The 2016 budget was no friend to smokers. Cigarette taxes rose 23p on a pack of 20, and taxes on loose tobacco increased by 44p per 30g pack. Drinkers were luckier. Taxes on beer, cider and spirits remained frozen, though still varying wildly depending on the type of drink, from around 7p per 10 millilitres of pure alcohol in strong cider to 28p in whiskey and wine. And while tax rates keep rising, revenues are falling as people switch towards healthier lifestyles with less smoke and less fiery drink.
Economists advising government on optimal tax policy often recommend that sales taxes, if they have to be levied, should be set as a constant percentage of the pre-tax price of goods and services. This is justified because it reduces distortions to consumers’ decision-making.
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