1.  Philip Morris Limited ("PML")[308] is pleased to provide to the Health Committee (the "Committee") its comments on the Inquiry into the contribution of the NHS to reducing health inequalities.

  2.  We want to work with governments, public health authorities and parliamentarians on strong and effective regulation of our industry and our products. We welcome this opportunity to present our views to this Inquiry.

  3.  In particular, we would like to comment on two aspects outlined in the Inquiry's Terms of Reference:

—  "The effectiveness of public health services at reducing inequalities by targeting key causes such as smoking and obesity, including whether some public health interventions may lead to increases in health inequalities; and which interventions are most cost-effective"

—  "The effectiveness of the Department of Health in co-ordinating policy with other government departments, in order to meets its Public Service Agreement targets for reducing inequalities"

INTRODUCTION

  4.  We fully recognise that smoking is addictive and causes serious and fatal diseases. There is no such thing as a "safe" cigarette. Given their serious health effects, we fully support comprehensive tobacco regulation governing the manufacture, marketing, sale and use of tobacco products based on the principle of harm reduction.

  5.  As the then Vice President of Corporate Affairs for Philip Morris Europe, Mr. David Davies, explained to the Committee in January 2000[309] we support a single, consistent public health message on the health effects of smoking. This includes for example our support of legislation that requires cigarette manufacturers to place health warnings on packages, and our belief that governments and public health officials should determine the content of the warning messages[310].

  6.  In essence, therefore, we consider it appropriate for governments and the public health community to take measures to discourage adults from smoking and to encourage tobacco manufacturers to reduce the harm caused by tobacco consumption. We support strong and effective regulation to achieve these goals and thereby support the Government in its Public Service Agreement to "promote better health and wellbeing for all"[311] by reducing "smoking prevalence to 21 per cent or less by 2010, with a reduction in prevalence among routine and manual groups to 26 per cent or less"[312]. We also appreciate the Government's view that reducing smoking prevalence "is crucial to delivering reductions in health inequalities, and to tackle health problems in poorer communities."[313]

  7.  The suggestions we submit below are provided in that context.

TOBACCO TAXATION

  8.  As part of the Government's Public Service Agreement 18[314], Her Majesty's Treasury (HMT) shares the responsibility in this by "maintaining high levels of tax helps to reduce overall tobacco consumption".

  9.  While we support the use of fiscal policies as an integral part of the UK's comprehensive tobacco control programme, there is an increasing disparity in cigarette pricing between the premium and super-low cigarette price segments as a consequence of progressive tobacco tax increases. In today's market, there is over a £1 price difference between a 20 pack of premium priced cigarette brand at £5.44 and an ultra-low priced brand at £4.28.

  10.  This has had the effect of encouraging consumers to switch to cheaper brands, rather than quit. To illustrate this effect, a person smoking Marlboro cigarettes in 2002 could have avoided all tax increases over the last four years by simply switching down to brands that pay less tax and are thus less expensive[315]. I would like to stress that we are not advocating a reduction of taxation. Rather, we wish to express our view that the impact of consistent tax increases is not necessarily impacting upon the tax and price of cigarettes uniformly to make tobacco less affordable as the Government's policy intends. Instead, the effect is prejudicial to both the Government's objective of further reducing tobacco consumption and optimising fiscal revenues. For example, the size of the cigarette super-low price segment has more than doubled from 15% in 1997 to 35% in 2004.[316]

  11.  In their 2004 Budget submission, Action on Smoking and Health (ASH) explained that, "Smokers have increasingly turned to budget brands and these have risen rapidly in market share since 1997 with economy and ultra-low price cigarettes rising from 35% to 46%."

  12.  In that same Budget submission, ASH recommended that, "specific tax duties be maximized as a proportion of the total tax burden as these apply a flat rate increase to all brands and so help reduce the differential between the lower priced and premium brands."

  13.  The UK Government has voiced its view that, "there is a strong case for specific duties as the only option for taxing tobacco products".[317] While this approach may address the issue, we are concerned that it is unlikely to be supported at the European level and is certainly not a measure that could be undertaken in the near future.

  14.  However, we do believe that this situation can be addressed by reinforcing the specific character of the UK fiscal system—whilst respecting EU fiscal requirements. By making amendments to the tax structure, we believe that the Government can more effectively promote that smokers quit rather than trading down to cheaper brands—thus making the Government's fiscal policy more effective in its aim to reduce tobacco consumption.

