How to stand up to Big Tobacco

Noreena Hertz finds a way around Big Tobacco

A satirical film, Thank You for Smoking, looking at the power of Big Tobacco, hits our cinema screens on 16 June. It's a sharp reminder of just how sinister tobacco companies are. Five hundred million people will die of smoking-related illnesses over the next 50 years, yet the tobacco lobby continues to do all it can to keep up its sales.

Despite the tobacco industry's zeal, however, its efforts in developed countries have been somewhat thwarted. In the developed world, smoking rates are on the decline, thanks in large part to the hike in tobacco taxes that has taken place - on average, in high- income countries, two-thirds of the price of a packet of cigarettes is now tax.

In low-income countries the story is very different. Tax rates on tobacco products are often as low as one-third: in a quarter of developing countries examined in a recent study, tobacco was actually becoming more affordable in 2000 than it was in 1990, owing to increased wages. The upshot is that by 2030, if nothing changes, 70 per cent of smoking-related deaths will stem from low- and middle-income countries.

Why are low- and middle-income countries so reluctant to raise taxes, given that it is a policy measure proven to save lives? The evidence is now clear that, for every 10 per cent increase in price, ten million lives would be saved. The spin of the tobacco lobby goes a long way in explaining this. "Increased taxes would mean less revenue" is the main line the lobbyists peddle. Their evidence is typically cobbled together from research published by economists and academics they have funded. Yet any economist worth her salt knows that when the demand for a product is as price-inelastic as it is for tobacco, increases in taxes will generate net gains in tax take, not losses.

Other objections to raising taxation favoured by the tobacco lobby are similarly false. Lobbyists claim that taxes "are the main cause of large-scale smuggling". But smuggling is a function of corruption. And anyway, smugglers don't seek out tax arbitrage opportunities: they try to avoid paying any taxes at all, a commercial benefit that has led some tobacco companies to support and participate in the illicit tobacco trade themselves.

As for the line that raising taxes is "inequi table" because the taxes hit the poor more, although it is true that smokers from lower-income groups are more likely to quit in response to price rises, that doesn't mean the policy is unfair. The poor spend disproportionate amounts of their income on tobacco. In Morocco, for example, poor households spend more on tobacco than on health and education combined. If this group of smokers stopped smoking, we would see a reduction in health and educational inequalities in that country.

But if the spin is so transparent, why aren't developing countries ignoring it and raising their taxes? Put yourself in the shoes of a cash-starved government faced with a big multinational company dangling billions of pounds'-worth of potential investment if only the terms of engagement are just "right". Wouldn't you, too, perhaps be swayed?

Which means that if hundreds of millions of lives are to be saved, governments in the developed world will have to help their developing-country counterparts to stand up better to Big Tobacco. This will involve helping them create alternative investment opportunities, doing something real to help them export their products and break the deadlock on trade, and also dangling their own carrot to developing countries - if you raise your tax on tobacco, we will increase your aid. A controversial one, that, as it implies an endorsement of the micromanagement of policies chosen by another state. But to hell with political correctness here. If additional resources could be raised, and especially if those additional resources would be earmarked for health, then everyone would be better off. Everyone except the tobacco companies, that is.

The earmarking of tobacco taxes for health is not an unrealistic goal. Earmarking is very much in vogue. Only this past week a group of 14 nations announced a new mechanism to provide greater access to drugs in Africa, funded by a tax on airline tickets. Nor is it unrealistic to believe that governments in the dev eloped world might actively support such tax measures. Almost all developed countries have now ratified the World Health Organisation's Framework Convention on Tobacco Control. This requires them to support anti-smoking measures in developing countries. And active support for higher tobacco taxes would be a tangible way to make good that pledge.

So come on, Tony Blair, run with this one. It fits with your concern for developing countries. It fits with the mandate you chose for your G8 presidency. It is in keeping with Labour's great success in reducing the numbers dying of smoking-related diseases at home. Britain itself earmarked some of its tobacco taxes for the National Health Service, and is one of the 14 countries that is going to impose the airline tax.

With Kenneth Clarke the chairman of British American Tobacco, and the Tories having voted against the ban on smoking in public places, this is one of the few areas where Blair could still secure the moral high ground.