The Economics of Prohibition

In the UK there is a salutatory lesson in the Economics of Prohibition. Taxing tobacco heavily is a form of prohibition, the health nazis tell us it is to discourage us from smoking but this is what happens when you rachet the taxes up so high that alternative means of obtaining products become lucrative.

Cigarette smuggling into Britain is becoming so lucrative that growing numbers of young women are being offered free summer holidays by criminals in return for trafficking tobacco.

UK border officials are seizing almost 50 million contraband cigarettes a month, and evidence has emerged that smuggling syndicates are bribing girls as young as 15 with flights to Spain, accommodation and pocket money.

Police say the girls are encouraged to travel through smaller British airports to avoid detection, with the Canary Islands emerging as the most popular destination for cigarette smugglers.

Cheap flights are reserved in advance by criminal gangs, who also provide empty suitcases for the youngsters to fill with as much illicit tobacco as possible.

A UK Border Agency spokesman said in most cases the young women were unaware they were working for often violent individuals involved in cigarette contraband, one of Europe’s fastest-growing forms of organised crime.

And why would they do this for tobacco?

UK Border officials said that from January until the end of July they had intercepted more than 340 million cigarettes, which was equivalent to a potential loss of ?65 million in tax revenue.

Tobacco companies are also reporting huge falls in sales with the British-listed British American Tobacco and Imperial Tobacco registering around ?600 million in lost business each year.

In addition, shopkeepers, wholesalers and distributors are estimated to be losing ?230 million to smugglers annually.

Police believe the ruse is attractive to criminal gangs because the profits are similar to those made by trafficking drugs, but with less punitive penalties.

Typically, the contraband tobacco is sold at informal markets, pub carparks or street markets.

See what happens when you extort freedom of choice with punitive taxes. Ultimately people would, these days anyway, ahve to be incredibly stupid to not know about the health risks of smoking. There surely must be more effective ways of discouraging tobacco use than punitive and ultimately futile taxes.

I have heard that restricting health care for smokers could be an option. However an actuary friend of mine has informed me that he did the sums once for some sort of vicarious pleasure and he worked out that if you keep tobacco taxes in place AND restrict access to health treatment then the smoker would actually have a very good case that in fact they had more than paid their way through the system by all the extra taxes they have paid. Not only that, he said that due to the shortened life-span of smokers they are actually saving the country huge amounts of money even by dying of appalling diseases because they die early and often enough that we hardly pay anything for their retirement costs and they almost never need expensive medical procedures like hip replacements because they simply don’t wear out their hips because they don’t last long enough. He even believed that there was a viable case to remove all forms of taxation all together excepot GST on tobacco as a way of encouraging stupid people to smoke more and thus removing themselves from the possibility of being long term taxpayers.

I think his ideas have merit. Perhaps we could start with reviewing all the anti-smoking lobby groups that are troughing their way through millions of taxpayers dollars with little or no impact. That will be an ongoing exploration through this site as we start to focus on wasteful government spending particularly in the “health” area.