Why plain cigarette packs could prove costly for taxpayers

Matthew Sinclair
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THE paths of ministers are littered with legal landmines. Laws like the Equality Act and the Climate Change Act were effectively planted by previous governments to catch future politicians in costly legal contortions if they try to change policy.

We saw the effect of this earlier in this Parliament, with changes to the feed-in tariff for solar power. Incompetent handling of the consultation process created a chance for a coalition of Friends of the Earth and vested interests in the solar industry to delay cuts to extravagant subsidies.

Now we can only hope that the government isn’t walking into bigger trouble with plain packaging for tobacco products. The Guardian has reported that a new regulation will be announced in the Queen’s Speech. But even public health minister Anna Soubry seems to be having doubts, reminding MPs recently that the same legislation is facing a serious legal challenge in Australia.

Australian courts found that plain packaging was legal under Australian law – and the government did not have to pay compensation to tobacco firms. But this was for specific reasons that will be of little comfort to taxpayers in Britain. The court ruled that Australia had “taken” the intellectual property of tobacco firms by banning the use of valuable brands, but had not “acquired” the property itself as it was not using it.

But that is not the way the law works in Europe or in international tribunals. If you take someone’s property, you have to compensate them. This may still be the final outcome for Australia, which has pending cases against it internationally and compensation may still be ordered.

And in a recent report, the Centre for Economics and Business Research (CEBR) cited an Adam Spielman study for Citigroup from 2008 which found that the fair value for tobacco industry brand designs was £5bn. That is quite a bill. Even a small share would be a fresh headache for George Osborne. His Spending Review is only two months away, and he has asked departments to deliver a further £11.5bn in spending cuts. This bill could wipe out nearly half of those savings. The government is already throwing loan guarantees around like confetti. We don’t need yet another contingent liability sitting on the books, while a lot of lawyers earn a lot of money settling the matter.

The CEBR also found that regulation would cost jobs in convenience stores and revenue from high taxes on tobacco. Consumption would shift to larger stores, the new rules would cut prices for legal cigarettes, and would increase the scale of the illicit trade significantly. And with another report by KPMG, released last week, finding that the UK has the EU’s fastest-growing black market in tobacco, accounting for one in six cigarettes sold, the regulation could also make life easier for counterfeiters.

Whether you support this regulation in principle or not, the government would be prudent to wait until the smoke clears and it gets some idea of the legal outcome of the Australian experiment. It would be unacceptable if taxpayers ended up paying billions for tobacco companies to not put their logo on cigarette packets.

Matthew Sinclair is chief executive of the TaxPayers’ Alliance.