A few years back the price of oil dropped and the Americans saw that translate into lower prices at the pumps quite quickly. At the time some of the most respected investors and commentators felt that all the money consumers saved on fuel would find its way into higher spending elsewhere in the economy and so help speed up their recovery.
What actually happened was people quit with all that rubbish about buying downsized economy cars and went back to buying what they really enjoy driving, like whacking great pickup's, SUV's and thudding great 4 x 4's. And fuel sales went up!
To me that's a classic example of high prices suppressing demand. Suppressing's a nice way of saying forcing; not persuading nor winning any argument. Demand's still there, just held in check using a blunt instrument to price people out of the market.
So it is with tobacco. Hike prices and sales drop. Simples. Same underlying effect; demand's there but people are priced out of the (legal) market.
Looking at the official figures, and sales of cigarettes and tobacco have been falling steadily for years. Tobacco Control claim that translates to a steady reduction in the number of smokers and they deduce the national figure's down to something like 18% of the adult population.
I'm not going to argue about the underlying trend, however I am deeply skeptical about the percentage of people who smoke - and about the number of younger people taking up the habit. Reason is I actually sit in beer gardens, parks, smoking shelters, pavement tables and those places like doorways, alcoves, arches and such where we gather when it's cold, wet, windy or we just feel vulnerable, so I see young people smoking and their numbers are surprisingly large.
And like people who drive cars there's been a trend to try reduce costs wherever possible. Switch from premium to cheaper brands, start smoking rollups, mix cigarettes with vaping; they've all been discussed and tried by many. And yes wherever possible try to get friends, workmates or relatives to bring back your brand when they visit places where tobacco products are cheaper.
The effect on sales in the UK is the same, whichever choice is made UK Duty Paid sales are down, so tobacco control can point to this and claim all the credit. It suits them and it suits us, even if the true number of smokers is very much higher than tobacco control will admit.
So they've always trivialized the number of smuggled cigarettes and tobacco products that come into the country. Tobacco companies have conducted studies for years by looking at discarded tobacco packaging. They pay good money for these studies because they have a vested interest in knowing what percentage of the market they're missing out on and why.
A recent intercept of smuggled cigarettes gives us an idea of how much money is invested in trying to get large volumes into the UK. With this one the number of cigarettes seized came to 9,600,000, so 480,000 packs of twenty. And the duty they were trying to evade (2014 prices) was £2,281,344 (01).
There was no doubt about the authenticity of the cigarettes, they were genuine, so even if they were able to get 480,000 packs of cigarettes at 50p a pack, that's £240,000, so these people have access to considerable sums and they went to a lot of trouble to disguise them. All-in I'd guess north of £250,000 - and I'd also guess the reason they got caught was a tip-off from a competitor. That's a bummer, but goes with the territory, however it's very unlikely it was their first consignment and they'll have had dozens get through since then.
My reasoning is 480,000 packs of cigarettes takes up a great deal of space, so it's most likely they've got a well established network to shift them in the minimum amount of time. No more than a couple of days maximum - and a first rate network needs a steady supply.
It doesn't matter if their prime market is the Polish diaspora, a bunch of corner shops, a few switched on publicans or those individuals who operate in the shadows of car boot sales or street markets. 48,000 cartons of cigarettes is pretty small beer - and can be sold in a couple of days.
A recent article in the Evening Standard claims 1 in 7 cigarettes smoked in Britain is either illegal or smuggled (02). They reckon that's about 5,500,000,000 cigarettes, translating to 275,000,000 packs of cigarettes, so 753,000 packs sold each and every day. At a markup of just £3 a pack, that's £2,260,000 per day for the smugglers, middle men and retailers, or a very worthy £824,900,000 each year.
But the authorities are only concentrating on cigarettes. Add rolling tobacco and the amount can be increased by 50%, taking the overall figure - if you believe their claims - to £1,236,000,000. And all these profits are not declared for VAT, business or income tax purposes.
However I don't for one second believe their official figures. I place greater faith in the tobacco industry figures of roughly 20% of all manufactured cigarettes and 40% of all rolling tobacco being "non UK Duty Paid" - and that coincides with my own observations. The tobacco industry figures are useful because they include all tobacco products brought in by us under the EU rules as personal imports.
What all this means for UK government finances is inconsequential in this instance. Nor am I concerned about EU type personal imports, because it's all legal and tax is levied in the country where we bought our smokes.
No what bugs me is this rot that our buying smuggled tobacco is somehow fueling terrorism, drugs and people smuggling. It's not, at least the mainland UK part of it is not. Polish retailers won't keep their profits in the UK, nor will any other non-British national. So our Chinese, Pakistani, Indian, Bangladeshi, Romanian or whatever retailer or middle man will send their earnings back to their home country, very probably using anything but the official banking system. So cash, friends, relatives, bitcoins, gold or even diamonds are good for large sums. They're all untraceable.
