http://www.asa.org.uk/Rulings/Adjudications/2013/4/Gallaher-Ltd/SHP_ADJ_210929.aspx

ASA Adjudication on Gallaher Ltd

Gallaher Ltd

Members Hill
Brooklands Road
Weybridge
Surrey
KT13 0QU

Date:

17 April 2013

Media:

National press Sector: Tobacco Number of complaints: 1

Agency:

Big Al’s Creative Emporium

Complaint Ref: A12-210929

Background

Summary of Council decision:

Two issues were investigated, both of which were Upheld.

Ad

Ads, for a tobacco producer, responded to the Government’s plain pack consultation on cigarette packs:

a. A national press ad featured an unmarked packet of cigarettes. Text stated “WHY MAKE IT EASIER FOR CRIMINALS TO MAKE A PACKET? In the current economic climate, the black market in tobacco is booming. Standardising packs will make them easier to fake and cost taxpayers millions more than the £3 billion lost in unpaid duty last year”.

b. A national press ad featured an unmarked packet of cigarettes and a star which contained the text “ONLY £3bn”. Text stated “The black market in tobacco is booming. Last year it cost the Treasury £3bn in unpaid duty”.

Issue

Cancer Research UK challenged whether:

1. the claim “the black market in tobacco is booming” was misleading and could be substantiated, because they believed it suggested there had been a rapid growth in the market, whereas an HMRC report from 2011 stated that “the tobacco illicit market had been reduced significantly over the last decade”; and

2. the claims “Standardising packs will make them easier to fake and cost taxpayers millions more than the £3 billion lost in unpaid duty last year” in ad (a) and “last year it cost the Treasury £3bn in unpaid duty” in ad (b) were misleading and could be substantiated, because they believed the figure of £3 billion was exaggerated.

CAP Code (Edition 12)

3.13.33.7

Response

1. Gallaher Ltd, t/a JTI (JTI) said it was a well-established fact that the market in illicit goods was a major, global problem and had grown significantly in size and value over the last 30 years. They said the black market was estimated to be worth US$5.5 billion in 1982 and the latest figures for 2012 valued it at approximately US$600 billion. They provided a report entitled “The Impact of Plain Packaging on the Illicit Trade in Tobacco Products” by Professors Zimmerman and Chaudhry in support of their claims.

They stated that tobacco products (cigarettes and roll your own tobacco (RYO), also known as hand-rolling tobacco (HRT)) made up a significant proportion of the black market in consumer goods, as stated in a European Union (EU) report on EU customs enforcement of intellectual property rights, which set out that the top categories of products detained were cigarettes which accounted for 34% of the overall amount, followed by office stationary (9%), other tobacco products (8%), labels, tags and emblems (8%), clothing (7%) and toys (7%). They added that, while difficult to quantify in exact terms, the Zimmerman and Chaudhry report indicated it was generally agreed that 10–11% of the global cigarette market was illicit, representing over 600 billion cigarettes a year.

JTI stated that reports indicated that the black market in tobacco products in the EU was significant and growing and a report quoted in the Financial Times stated that, in 2010, one in 10 European cigarettes smoked (64.2 billion) were either untaxed or made of counterfeit tobacco, which was a rise of nearly 2% since 2006. They stated that the European Law Enforcement Agency (Europol) recognised that “Organised crime groups based in the EU are increasingly active in cigarette smuggling” and a KPMG report for Philip Morris estimated that consumption of illicit tobacco in the EU had increased from 8.3% in 2006 to 10.4% in 2011.

They stated that, in the UK, an HMRC report from 2011, which represented the most up to date data when the ad appeared in October 2012, estimated that illicit product constituted up to 15% of the market for cigarettes and up to 50% of the market for RYO. They said the UK Border Agency and European Commission Anti-Fraud Strategy communications reinforced the position that the UK was a key destination for illicit tobacco products.

Although JTI acknowledged that the illicit trade in tobacco products had reportedly been a declining trend over the past ten years, they said it was clear that the scale of the black market in the UK remained significant and had grown for certain types of tobacco product. They pointed out that HMRC noted that the black market continued to be a serious problem and that “methods of tobacco smuggling have evolved”. JTI provided examples of such counterfeiting operations which had been brought to justice. They added that on 19 June 2012, in the Public Bill Committee’s discussion of the Finance Bill, Cathy Jamieson MP referred to data from an empty pack survey conducted for tobacco companies which stated “preliminary results show an increase in the non-UK duty-paid [tobacco] products this year compared with the same period last year. There is a fear that there will be further large increases in the current year”. They considered that that statement was based on more recent data than that in the 2011 HMRC report and showed that illegal tobacco trade as a whole in the UK was again back on the increase. They therefore considered the claim was not misleading.

JTI also provided a number of quotes from news articles which reported and commented on the likely impact of plain packaging on illicit trade.

2. JTI said the HMRC figures from 2011, in a report entitled Measuring Tax Gaps, showed that the illicit tobacco trade already cost taxpayers up to £3 billion per year in lost revenues. They provided a copy of the report. They said the £3 billion figure was a well-publicised statistic derived from an official HMRC source and did not consider that the figure was in dispute. They stated that the figure was frequently cited by public authorities to illustrate the cost of the illicit tobacco trade and did not consider it was misleadingly presented in the context of the ads.

They provided examples of the £3 billion being quoted by public officials; in a letter to the Home Secretary from Jim Sheridan MP on 25 October; by the HMRC itself to emphasise the cost of the illicit tobacco trade to the tax payer; by John Whiting (a Non-Executive Director on the board of HMRC) when giving evidence to the Northern Ireland Assembly Committee for Justice; and by Cambridgeshire County Council, providing consumer information on their website.

