How the cost of living crisis has revitalised illicit tobacco trade

Shadow economy sales have been a long-running problem for tobacco – and some are worried these could grow with inflation.

“With the current cost of living crisis, it’s likely that there will be a rise in illicit trade in the UK,” says Imperial Tobacco UK&I anti-illicit trade manager James Hall.

While there are no hard figures for illicit tobacco sales, the tobacco tax gap measured by HMRC has grown in recent years. It’s estimated at £2.5bn for the tax year 2020-21, an 8.7% increase on the year before.

Within this, illicit cigarette sales have remained stable of late. HMRC puts it at 2.5 billion sticks – consistent with the two previous tax years. This accounts for 9% of the overall cigarette market.

Illicit trade is a much greater problem in rolling tobacco, estimated at 4.6 million kg, or 34% of the market. Market share has been stable since 2017-18, though volumes have risen 35.3% in that period.

And there are reasons to believe the illicit tobacco trade will grow in the near future. First, it was suppressed by travel controls imposed during the pandemic.

The 11.8% decline of rolling tobacco volumes in NielsenIQ’s data for the year to 10 September “may indicate the resurgence of illicit trade post Covid”, as well as the recovery of cross-border shopping, says analyst Laszlo Zsom.

A JTI survey also reports 38% of shoppers admitted to buying some form of illegal tobacco in the year to June 2022, up from 32% the year before.

“We continue to find illegal products sold in convenience stores across the UK, often alongside the authentic versions,” says JTI UK regulatory affairs manager Ian Howell.

The company is also seeing more venues online selling illicit tobacco, including social media marketplaces and auction sites, he adds.

To counter the trade, tobacco companies advise retailers to avoid illicit supply and report incidents to Trading Standards.

Imperial also has an anti-illicit trade tool, the Suspicious Activity Reporting App, which it claims has helped it better inform the authorities.

“Before the app was launched in 2017, we provided just 180 reports. But since then we have supplied 3,793, all of which have been shared with law enforcement to help them take action against the offenders,” says Hall.