Strategy to make Suffolk “smoke free” set to be launched, leading to renewed calls for county council to disinvest from tobacco firms – News – Ipswich Star
With monopoly style profits still available in the UK for the two major players, Imperial and Japan Tobacco (Gallaher), the new consultation on a tobacco levy from the Treasury is a welcome development. The levy aims to tax the companies based on market share, in order for government to recover more of the costs on society imposed by the companies who benefit financially from the harms they cause.
The levy would be payable on profits after tax, so is likely to hit shareholders rather than individual smokers, on a polluter pays principle. If companies seek to pass on the tax cost to consumers through price rises, then sales will fall to some degree, though to what extent that will hit profits remains to be seen. In high tax jurisdictions to date tobacco companies have been able to benefit from the ability to raise their own margins, hiding their own price increases behind government duty and sales tax increases. Smokers tends to blame the government for the relatively high price of tobacco, not realising, for example, that the UK is one of the most profitable markets for the industry.
If implemented and seen to be successful, this measure is likely to be adopted in other jurisdictions, as successful tobacco control policy measures are adopted through a process of rapid policy learning across the world facilitated by the Framework Convention on Tobacco Control.
It seems that finally government has realised that in tackling tobacco, you have to follow the money, not to the addicted consumers, but to the ultimate beneficiaries, the shareholders of the companies. Whether this particular measure, if implemented, will be sufficient remains to be seen. Of more importance is that this is a fundamental change of approach with potential to hit the industry hard where it hurts.
Gloucestershire’s pension fund investments have attracted the attention of local press recently. A spokesman is quoted as saying, “We are legally obliged to get the best return on that money to pay for these pensions.”
It’s often said by local authority spokespeople, but not actually true. It is an oversimplification. There is no duty to maximise returns. I refer local authority officers and members to the McNeill legal opinion, which has received very little coverage in England, in contrast to the Giffin opinion.
In September Greater Manchester Pension Fund considered a report recommending divestment from tobacco available here
The GMPF has already divested all of its directly held tobacco stocks becoming, as far as I am aware the first such fund to do so. Those funds that have taken similar decisions previously held tobacco only through pooled funds, so were not divesting as such, merely affirming a position that they did not wish fund managers to directly hold tobacco stocks.
As the largest individual LGPS fund, this move marks an historic first for the LGPS. The Treasurer to the Fund states:
“The tobacco sector is relatively small as a proportion of World equity markets and the Fund’s investment managers’ views are that such exclusion
is unlikely to have a material adverse impact on returns. If the Panel, in
the future, decided to increase the number of sectors excluded, this would have a more material impact on returns and volatility.”
The report is well worth reading, although it would have been strengthened by including consideration of the public policy position on tobacco and the FCTC.