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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.
Legal advice to pension funds on tobacco investments received
Legal advice to pension funds on tobacco investments received
The Local Government pension Scheme Advisory Board has received legal advice from a QC which appears to enable funds which wish to consider divesting from the tobacco industry a mechanism for doing so.
EHN Online | Disinvest from tobacco say MPs
EHN Online | Disinvest from tobacco say MPs.
Has your MP signed the Motion in the House of Commons yet? You can ask your MP to sign the motion calling on the public health minister Anna Soubry to take action on local authority pension fund investments in tobacco companies. You can easily contact your MP online using this website:
Health Minister on LA investments in tobacco
Thanks to Gabriel Scally for spotting Public Health Minister Anna Soubry responding to a question from Simon Hughes MP attacking all parties in local authority control for having tobacco investments in their tobacco fund.
Simon Hughes (Bermondsey and Old Southwark) (LD): In my borough of Southwark we have higher than average smoking rates, and the Cabinet member responsible for health has said that hundreds of people are dying early because they smoke. Can Ministers help me to persuade our Labour council that it is inconsistent to say “Don’t smoke” on the one hand and invest £2.6 million of pension funds in British American Tobacco on the other?
TThe Parliamentary Under-Secretary of State for Health (Anna Soubry): That is a good point, but I have to say that I am not convinced that it is just a Labour-run council that might have chosen to invest their staff pensions in this way; I strongly suspect that all political parties are guilty of this. While this is, of course, a matter for local authorities, it is also the sort of great campaigning work that MPs can do with their local councillors. It is even more important that they do that, given that they now have this great responsibility for public health.
But she says it is, of course. a matter for local authorities. Personally I think that is not good enough. The Guidelines to the Framework Convention on Tobacco Control, to which our Government is committed, specify that local authorities should not invest in tobacco companies. But in many cases they feel constrained by case law and fear of legal challenge from divesting their tobacco stocks. Councillor trustees have told me they would love to get out of tobacco, but are advised against by legal and financial experts from doing so. It is surely time that government acted to ensure that no public sector bodies are permitted to invest in tobacco companies, whether that be local government pension funds or other parts of the public sector.
The UK commitment to the FCTC should be met in the spirit as well as the legal sense, and that demands compliance with the Guidelines to which we are party.
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.
OfSmoke price cap proposal – writing on the wall for tobacco stocks?
The publication this week of a radical new proposal to impose price cap regulation on tobacco companies (TC) poses a major challenge to the industry if adopted by governments in the UK and other high tax countries. The proposal is to restrict profitability to a similar level to other consumer goods companies. The TCs currently make huge profits of up to 67% (two thirds) of revenue in the UK. They can do this because in a high tax market with strong marketing restrictions, they have a monopoly position (Imperial 44%, JTI 35%) and can increase prices which most smokers will blame on the government. It will come as a surprise to many smokers that the UK is one of the most profitable markets for tobacco companies.
With 95% of the UK market controlled by the Big 4 tobacco companies, they make over a billion pounds profit, at an estimated average rate of 51% of revenue. If profit were capped at 20% of revenue, then the reduction in profit would be over £660m, reducing profit to £424m.
It remains to be seen how the government responds to this proposal. There has been wide media coverage, and in a time of austerity the Treasury is likely to see the attraction of taking £500m extra taxation from the tobacco industry which cannot be passed onto the smoker by the companies.
For pension fund managers, this proposal has huge implications. If there are any signs that government intends to pursue this option, tobacco share prices will plummet. BAT and Imperial are already down over the last 6 months. Maybe the time has come for LA pension funds to pull out of tobacco, as this proposal now presents a significant risk to the future value of tobacco stocks.
http://tobaccocontrol.bmj.com/content/early/2013/01/04/tobaccocontrol-2011-050385.abstract?papetoc
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.
Spreadsheet update
I have just uploaded a revised spreadsheet as I now have Brent and Hackney’s data available. As the remaining London Borough data comes in I will post updates.
Please note the spreadsheet is best downloaded as you cannot see all columns in the online version. Alternatively contact me for the excel spreadsheet by email.
Also note that West Yorkshire is only a partial picture as I am awaiting the outcome of my appeal to the Freedom of Information Commissioner regarding West Yorkshire’s refusal to divulge tobacco holdings.
LAs given authoritative advice on tobacco investments
ASH and Fair Pensions have released a joint briefing on the issue of local authority investment in tobacco. A must read for anyone wanting their LA to pull out of tobacco.
Tobacco Free Pensions 