Generation Z’s monkish lifestyle — which means they smoke and drink far less than their predecessors — has become a problem for the UK Chancellor, Jeremy Hunt.
As younger generations move away from smoking and to vapes, the Treasury has a £14 billion hole ($17.1 billion).
According to Bloomberg analysis, the government would have received an additional £9.3 trillion in tobacco duties revenue and £4.7 billion for alcohol taxes if those levies had been stable since 2002.
Hunt and his predecessors were forced to increase other taxes to stabilize the public finances. The Treasury’s total tax take from the economy has risen to its highest level since the post-war period.
These findings highlight the challenges Hunt faces in a rapidly changing society and shifting tectonic generations. Hunt must also pivot the Treasury away fuel duties, as the auto industry shifts to electric vehicles.
Now, revenue from tobacco accounts for just 1% of total receipts to the public sector. This is a decrease from 1.9% in 20 years ago. Alcohol now accounts for 1.3% of total receipts, down from 1.7%.
This has increased the tax burden on income and corporate taxes who are responsible for restoring the country’s fiscal health. The billions of dollars lost due to the shift are enough to cover both child care benefits as well as business investment incentives, which Hunt announced in his budget.Chris Etherington is a partner at RSM and a tax expert. He said that the changing tastes of younger Britons mean that more revenue from sin taxes will be under threat in future.
Etherington stated that younger people tend to vape more than cigarettes or cigars and that people don’t drink as much. It can help people live healthier lives, which will hopefully have a slightly larger impact on their health.
As smoking rates continue to fall, the Office for Budget Responsibility expects revenue from tobacco duties to decrease even in cash terms. It reduced the average amount of revenue it expected the Treasury to receive from tobacco over the next five year by £800 million per annum in its March forecasts. This downgrade was partly due to the increase of alternative cigarettes.
In the past decade, smoking rates have fallen across all age groups. But Gen Z is the most likely to quit.
The youngest group has suffered the most drastic decline. According to the Office for National Statistics, only 13% of 18-24-year-olds reported that they smoked cigarettes in 2021. This is a drastic decrease from 26% ten years ago. The government reportedly considered a vaping tax for this group, as they were more likely to use e-cigarettes on a regular basis or occasionally.
The OBR anticipates that receipts from alcohol duties will increase at the end of its 2027-28 forecast, but not as fast as the overall tax collection is expected to rise. Revenue from alcohol may even drop in the short-term as Hunt increases relief on beer and cider draught at the budget to aid the country’s struggling pubs.
While the tax man is raking in less from Britain’s vices, the figures also suggest that these Title=”Definition on Tax Foundation website”>Pigouvian taxes are changing behavior. Sin taxes raise revenue for the country and make it more difficult to engage in unhealthy or environmentally harmful behavior.
If it means that the NHS is less burdened, this will save the Exchequer money in the long-term.
Clive Gawthorpe is a partner at UHY Hacker Young. “If people smoke and drink less, then it probably will be healthier for all of us and save money over the long-term,” he said. E-cigarettes have definitely changed the way people think about tobacco.
The UK government has continued to impose other sin taxes, including the sugar tax and plastic bag charge, despite dwindling alcohol and cigarettes sales. Both can influence behavior. They have been proven to persuade soft drink manufacturers to lower sugar levels and shoppers to cut down on plastic bag use.