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Spielman Submission - 2008

Spielman Submission - 2008

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Published by: guidofawkes on Apr 30, 2013
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Submission on the Future of Tobacco Control fromAdam Spielman
This document is my personal response to the Department of Health invitation for submissions on its consultation paper. I must stress at the start that the viewsexpressed in this document are my own. I am writing in a personal capacity, and notas a representative of Citigroup Investment Research.
My Background 
Although I am writing in a personal capacity, I believe I am qualified to make this submission becauseI am the tobacco analyst at Citigroup Investment Research.
What my job entails
I provide independent advice to investors and potential investors to help them decide whether theshares of the main European and US tobacco companies are likely to rise or fall over time, both inabsolute terms, and relative to other consumer companies, and relative to the general stock market. Isay where I think the shares will go, and why I think they will move in the way I predict, but the moreimportant element of my job is to help institutional investors understand the industry so they can maketheir own decisions. To succeed in my job I need to know the management of the various tobacco firmsand be able to assess as accurately as possible how likely their strategies are to grow profits and hencethe share prices. It is just as valuable to an investor to know whether a share is likely to fall, so thatthey can avoid it, or sell it short, as to know whether it is going to rise. I do not advise the industry, nor am I paid by the tobacco industry, although I can and occasionally do say what actions I think thecompanies could take to improve their share prices.By and large, I have had positive recommendations on the tobacco shares over the years, and generallythis has been correct. Tobacco has been the best performing sector in the FTSE index in the pastdecade: £100 invested in either BAT or Imperial Tobacco shares in January 1999 would be worth about£550 now; by contrast £100 invested in the FTSE index would be worth only about £124 now
Dividends re-invested in both cases.
My qualifications
There are two public votes each year in which investors elect who they believe has the best analyst ineach sector. I have been elected the No1 tobacco analyst in Europe in each of the surveys in the lasttwo years.I have an MBA from Harvard Business School, and an MA from Cambridge, where I studied philosophy.
Contact details
Adam Spielmanadam@spielman.co.uk 020 7986 4211 (day-time)07968 987 359 (mobile)
Figure 1. Total Shareholder Return – Imperial Tobacco and BAT vs Diageo and FT-SE 100
    J   a   n     9    9    J   a   n     0    0    J   a   n     0    1    J   a   n     0    2    J   a   n     0    3    J   a   n     0    4    J   a   n     0    5    J   a   n     0    6    J   a   n     0    7    J   a   n     0    8
Imperial TobaccoBritish American TobaccoDiageoFTSE100
Note: Diageo is the world’s No1 spirits company. Source: DataStream
Responses to Questions
Question 1: What smoking prevalence rates for all groups couldwe aspire to reach in England?
The evidence in the consultation document supports the view that the Government should focus onreducing smoking among youth and those over 40.
The data for adult smokers
The table on page 74 of the consultation paper summarises the data from the 2004 update on the Doll
et al 
study. It shows that smokers who quit by about 40 have made little impact on their health.Specifically the table shows:
Smokers who quit before 35 have NOT reduced their life expectancy at all by smoking
Smokers who quit between 35 and 44 have reduced their life expectancy by about 0.75 years
 However, those who quit after 40 see an increasingly sharp worsening of the consequences of smoking.
Smokers who quit between 45-54, 55-64 or after 65, have reduced their life expectancy by about2.5 years, 3.25 and 4.3 years respectively by smoking.
Consequences for public health policy
This means that from a public health point of view, by far the greatest gains come from getting thethose aged over 35, and especially those aged over 45, to quit. I suspect that this age group is relativelyeasy to reach as well.
Young, non-pregnant adults
In fact, the evidence from the consultation paper suggests the Government should be relatively relaxedabout smoking by non-pregnant young adults:
As long as individuals quit by around 40, they are doing little long-term harm to their own health
The health effects on other adults around them is significantly less negative than on the smokersthemselves, and this has been further reduced by the smoke-free legislation (both directly due tothe reduced smoking in public places, but equally importantly due to the increased culture of smoking outside private dwellings.)
For a non-smoker who lives in a non-smoking household the negative effects of other people'ssmoking are minimal (unlike abuse of alcohol and drugs).1.
Smoking does not lead to the unpleasantness (vomit, vocal abuse and noise), unprotected sex,and fights associated with young people's drunkenness. Nor does it lead to dangerous driving.2.
Smoking does not lead to the crime, social degradation and social exclusion associated withdrugs.3.
 Non-smokers no longer have to go into smoky places
From the Government's / taxpayer's point of view, smoking is extremely profitable: Thegovernment's tax take is about £10 billion
; the cost to the NHS of smoking related disease isabout £1.5 billion.My conclusion from these facts is that the cost of smoking – both in terms of health and financially – is borne by the smokers themselves, and to a lesser extent by their families. Insofar as smoking is aninformed choice, then the government has little reason to interfere. In my view an exception to this is justified in the case of children living with smokers. (An adult who chooses to live with a smoker hasmade a choice in the matter; a baby born to a smoker has not.)
Average for men and women
Of this, about £8 billion is from excise tax that would not be replaced if this expenditure were directed to other goods.4
In addition the government loses about £3 billion due to smuggling.

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