  15.  The Government could introduce what is known as a "Minimum Excise Tax". The name is somewhat misleading as this measure is not an additional tax to be levied. Rather, it is a mechanism by which the Government can guarantee a minimum tax income on each pack of cigarettes and therefore stimulate a price increase of cheap cigarettes. In turn, this would reduce the potential for consumer switching to cheaper brands.

  16.  This system is widely used in the EU; 19 EU countries have adopted this measure, including those with tax structures similar to that of the UK such as Sweden and the Netherlands.

TOBACCO PRODUCT REGULATION

  17.  We have welcomed and supported many of the Government's recent actions to encourage smoking cessation and tackle the issue of youth smoking; the recent increase in the minimum age, the current implementation of a retail licensing scheme[318], the introduction of pictorial health warnings and the provision of NHS stop-smoking services. However, as the UN[319] and others have recognized, despite the health effects of tobacco use and the best intentioned public health measures, many people will continue to use tobacco products. This view is supported by the Royal College of Physicians who recently published a report stating that there is likely to remain a "substantial number of "hardcore" smokers who have no desire or intention to quit."[320] Consequently, we believe that the Government should look to other means to also reduce the harm caused by smoking, particularly for those people who will continue to use tobacco products in the future.

  18.  Internationally, public debate is increasingly focusing on the issue of further regulation of the product itself. While further regulation of tobacco products is as yet an under-developed regulatory area, it has been described by the WHO Study Group on Tobacco Product Regulation ("TobReg") as of "vital importance to public health."[321] We believe that product regulation should be a central feature of comprehensive legislative frameworks addressing a broad spectrum of product issues—including ingredients, smoke emissions, tobacco blends, product design—as well as the development and marketing of products that have the potential to reduce either exposure to harmful compounds or the risk of tobacco-related diseases.

  19.  Currently, we hope that, through the Conference of the Parties and with the assistance of WHO TobReg, clear and specific guidance on product regulations will be provided. Meanwhile, we would hope that further steps could be taken to introduce additional product regulatory requirements beyond the current Tobacco Products (Manufacture, Presentation and Sale) (Safety) Regulations.

  20.  For example, we believe all tobacco manufacturers should be required to provide information on emissions of a range of mainstream smoke constituents (in addition to tar, nicotine and CO). We would advocate that the range of smoke constituents analysed should be based on established work, for example, the Health Canada list[322] of mainstream smoke constituents.

  21.  Initiating this could help the public health authorities build a knowledge base about tobacco products which could then be used to develop and establish guidelines and standards to further support the goal of harm reduction as well as create a basis to assess innovative products that have the potential of reducing exposure to harmful compounds and/or risk of disease.

  22.  While we fully appreciate that product regulation is still an emerging area of focus and, as WHO says on its website, a "novel and complex area of tobacco control"[323], we would also like to take this opportunity to refer to the Health Select Committee 2000 Second Report, "The Tobacco Industry and the Health Risks of Smoking". In its Summary of Conclusions and Recommendations, the Committee advocated:

(ee)  Given that, because of their addiction, people will demand cigarettes for the foreseeable future, it is clearly preferable that they smoke "safer" cigarettes. We therefore hope that such products will be developed. We note the argument put forward by some of the companies that the successful marketing of such products is stymied by the regulatory framework. We recommend that the new Tobacco Regulatory Authority which we want to see established should have powers to review and approve applications from companies to market such products in a way which conveys their potential benefits compared to normal cigarettes, as long as full information about the product is provided and assessed by an independent panel of experts (appointed by the Authority), a process which should be funded—via a charge by the Authority—by the company applying. There should then be regular and rigorous reviews of the product and its effects to ensure that it deserves to retain its preferential marketing status. We would expect that status to be very narrowly defined and its promulgation strictly enforced by the Authority (paragraph 146).

  23.  While the 2000 Report identified other issues to be addressed as regards product regulations, we particularly wish to express our support for this recommendation in relation to future potentially reduced risk tobacco products. However, we would like to emphasize that the best way to reduce the risk of tobacco-specific diseases is to prevent initiation of tobacco use and to encourage cessation, and just as clearly, the marketing of reduced exposure and reduced risk tobacco products should not deflect government efforts from the valid public health goals of preventing initiation and encouraging cessation.

