Big tobacco under investigation for price-fixing

Tobacco companies and retailers have been ripping off their customers by conspiring to keep prices high. That is the accusation in a 'statement of objections' set out by the Office of Fair Trading.

In echoes of the movie The Insider about a previous big tobacco conspiracy, the OFT says that there were 'arrangements between each manufacturer and each retailer that restricted the ability of each of these retailers to determine its selling prices independently, by linking the retail price of a manufacturer's brand to the retail price of a competing brand of another manufacturer.' This is civil service-speak for price fixing.

The OFT's allegations concern tobacco manufacturers Imperial Tobacco (whose brands include Davidoff, West, John Player, Lambert and Butler, Golden Virginia and Drum) and Gallaher (Benson and Hedges, Silk Cut and Old Holborn etc) and eleven retailers - Asda, the Co-operative Group, First Quench, Morrisons, Safeway, Sainsbury, Shell, Somerfield, T&S Stores, Tesco and TM Retail. The accused now have the opportunity to reply to the charges before the OFT makes its final decision on whether the competition laws have been broken.

John Fingleton, OFT Chief Executive, said: 'For markets to work well for consumers, it is a fundamental principle that pricing decisions should be made independently. If we find evidence of anti-competitive activity, we are prepared to use the appropriate powers to punish the companies involved and to deter other businesses from taking part in such behaviour. If proven, the alleged practices would amount to a serious breach of the law.'

Indeed, the OFT say that if the allegations are proved and the OFT adopts an 'infringement decision' then, on the basis of the information currently available, the parties can expect to receive significant financial penalties in the region of hundreds of millions of pounds.

Fag prices increased at double the rate of tobacco tax

According the anti-smoking organisation ASH, although cigarette prices in the years under investigation (2000-03) increased by 12.49%, tobacco taxes increased by just 6.46%. In other words nearly half the price rise went in big tobacco's bank accounts.

Deborah Arnott, the charity's director said: 'The hypocrisy of the industry knows no bounds. While complaining bitterly about tax increases the manufacturers have been raising the price of cigarettes to fill their own coffers while hiding behind the screen of tax rises. While we approve of tobacco prices being high, the profits should go to the government for redistribution into the health service, not to the tobacco industry.' 

ASH say that a YouGov poll they commissioned in February suggested that two out of three people would support a tax rise of 20p per pack if the money raised was used to prevent young people from taking up smoking and to help people stop smoking.