Sin taxes on alcohol and tobacco have cost the Treasury £31bn, analysis finds

Source: The Telegraph

By Peter Dominiczak,  Political Editor 

14 November 2016

Sin taxes on alcohol and tobacco have cost the Treasury more than £31 billion, an analysis has disclosed amid calls for a reduction in the Autumn Statement.

Around £31.6 billion of tax revenue has been lost because of the illicit market in spirits, beer, wine, cigarettes, rolling tobacco and diesel, according to the analysis of HMRC figures by the TaxPayers’ Alliance.

The high taxes on alcohol and tobacco simply fuel a black market in the goods which means that HMRC loses money, the campaign group said.

The “tax gap” would be enough to fund a 1.5p cut in the basic rate of Income Tax, according to the report.

Between 2010 and 2015 £13.9 billion was lost due to the illicit trade in cigarettes, with £5.8 billion being lost because of the black market in spirits.

A further £3.5 billion was lost to the illicit trade in wine and £4.8 billion to diesel.

The report states: “HMRC has clearly been unsuccessful at claiming these duties for some time and therefore it needs to take decisive action, not introduce policies that make it worse. It is unfair that higher taxes for ordinary families are often used to make up the shortfall.

“The loss of £31.8 billion in revenue over a five year period could have funded a 1.5p cut in the basic rate of Income Tax. Not only would this have helped millions of ordinary families, but it would also have had a big impact on the jobs market, which is particularly important at this time.”

Experts have warned that Philip Hammond, the Chancellor, is facing a £25 billion hole in the Government’s books as he prepares for this month’s Autumn Statement.

The Institute for Fiscal Studies has said that ministers could be forced to extend austerity measures into the 2020s as a result of falling growth forecasts and tax receipts.

John O’Connell, chief executive of the TaxPayers’ Alliance, said: “Our ludicrously complicated, punitive tax system not only hits hard-pressed families with crippling bills but also affects frontline services by depriving Treasury of revenue lost to the black market, all the while lining the pockets of those peddling dodgy tobacco, alcohol and diesel.

“The revenue lost to the illicit trade could fund a modest but much needed tax cut for millions of families while preventing smugglers from profiting because of deeply regressive ‘sin taxes’ which hit the poorest hardest.

“It is high time the Government offered struggling taxpayers a better deal instead of kowtowing to the self-appointed lifestyle police who remain oblivious to the cost of ever-rising duties on ordinary taxpayers.”