Or it can be laundered through any number of fronts and quietly invested in property, either in their own name, or a close relative - a son preferably, or even a simple company structure. The later being very easy to manipulate with fictitious loans or maintenance and repair bills that are washed through another front.
What happens to the profits that are not generated in mainland UK is at best just guesswork. The authorities know that the IRA is heavily into tobacco smuggling, however it seems most of what they make in this and other questionable activities is not being used to buy guns or blow up people. And if some outfit within the EU is using their profits to finance terrorism, well that's not being directed at anyone in the UK.
People smuggling's big in its own right, as is drugs. Certainly what they've learned about shifting either commodity can be applied to tobacco, but whether their takings are being used to finance terrorism is a moot. Personally I suspect it's going the same way as the front end guys in the UK, it's going into tangible assets like property, or educating their children - and of course some of it will be used to help the wives and children of those whose fathers have been killed or are serving jail time.
However this claim is not restricted to the UK. Even the Australian authorities are making the same accusation (03). Here they're far more specific, they place the blame for some of the illegal tobacco entering Australia on a Lebanese group, which is a polite way of saying they're probably channeling their profits towards Hezbollah. Now I don't think of Hezbollah as a terrorist group; their political wing controls the Lebanese parliament and they've proven they're prepared to risk their entire banking system by complying with Common Reporting Standards to help stamp out tax evasion - and they're fighting in the defense of the Syrian Government to help defeat ISIS. These are meritorious things and should be applauded.
For sure they want to destroy Israel, and they may be building the least secret missile and munitions factories known to man to use on Israel once they've finished in Syria (04). But they're not - at present - interested in bringing their war to Europe, so I don't much care if the average Australian smoker wants to reduce the cost of his or her pack of cigarettes from 20 Aussie Dollars (£12) to a more manageable 10 Dollars. If that may result in a few bullets finding their way into the brains of ISIS fighters in Syria, well that's just dandy. So in a way, tobacco controllers in Australia can be proud that their policy of "squeeze the consumer until they turn to the black market" has almost certainly helped keep President Assad in power in Syria.
And if Hezbollah's military arm decides to use their Iranian developed Fateh 110 missiles on Israel, well I'm sure they'll have more than enough justification to do so, probably in retaliation to some mischief by Israel. And let's face it, smuggling cigarettes into Israel is just as profitable, with a ready market on arrival (05). So maybe their smokers are helping to finance terrorists elsewhere, some of whom may be intent on the destruction of Israel, or possibly just Zionists, their businesses and their support base, which many feel is a very good thing.
What we can be certain of is in no case will the money from tobacco smuggling ever find it's way to ISIS. Over the years there have been several forced changes of personnel in the top echelons of ISIS (mainly bombs, missiles and drones force these promotions) and that's resulted in the most crude, brutal and indoctrinated individuals rising to the top of their leadership. They claim that smoking is a slow form of suicide, so they kill, mutilate or generally do all sorts of grizzly things to people they see smoking within their territories - and they burn all stocks of tobacco products. That's one reason why 40 to 50% of the adult male population in those towns will do all they can to destroy ISIS, and why they celebrate when they're slaughtered and overrun (06).
While there may be a connection between some tobacco smugglers and terrorist groups, what's remarkable is our authorities - here and elsewhere in the world - are aware that this happens because they've made tobacco so expensive. Being totally objective, I can only conclude that our political leaders are far more concerned with pacifying tobacco control than stamping out "terrorism".
(Thinking that through, I'm left with the feeling that all those high-falutin departments, intelligence services, MI5 and so on are either wholly incompetent, toothless - or have been drowned out by the doctors-in-name-only who head up the medical/charity professions (and are liberally sprinkled throughout the House of Lords). That's outrageous because people are going to die for no other reason than a lofty principle, backed up by contrived data that's intended only to secure the future of a couple of thousand jobs reserved for people employed in the field of "tobacco control".)
This is why I dispute tobacco control's claims that the amount of illegal tobacco entering the UK is insignificant. It's huge and in some areas it seems access to non UK Duty Paid tobacco products is easier than the real thing. They'll even deliver to your house when they get to know you and the amounts you buy make it worth their while! Certainly that's true in the Glasgow/Greenock areas of Scotland. And I'm not remotely concerned that the trade will decline should we exit the EU. Maybe personal imports, but not the real smugglers; they're very good indeed at what they do. I see those guys getting better at this and improving their compartmentalized distribution networks.
If the IRA want to use their profits to help the families of slain fighters, I don't care. If Hezbollah use their money to better equip their soldiers, so be it. And even if I knew for an absolute fact that the radicalized son of some corner shop owner is developing a drone to deliver things like an explosive device, poison gas or just spray acid at some event or other, I shan't ask for details nor warn the authorities.
I would have shopped him prior to the 26 March 2006 smoking ban in Scotland. Now, like many smokers, my supply of cheaper smokes - and flipping the bird at the authorities - is far more important than getting a pat on the back for being a good chap.