generalised prevention policy are examined and illustrated with reference to the 1987 budget.