  24.  However, we believe—as do others—that reducing the risk of tobacco use through product modification is a legitimate component of an overall harm reduction strategy.[324] As stated in an article on this subject,

"[a]lthough cessation and prevention should remain the primary methods for tobacco control, several reasons have been provided to support considering lowering tobacco toxin exposure and addictiveness as a strategy to reduce negative health consequences."[325]

  25.  Put simply, if tobacco use will continue into the future, the development of safer products should be an important objective,[326] and it is one we are pursuing.

ADDRESSING ILLICIT TOBACCO PRODUCTS

  26.  As part of the Government's Public Service Agreement 18[327], Her Majesty's Revenue and Customs (HMRC) shares the responsibility in this through

"continued action in tackling tobacco smuggling and reducing the illicit market share of hand-rolled tobacco . . . as the availability of cheap tobacco undermines the high rate of duty on cigarettes, and has a particular effect in groups more sensitive to price—such as routine and manual workers."

  27.  We agree that fiscal measures should be an integral part of the UK's tobacco control program and we believe that it is crucial that the Government implements measures to effectively counter the illicit trade in tobacco product.

  28.  We welcome and continue to work with HMRC on the initiative announced by the then Chancellor in Budget 2007 to introduce "a covert security mark on packs . . . to tackle the threat from counterfeit tobacco"[328]. We are supportive of the Government's aim to implement security measures but believe from our experience (particularly in relation to the Anti-Contraband and Anti-Counterfeit Agreement between Philip Morris International Inc. and the European Commission ("EU Agreement")) that there are additional measures which can be used to effectively counter the illicit trade.

  29.  Such measures include extending the "positive" licensing system which currently exists for manufacture and distribution of tobacco products also to the retail of tobacco products and the implementation of systems for the tracking and tracing of tobacco products.

Licensing

  30.  Regarding the retail sale of tobacco products, the Government is currently implementing a "negative" licensing system—as recommended by the Committee in its 2000 Report[329]—through the adoption of Amendment (NC 41)—"Persistent sales of tobacco to persons under 18" to the Criminal Justice and Immigration Bill, tabled by the Rt. Hon. David Hanson MP, the Minister of State at the Ministry of Justice.

  31.  While we believe that the introduction of this amendment represents a real landmark in the provision of effective policy to tackle both the illicit trade and prevent youth smoking, we feel that there is an opportunity here to make even more headway in tackling these issues. We believe that the Government should take a step further through the introduction of a "positive" licensing system—rather than the "negative" licensing system that the Minister's amendment currently provides.

  32.  We believe that much greater efforts should be made to ensure adherence to the legal age for the sale of tobacco products and the retail of UK duty paid products only. To achieve this, retailers should understand that failure to follow the law will result in meaningful penalties, including the loss of the right to sell tobacco products.

  33.  Clearly, a key barrier to acceptance of this for retailers is the cost and administrative burden they will bear and, in adopting a positive licensing system, the Government should try to reduce these as much as possible.

  34.  Another key benefit is the ability of "positive" licensing to assist enforcement agencies such as Trading Standard authorities by generating additional funds to cover the costs associated not only with administration, but enforcement of the minimum age law and/or the Government's anti-smuggling strategy.

  35.  Importantly, this approach of positive licensing has also been supported by the Royal College of General Practitioners (RCGP)[330], the British Heart Foundation[331], Action on Smoking and Health (ASH)[332], Cancer Research UK[333] and the British Medical Association[334].

Tracking and Tracing Protocols

  36.  It is important that Governments have the ability to track and trace sales of cigarettes. Through the protocols of the EU Agreement, Philip Morris International routinely provide the Anti-Fraud Office of the European Commission (OLAF), and nominated officers within signatory Members States, with full time access to an on-line database that can be used to identify the first purchaser and, for certain markets, subsequent purchasers of our products. In this fashion, authorities can track the movement of our cigarettes through the supply chain and potentially trace back to the point where product has been diverted from legitimate trade channels.

  37.  Action on Smoking and Health (ASH) have "urged HM Treasury and HMRC to sign up to" the Agreement and have specifically recognized the ability to track and trace as a crucial element of the Agreement by stating,

"tracking and tracing protocols giving Customs 24 hour online access to the database, allowing Customs to independently identify smuggled cigarettes so they can be traced back to the contractor which bought them from Philip Morris International"[335].

  38.  Within the Agreement there are elements that create procedures for the sharing of information related to the illicit trade, PMI technical analysis of seized products and pack and carton labelling detailing production and intended market for sale information. All of these efforts are applicable to fighting both contraband and counterfeit cigarettes.

