‘Over-regulation across categories could open up new black markets’

The rise of cross-category “sin taxes” will have a punitive effect on independent retailers by fuelling illicit trade, a leading economist has warned.

Chris Snowdon, head of lifestyle economics at the Institute of Economic Affairs, told an audience at the Global Tobacco and Nicotine Forum that using the “tobacco-style template” across other categories, such as soft drinks, would open up new black markets.

“Once you start regulating products as if they’re cigarettes, you create the same problems we’ve seen arise from the over-regulation of tobacco,” he told Retail Express.

“A key example of this is the sugar levy. Officials have admitted they expect to lose tax revenue because it will lead to tax evasion.”

He pointed to a loophole in the tax that will allow imported high-sugar drinks to be sold “perfectly legally” for a lower price.

“Anyone can go over to the Baltic countries, for example, where fizzy drinks are incredibly cheap, and bring them back for resale,” he said. “There is a limit on the number of litres that can be brought back, but that limit is huge.”

Retail Express (August 9 issue) previously reported that overseas authorities were already beginning to draw up prototypes for plain packaging on soft drinks and unhealthy foods. Snowdon added that in San Francisco, soft drinks were required by law to carry graphic health warnings.

“Tobacco has been the guinea pig for all of these regulations, and once they’ve been established with tobacco it seems quite natural that they’ll be applied to any ‘unhealthy’ or age-restricted product,” he said.

“Sooner or later these regulations will apply to anything that somebody somewhere doesn’t like – with undesirable consequences.”

He explained that those consequences would include tax evasion and the opening up of illegal trading.

“Over-regulation will continue to have a negative impact on retailers, just as it has by causing illicit trade in tobacco. If you’re a legitimate trader, illegitimate traders are your direct competition.”