Share of illicit cigarettes in UK increases as counterfeit flows hit record figures: KPMG

The share of counterfeit and contraband cigarettes in total consumption in the UK has increased by one percentage point to 18.1 per cent in 2021, a study by KPMG has found.

The increase was due to a jump by around 760 million in counterfeit flows, which stood at 3.03 billion cigarettes last year, the highest value recorded in the UK since this annual study began. Counterfeit accounted for over 56 per cent of total illicit cigarettes last year.

Total tax revenue lost to the exchequer from the sale of illicit cigarettes is estimated to be £2.32 billion, £442 million more from 2020.

More worryingly, the decline in the UK's total cigarette consumption slowed in 2021, compared with rates observed between 2017 and 2020, while illicit consumption increased to a level similar to that seen in 2019 at 5.5 billion cigarettes.

Total UK consumption declined by 1 per cent in 2021 to 30.2 billion cigarettes, driven by a decline in legal domestic sales.

The study commissioned by Philip Morris International (PMI) has also revealed that overall illicit cigarette consumption increased across European Union (EU) member states by an estimated 3.9 per cent last year, reaching 35.5 billion cigarettes consumed. Meanwhile, the study estimates that total EU cigarette consumption declined over the same period.

The increase of illicit consumption in the EU was largely driven by an estimated 33 per cent increase in counterfeit consumption in France, where it grew to 8 billion cigarettes last year. Overall, France remains the largest market for illicit cigarettes in the EU, with a total of 15.1 billion illicit cigarettes consumed in 2021, comprising 29 per cent of total cigarette consumption in the country, which represents a significant growth from 13 per cent in 2017.

The UK, which left the EU in 2020, was the second largest illicit cigarette consumption market in the study, with 5.5 billion cigarettes, an increase of 200 million over 2020

“The findings of the KPMG report should be a real wake-up call. It’s alarming that in countries that maintain high excise taxes on cigarettes, such as France, instead of driving a decrease in smoking prevalence, we see a rise in counterfeit cigarette consumption,” said Gregoire Verdeaux, Senior Vice President, External Affairs, PMI.

“In fact, in France in the past five years, while the average price of a pack of legitimate cigarettes has increased by more than half, the number of adult smokers has only marginally decreased.”

The annual KPMG report focuses on the consumption and flows of illicit cigarettes in 30 European countries—the 27 EU member states, as well as the UK, Norway, and Switzerland.

Verdeaux noted that the continued growth of a black market where fake and unregulated cigarettes are easily available seriously undercuts legitimate efforts to reduce and eventually eliminate cigarette smoking.

“We are convinced that consumers need to be incentivised so that they don’t have to turn to illicit cigarettes. This means focusing on education and awareness, and ensuring the availability of better alternatives, such as scientifically substantiated smoke-free products,” added Verdeaux.

“Making them accessible as a better option for millions of adult smokers in Europe who don’t quit should be our common top priority.”