They stated that, when used by Mr Sheridan and Mr Whiting, the figure had not been qualified on the basis that it represented the upper limit calculated by HMRC. As they noted that the £3 billion figure was derived from an official HMRC source and was frequently cited by public authorities and journalists without reference to its provenance, they did not consider that such a reference should be required in the ads. They said the figure was used in the ads in relation to the cost of the illicit tobacco trade to the “the Treasury” and considered that the reference to the Treasury was sufficient to demonstrate that the figure was an official HMRC statistic and further detail about the calculation and provenance would be available on HMRC’s website or in their tax publications. They added that the ads included a reference the JTI website, where a copy of JTI’s response to the Department of Health’s (DH) consultation on the Standardised Packaging of Tobacco Products of July 2012 was available and pointed out that that document included sections on illicit trade which referenced the source of the £3 billion figure.

They said there was no implicit or explicit reference in the ads to the £3 billion lost in unpaid tax being linked only to the illicit trade in one type of tobacco product and considered that consumers would not infer that the £3 billion figure related only to the illicit cigarette market and not HRT, as the ads referred consistently to the black market in tobacco and the standardisation of packs in connection with the £3 billion figure. They added that ad (a) did not refer to “cigarettes”. They did not consider that references to “packs” and the image of a plain cigarette packet would lead consumers to assume that the £3 billion figure related to the illicit cigarette trade only, especially as they considered that the wording of the ads, and the context in which they appeared, clarified that it was the black market in tobacco. They felt that it was universally accepted that “packs” or “packets” were used in relation to all tobacco products.

They added that the ads were created in response to the DH’s consultation on the Standardised Packaging of Tobacco Products, which concerned cigarettes and HRT. They therefore considered that it was clear that the ads referred to the cost of the black market in tobacco in relation to all tobacco products.

Assessment

1. Upheld

The ASA noted the HMRC report “Tackling Tobacco Smuggling – building on our success”, dated April 2011, which looked at the impact of tobacco smuggling on the UK. We noted that the report recognised that “methods of tobacco smuggling have evolved”; that the tobacco illicit market “is now a global problem carried out by highly organised criminal gangs” and “in the UK, we are facing continued threats from … a growing problem of illicit whites”, namely “cigarettes manufactured for the sole purpose of being smuggled into and sold illegally in another market”. We also noted that the report stated “that tobacco smuggling costs the UK taxpayer an estimated £2.2 billion per annum”. We acknowledged therefore that the report suggested that the state of the tobacco illicit market was presently a major problem which had a considerable financial impact on the UK. However, we also noted that the report stated that “the tobacco illicit market had been reduced significantly over the last decade”.

We considered that the claim “the black market in tobacco is booming” would be understood to mean that problems with the tobacco illicit market had been increasing and did not consider that readers would infer from the ads that, although the tobacco illicit market was presently a major problem, it had also significantly reduced in the past ten years.

Because we considered that consumers would understand the claim “the black market in tobacco is booming” to mean that the problems with the tobacco illicit market had been increasing, when we understood that that was not the case, we concluded that the ads were likely to mislead.

On that point, the ads breached under CAP Code (Edition 12) rules 3.1 (Misleading advertising) and 3.7 (Substantiation).

2. Upheld

We considered the HMRC figures provided by the advertisers in support of the claims that the UK had suffered “£3billion lost in unpaid duty last year” and that the black market “cost the Treasury £3bn in unpaid duty”. We noted that the HMRC report from which the figures were drawn provided upper and lower estimates for the associated revenue losses for cigarettes and for HRT products, and acknowledged that the combined upper estimate for cigarettes (£2,200 million) and HRT (£880 million) came to £3.08 billion.

We considered that consumers would infer from the claim that £3 billion had been lost in unpaid duty and that that figure represented an official estimate from HMRC regarding the revenue the UK had lost in unpaid tax in 2011 from the illicit cigarette market. We understood, however, that the £3 billion figure related to the HMRC’s combined upper estimates for cigarettes and HRT. We noted that the lower estimate for cigarettes was £500 million and for HRT was £620 million and considered there was a notable difference between the upper and lower estimates for cigarettes in particular. We also noted that the HMRC report “Measuring tax gaps 2012″ stated “Key findings for cigarettes … The illicit market share for cigarettes was estimated to be 9 per cent in 2010-11, with associated revenue losses of £1.2 billion” and that the HMRC report “Tackling Tobacco Smuggling – building on our success (2011)” stated that “… tobacco smuggling costs the UK taxpayer an estimated £2.2 billion per annum” and that the HMRC did not use the upper limit when referring to an estimate revenue loss figure.

We also noted that the ads featured a picture of a cigarette packet and made references to “packets”, “packs” and “cigarette packs”. In light of that, we did not consider that the ad made clear that the £3 billion tax loss figure was intended to relate to a combined total for cigarettes and HRT. In the absence of further qualifying information, we considered that most consumers would be likely to understand the figure of “£3 billion” to relate to the revenue tax losses for cigarettes only.

We therefore concluded that, in the absence of qualifying text, providing additional information about the methods used to calculate the “£3 billion” figure, or any information indicating that it was an upper estimate relating to all tobacco products, the figure was likely to mislead.

On that point, the ads breached CAP Code (Edition 12) rules 3.1, 3.3 (Misleading advertising) and 3.7 (Substantiation).

Action

The ads must not appear again in their current form