Posts Tagged ‘pension funds’

Tobacco Levy

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.

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Judicial review a real risk for LA pension funds?

At a conference last week I was asked if local authorities that maintain their pension fund investments are at risk of judicial review.  My immediate response was to turn the question around, and suggest that local authorities choosing to divest from tobacco would face little risk of judicial review if they have considered all the relevant laws and facts that apply, and formed a reasonable view that tobacco investments are not compatible with their new public health duties.

However, I want to return to that question, because on reflection they clearly are at risk and here’s why.  Many local authority pension committees have considered whether they should divest, with only two concluding that they should. This contrasts with pension funds in many other parts of the world which have similar common law on fiduciary duty, but which have successfully divested, often on the back of very considered and detailed reports exploring the full range of issues

Every English report I have seen has failed completely to:

1) seek the views of the Directors of Public Health for the area;

2) provide any consideration whatsoever of the Framework Convention on Tobacco Control (FCTC); and

3) provide any legal advice on the relative status of the FCTC versus pension law.

In short, therefore, the committees have not been provided with  comprehensive reports detailing all the factors they should take into account in reaching a decision.  To my mind the failure to consider the FCTC is of particular note and concern.  This Treaty is binding on local government, and the Guidelines to the Parties on compliance state explicitly that the Parties should not invest in tobacco companies.  Those guidelines apply to councils and all who serve them, whether councillors, officers or outside advisers.

When the courts consider an application for judicial review they have to decide whether the decision made by the local authority is not only unreasonable, but so unreasonable that no reasonable body could have reached that decision.  I submit that committees taking a decision on this issue that have not received advice on the implications of the FCTC, and arguably the views of the Directors of Public Health, are leaving themselves wide open to judicial review.

It appears that committees at the moment are largely holding to the view that they have to maximise returns and therefore stay invested in tobacco.  They appear to fear legal challenge if they depart from that line.  It appears to me that whatever they decide, if they do not receive briefings on all relevant matters, then they are at risk.

BMJ Feature on LA Pension Fund Investments in Tobacco

BMJ Feature on LA Pension Fund Investments in Tobacco

The BMJ (British Medical Journal) has today published a feature article highlighting the scale of local authority pension fund investments in tobacco companies, which includes reference to the findings of this Blog that the investments stand at £1.6 billion.

A must read feature.

Latest version of tobacco investments spreadsheet just posted with Westminster now added (no direct investments).  Just Hammersmith and Fulham yet to respond.