Plain packaging on cigarettes – could it actually increase smoking?

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February 6, 2015 by Paul Goldsmith

This is what the new packs of cigarettes will look like

Here’s an easy task. Explain to someone why anyone who opposes the policy of removing branding from cigarette packets must be in the pay of the tobacco industry. Next easy task? Explain to someone why anyone who opposes what will be the Plain packaging for cigarettes Bill doesn’t care about the nation’s health and is effectively promoting Cancer.

History has suggested that anyone who opposes any legislation that aims to bring down the amount of people who smoke must therefore be pro-smoking, which makes them pretty close to Beelzebub in many peoples’ eyes. Removing branding on cigarettes, people say, means that non-smokers, brand-conscious children included, will be attracted by the pretty colours and snazzy designs whenever they see a packet come out, and they will start smoking.

People here point to the opposition to the ban of the cigarette companies, and immediately jump to the conclusion that it must be a good idea, if they are against it. They also are quick to label the 100 or so Tories who have indicated they would vote against the motion in the free vote that they have been promised ‘libertarian’, which explains their opposition to it purely in terms of an aversion to big-state intervention. But a closer look at this legislation, and especially a review of the result of its implementation in Australia, shows that there is actually a chance it could INCREASE smoking England.

Statistics suggest that less cigarettes are now bought in Australia after the ban was brought into place. Ann McKechin of Labour says that smoking levels are now at a historic low in Australia at 12.8%, and the number of cigarettes smoked per week is 96, down from 110 in 2010.

But those statistics don’t include counterfeit and black market cigarettes. Those cost the UK government £2 billion a year at the moment, which importantly means that they are not getting the tax revenue to deal with the health problems posed by those cigarettes. An interesting thing happened in Australia, where it was assumed that counterfeiters would just mass produce plain packaged cigarettes as there would be no way to tell them apart from the previously branded products. But counterfeiters developed a different approach, they created fake brands with flashy, colourful pack designs. This has led to one of those fake brands “Manchester”, coming from nowhere to take 1.5% of the Australian market.

Even without counterfeiters, the switch to plain packaging would have another effect. Those who pay the most for their cigarettes tend to pay for the ‘quality’ brands, as branding theory suggests that they see them as ‘better’ due to brand loyalty. With plain packaging, they would have less reason to buy those quality brands, and are likely to go for the cheaper cigarette brands. Yes, the big cigarette brands will lose money, and their carefully built intellectual property (something that could lead to a large compensation bill for the UK Government if they don’t check their legal standing carefully), but more importantly it DOESN’T mean that smoking will fall.

If anything, the fact that they are now buying cheaper brands means that, if my demand and supply basics are working properly, they might even buy MORE cigarettes. They won’t buy many more, as price isn’t a very key determinant of purchase decisions for smokers due to their addiction (in Economics we call this ‘inelasticity’, because demand doesn’t vary a lot with price), BUT they could buy more than they did before.

Now, Jane Ellison – the Junior Health Minister who announced the policy, did say that the Government had reviewed the evidence on whether smuggling would increase and smokers, freed from the pull of branding, might just buy more of the cheaper variety, and feels that enforcing plain packaging is “justified and proportionate” because of the health risks associated with smoking. I hope they have really done their work, because if they get it wrong, all they will really be achieving is a wonderful new case study for my lessons on ‘government failure’ (worsening an existing market failure or creating a new one).

 

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