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In U.K. General Election, No Good Outcomes for Tobacco Companies

Britain’s tobacco industry is braced for a tough time, regardless of the result of the general election.

The Conservative Party earlier this year pushed through a law to ban branding on cigarette packs, surprising some observers who felt Prime Minister David Cameron’s party would stall on a vote before the election. The ban comes into force in 2016.

But worse could lie in store for cigarette companies if the opposition Labour Party is elected.

Ed Miliband, the Labour leader, said last year he would bring in a U.S.-style “sin tax” on tobacco companies if his party wins. As in the U.S., the tax would be based on each company’s market share, meaning Imperial Tobacco Group PLC and Japan Tobacco Inc.2914.TO -2.43%—which between them control around 85% of the U.K. cigarette market—would be most affected.

Mr. Miliband said he hoped to raise at least £150 million ($228.5 million) a year from the levy, which would be used to fund spending on Britain’s National Health Service.

Imperial Tobacco said Wednesday it didn’t support any one party in the election, but said any additional tax likely would result in price rises. The average tax on a pack of cigarettes bought in the U.K. is 86% of the retail price, one of the highest proportions in the world.

“If the tobacco levy were to be imposed, the natural corollary is that prices would go up in the U.K. market,” said Matthew Phillips, Imperial’s corporate-affairs director. He added that higher prices would increase illicit cigarette trade in the U.K. and reduce the government’s tax from tobacco.

A spokesman for Japan Tobacco declined to comment.

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