Quote of the day

“I find economics increasingly satisfactory, and I think I am rather good at it.”– John Maynard Keynes

Friday, 20 October 2017

Some microeconomics on de-merit goods

Looking for that extra-special conclusion? Have a look at how this article analyses the gains to the Treasury, as well as the costs, from smokers:

http://www.telegraph.co.uk/news/2017/10/18/comes-smokers-burden-nhs-may-contribute-tax-take/


T

he NHS has come under criticism after plans to ban patients from surgery unless they quit smoking were revealed. 
The logic behind the move is that smokers are a higher burden on the health service due to the illnesses that they pick up as a result of their own decision, but this clear-cut, utilitarian approach has come under fire.
It has been accused of going "against the principles of the NHS", but does it even make financial sense?
Many would argue that smokers contribute far more in tax than is needed to deal with the costs of their potential health issues - we've dug into the numbers to see if they add up. 
The tax contributions of smokers
Smokers are taxed a lot. In a 20-cigarette packet costing £7.35, some £5.37 of the cost goes to the tax man.
Per packet, they currently pay tobacco duty at a rate of 16.5 per cent of the retail price, as well as a further 'flat' element of £4.15.
The result of this is that the Government receives a lot of money from smokers, with FullFact's most recent research showing that they bring in about £12 billion in direct tax revenues.

But they also depend on the NHS a lot

The healthcare cost side is trickier to pin down, with estimates ranging from anywhere between £2 billion and £6 billion per year. 
According to the Action on Smoking and Health group, smoking costs the NHS in England approximately £2bn a year for treating diseases caused by smoking.
This cost includes hospital admissions, GP consultations and prescriptions - as well as any operations or treatment needed for smoking-related diseases.
This burden on hospitals, however, has been decreasing, with the proportion of disease-related hospital admissions attributable to smoking all down over the last decade.

And it isn't just the NHS

There are other smoking-related costs for the Government. Taxpayers fork out for things such as sweeping up cigarette butts off the streets, or for the fire brigade to put out fires caused by cigarettes.
When people are made ill from smoking, the country also misses out on lost productivity and tax revenue for the time that they aren't working. 
These costs are harder to quantify - although the think tank Policy Exchange made an attempt in 2010.
It estimated that the overall total for smoking-relating costs on the taxpayer was £14 billion - including an estimate of £2.7 billion for NHS costs.
This figure has come under criticism - not least of which because of its £2.9 billion price tag on people taking smoking breaks at work - but it goes some way to totalling all these individual costs on society.

People dying earlier from smoking could limit the health costs

Another thing to consider is the hypothetical scenario of what would happen if a smoker who died earlier actually didn't smoke, lived until they were 90, and racked up huge medical costs through an assortment of minor illnesses. 
People who die prematurely might actually have a smaller net burden on the health service in the longer term, reducing the state's spending on social care and pensions.
As FullFact's explains:
Imagine a patient in her 40s who is diagnosed with terminal cancer as a result of her smoking. Let's say her care costs the NHS £20,000 before she passes away. Now imagine we could go back in time and prevent her from taking up smoking in the first place. She might live into her 80s, and even if she spends that time in relatively good health is likely to require any number of GP consultations and routine prescriptions in that time.
If her treatment over these decades costs any more than £20,000 then actually the NHS would have spent less had she been a smoker.

So smokers may actually be paying for their habits

It's hard to say whether the two sides balance, and the numbers will of course vary from smoker to smoker - but it really isn't as clear-cut as some would have us believe.
When smokers buy their cigarettes, around four in every five pounds they spend is actually tax.
This means that Britain's 7.9 million smokers are contributing around £12 billion per year to the Government.
Our best estimates for their overall cost on society - whether that's NHS health costs, cleaning up cigarette butts or putting out cigarette-caused fires - is around £14 billion.
So the figures are relatively balanced, and this is before even accounting for other indirect benefits such as taxes from people employed in the tobacco industry.
Whatever the direct impacts on the health or culture of society, in terms of the murky world of financial costs and benefits, smokers may actually be paying for their habits.

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