Cigarette Stash

How sky-high British taxes have spawned a black market in tobacco.

Demonstrating that it learned nothing from colonial American smugglers dodging duties and tariffs, Tony Blair's Britain is currently burdening its smokers with cigarette taxes so preposterous they have spawned a black market for tobacco mirroring the one for illegal drugs.

Official Customs and Excise stats place the number of smuggled cigarettes at £17 billion in 2000-2001, costing the government some £2.8 billion in lost tax revenue, with another £890 million going up in smoke in the form of smuggled hand-rolling tobacco.

The trade is fast becoming more than a cottage industry. Considering the numbers, we're well into "force of nature" territory.

Calculating contraband is always difficult, but last year Customs estimated that one in five cigarettes were smuggled. Andrew McKie, writing in the London Spectator, suggests that figure might be low-balling it and cited an informal but more likely one-in-three figure.

In fact, the black market is so flush right now that it has even lowered the dimmer switch on "legitimate" shops, which are reportedly losing £50,000-plus annually to illegit salesmen. According to the Tobacco Alliance, an organization which represents more than 20,000 independent retailers, smuggling has lopped off revenue by 25 percent, forcing many shops to sack some of their staffs.

Even someone who flunked geography will be able to guess that most of the smuggled cigs come from mainland Europe, principally Belgium and other nations with ports close to Albion. And what a difference a few miles can make.

As Ananova.com reported last month, a pack of 20 cigarettes in Belgium costs only £1.81. Buying the same pack in the UK will cost you nearly two and a half times the brass.

But if you really want to save money (or make it, depending on your scruples), rolling tobacco is where the big money is. As McKie notes, "The British price is almost £9 for 2oz; in Belgium it is £2.08. A product manufactured in Bristol or Nottingham and shipped to Ostend can be brought back to this country and sold at a 100 per cent mark-up at comfortably below half the official British price."

This tactic is supposedly used by even the big tobacco companies.

The British government is currently nipping at the heels of Gareth Davis, head of Britain's Imperial Tobacco, because it suspects him of skirting the taxes.

"He needs to explain why the company he runs ships so many billion cigarettes to countries where hardly anyone smokes their brands, but the most obvious customers are major organised crime syndicates that smuggle them back onto the UK market," said the head of British antismoking group Ash in the London Independent.

The government's response to the problem has been just as ho-hum as government's usual response to problems. Authorities have sworn to get serious, crack down on smugglers, take no prisoners, etc., etc., etc. They've pulled out all the stops, from adding new customs officials to seizing vehicles used to shuttle contraband to posting menacing posters.

Not that it's helping much. With borders far less porous than the U.S., it is somewhat humorous to see how manifestly bad John Bull is at keeping a few cigarettes off his soil.

The cigarettes and rolling tobacco come across in vehicles through the tunnels, stowed away in luggage aboard planes, on individual persons aboard ferries, stashed in the cargo holds of boats, and heaven knows where else. Smugglers are always crafty. Customs officials at the Manchester Airport were stunned to find nearly 26,000 cigarettes taped together in the shape of two surfboards and tucked inside carrying bags.

"It was rather a shock," Customs spokesman Matthew King told the Manchester Evening News. "It was the most ingenious concealment and shows the extent to which smugglers will go."

No. They'll go further.

Smugglers bringing an illicit load from Eastern Europe, for instance, utilized a set of hydraulics to hide cigarettes between the body panels of a truck. When officials figured out the trick, they flipped the switch to watch the outer shell of the vehicle rise five feet and display its freight of forbidden fags.

"It was like something from a James Bond film," said Customs spokesman Nigel Knott. The price tag was sexier still—£1 million for the single load.

The problem for Britain—and other tax-happy governments—is that as long as profits outweigh punishment, smugglers will figure out ways around the new controls. The Brits of all people should know better. Not only did their upstart American colonies declare their independence 226 years ago, partly over such issues. That was also the year that Adam Smith published The Wealth of Nations, which included this pearl of wisdom: "Not many people are scrupulous about smuggling when… they can find any easy and safe opportunity of doing so." "Easy" and "safe" are just questions of risk aversion, and with substantial payoffs people are willing to incur loads of risk.

It seems as if the Brits have yet to learn that when taxes become too high, people don't submit—they smuggle.