CONCLUSION

  39.  Thank you for the opportunity to present our views. We would be very pleased to provide the Committee with further details on these and any other issues relating to the regulation of tobacco products. We would also like to take this opportunity to offer our assistance from our international experience in both explaining the potential implications of such measures as well as provide insight into how these issues have been addressed in other parts of the world.

January 2008

309   Health Select Committee Second Report-The Tobacco Industry and the Health Risks of Smoking ("2000 Report"). Back

310   Department of Health Report on the Consultation to Introduce Picture Warnings on Tobacco Packs, August 2007, pages 9 and 11. Back

311   PSA Delivery Agreement 18: Promote better health and wellbeing for all; HM Treasury 2007 Pre Budget Report Comprehensive Spending Review: Public Service Agreements, October 2007. Back

312   Ibid. Back

313   Ibid. Back

314   PSA Delivery Agreement 18: Promote better health and wellbeing for all; HM Treasury 2007 Pre Budget Report Comprehensive Spending Review: Public Service Agreements, October 2007. Back

315   A pack of 20 Marlboro cigarettes in April 2002 had a recommended retail price (RRP) of £4.45. The current RRP of one of the cheapest brands on the market is £4.28. Back

316   Chief Medical Officer's Annual Report 2004, "Tobacco and Borders: Death Made Cheaper". Back

317   UK Government response to the Commission's Consultation Paper on the structure and rates of excise duty applied on cigarettes and other manufactures tobacco. Back

318   Amendment (NC 41)-"Persistent sales of tobacco to persons under 18" to the Criminal Justice and Immigration Bill. Back

319   The 2004 United Nations Ad Hoc Inter-Agency Task Force on Tobacco Control Report of the Secretary-General stated, "Even assuming a decrease of overall prevalence at annual rate of 1 per cent, the number of tobacco users would still be expected to increase to 1.46 billion by 2025." United Nations Economic and Social Council (UN ECOSOC), E/2004/55, April 2004. Back

320   Harm reduction in nicotine addition, helping people to quit; A report by the Tobacco Advisory Group of the Royal College of Physicians, October 2007, Page 229. Back

321   WHO Study Group on Tobacco Product Regulation Recommendation 1: Guiding Principles for the Development of Tobacco Product Research and Testing Capacity and Proposed Protocols for the Initiation of Tobacco Product Regulation, 2004 ("TobReg Guiding Principles"), page 8. Back

322   The Health Canada mainstream smoke constituent list is specified in Health Canada Tobacco Industry Reporting Regulations, Part 6, Schedule 2. Back

323   World Health Organization, Tobacco Free Initiative, Study Group on Tobacco Product Regulation (TobReg) at http://www.who.int/tobacco/global_interaction/tobreg/en/ Back

324   Tobacco harm reduction has been defined as "minimizing harms and decreasing total morbidity and mortality, without completely eliminating tobacco and nicotine use." Stratton, K.; Shetty, P.; Wallace, R.; Bondurant, S., eds. Clearing the Smoke: Assessing the Science Base for Tobacco Harm Reduction. National Institutes of Health, Institute of Medicine (Washington, D.C.: National Academies Press 2001) ("IOM Report"), page 25. Back

325   Hatsukami, D.K., Giovino, G.A., Eissenberg, T., Clark, P.I., Lawrence, D., Leischow, S., 2005. Methods to assess potential reduced exposure products. Nicotine & Tobacco Research 7(6), page 830. Back

326   IOM Report, page 38 ("[I]n addition to interventions aimed at prevention and at promoting immediate quitting, it is appropriate to consider interventions that aim to reduce the harm that the remaining population of smokers cause themselves and others by continued smoking."). Back

327   PSA Delivery Agreement 18: Promote better health and wellbeing for all; HM Treasury 2007 Pre Budget Report Comprehensive Spending Review: Public Service Agreements, October 2007. Back

328   Budget 2007 Press Notice PN 3, 21 March 2007. Back

329   Paragraph "n", Health Select Committee Second Report-The Tobacco Industry and the Health Risks of Smoking, January 2000. Back

330   As reported in the Department of Health Consultation Report on Changing the Age of Sale for Tobacco, Feb 2007, page 6 (point 15). Back

331   Ibid. Back

332   Ibid. Back

333   Ibid. Back

334   British Medical Association report "Breaking the cycle of children's exposure to tobacco smoke", April 2007, pg 42. Back

335   Action on Smoking & Health (ASH) 2007 Budget Submission. Back