Saturday, 25th October 2014

Research Articles

Taxing the UK Drugs Market

 

IDMU has conducted surveys of drug consumption in the UK since 1994, involving a total of over 25000 UK drug users recruited at pop festivals and other outdoor events using anonymous self-completed questionnaires, collecting data on frequency of use of a range of different drugs, monthly spending on these drugs, among other data including whether the respondent had been "busted" for cannabis or other drugs.

You may also be interested in our article: Taxing the UK Cannabis Market

Click Here to download Taxing UK Drug Market as a pdf

 

Estimating Prevalence

 

Cannabis

An estimate of the number of regular cannabis users in the UK can be arrived with reference to the proportion of the sample who have been arrested for cannabis offences, their average duration of cannabis use (average age minus age first used cannabis) and the total number of cannabis convictions in the UK over the periods in question (historic data from Home Office statistical bulletins). Between 1945 and 2002, there were around 1.23 million cannabis convictions in the UK, the vast majority in the past 10 years.

 

Year

% Busted Cannabis offences

Avg Duration (yrs)

Busts /use year

Convictions over avg duration

% Regular Users in survey

Estimated Number of Regular Users

1994

21.2%

9.18

2.31%

270250

75.5%

961,073

1995

25.3%

8.69

2.91%

295695

85.9%

1,005,198

1997

21.0%

9.45

2.23%

362966

70.1%

1,209,383

1998

23.2%

12.78

1.82%

605532

67.3%

1,753,261

1999

21.4%

11.48

1.86%

655547

71.0%

2,175,048

2000

19.6%

11.42

1.71%

718519

68.5%

2,516,565

2001

18.2%

11.54

1.58%

768654

73.6%

3,106,950

2002

15.1%

12.80

1.18%

850228

58.2%

3,273,777

2003

17.0%

11.39

1.50%

839902

68.0%

3,350,801

1994-2003

18.2%

10.89

1.67%

818891

67.9%

2,150,228

 

Prevalence of other drugs

Taking the survey data as a whole, these would represent approximately 3.1 million drug users in the UK (not all of whom use cannabis). By applying the proportions of survey respondents who reported lifetime and/or regular use of other drugs, an estimate of prevalence can be calculated.

 

Drug

Total Ever

%

Regular

%

Lifetime

Regular

Occ/Exp

Amphetamine

6174

42.4%

957

6.6%

1333385

206681

1126704

Cocaine

5154

35.4%

852

5.9%

1113098

184005

929093

Crack

1026

7.1%

107

0.7%

221583

23109

198474

Heroin

1257

8.6%

133

0.9%

271471

28724

242748

Ecstasy

5592

38.4%

1832

12.6%

1207692

395653

812039

LSD

5883

40.4%

685

4.7%

1270538

147938

1122600

Base

14552


Total Users @ 2003

3142763



 

It is accepted that estimates of heroin and crack cocaine are likely to be low, due to the methods of data collection at pop festivals and other outdoor venues frequented by recreational drug users, where problem drug users tend to be unwelcome, and unable to afford the entry prices. For historical reasons, our figures are likely to overestimate the current value of the LSD and Amphetamine which have declined in popularity in favour of ecstasy and cocaine.

Bramley-Harker [2001][1] of NERA estimated drug prevalence and spending for the Home Office, and arrived at the following figures for prevalence of regular users for the following drugs, from prevalence of drug positive urine specimens from arrestees[2]. The methodology was effective at detecting users of stimulants and opiates, who tend to be more likely to come to police attention than users of cannabis and hallucinogens.

 

Drug

Regular Users

Cannabis

595797

Amphetamines

116725

Cocaine

237180

Crack

102606

Heroin

156166

Ecstasy

76354

 

The British Crime Survey is a household survey which asks interviewees whether they have ever used a range of drugs and if so whether they have used these in the past year or past month. Bennett found that approximately 25% of users with positive tests failed to report use of that drug when interviewed, suggesting their estimates of prevalence should be increased by approximately 33%. The BCS figures for 2000, the most recent year with full details published, were as follows

 

Drug

Lifetime

Past Year

Past Month

Cannabis

4839231

2330000

1510000

Amphetamine

2258308

562414

188750

Cocaine

1075385

572000

253000

Crack

215077

107000

53000

Heroin

215077

95000

60000

Ecstasy

1182923

401724

215714

LSD

1182923

160690

52069

 

Maximum and Minimum Figures for regular users. Regular users typically account for in excess of 80% of the value of the market for most commodities, and drugs are no exception.

 

Drug

IDMU

NERA Regular

BCS Month

Min Estimate

Max Estimate

Cannabis

3,350,801

595797

1510000

595797

3,350,801

Amphetamine

206681

116725

188750

116725

206681

Cocaine

184005

237180

253000

184005

253000

Crack

23109

102606

53000

23109

102606

Heroin

28724

156166

60000

28724

156166

Ecstasy

395653

76354

215714

76354

395653

LSD

147938

-

52069

52069

147938

Monthly Spending on Drugs

Respondents to IDMU surveys are asked to state how much they spend on a range of drugs during an "average month", and how often they use a particular drug. Regular use is categorised as use monthly or more often.

 

Drug

Regular

Occasional

Cannabis

£ 86.67

£ 36.45

Amphetamines

£ 102.24

£ 26.31

Cocaine

£ 168.74

£ 33.90

Crack

£ 444.59

£ 27.59

Heroin

£ 447.40

£ 24.65

Ecstasy

£ 39.62

£ 19.23

LSD

£ 18.89

£ 6.99

Value of the UK Drugs Market

 

Spending by regular users

Regular users of any particular drug account for the bulk of spending on that drug. Applying the IDMU spending data to the minimum and maximum prevalence estimates for regular users, annual spending by regular users can be calculated at between £1.46 billion and £5.86 billion per year.

 

Drug

Minimum Estimate

Maximum Estimate

Monthly Spending

Minimum

Value

Maximum Value

Cannabis

595797

3,350,801

£ 86.67

£ 619,652,712

£ 3,484,967,072

Amphetamine

116725

206681

£ 102.24

£ 143,207,568

£ 253,572,785

Cocaine

184005

253000

£ 168.74

£ 372,588,044

£ 512,294,640

Crack

23109

102606

£ 444.59

£ 123,288,364

£ 547,411,218

Heroin

28724

156166

£ 447.40

£ 154,213,411

£ 838,424,021

Ecstasy

76354

395653

£ 39.62

£ 36,301,746

£ 188,109,262

LSD

52069

147938

£ 18.89

£ 11,803,001

£ 33,534,586

Total Spending by Regular Users

£ 1,461,054,846

£ 5,858,313,585

 

Spending by Occasional Users

Total spending by occasional drug users would be worth roughly £687 million per year.

 

Spending on Drugs by Occasional Users

Drug

Occasional Users

Monthly Spending

% of min

% of max

Total Occasional Users Value

Cannabis

820,000

£ 36.45

37%

9%

£ 358,668,000

Amphetamine

373664

£ 26.31

45%

32%

£ 117,973,133

Cocaine

319000

£ 33.90

26%

20%

£ 129,769,200

Crack

54000

£ 27.59

13%

3%

£ 17,878,320

Heroin

35000

£ 24.65

6%

1%

£ 10,353,000

Ecstasy

186010

£ 19.23

54%

19%

£ 42,923,633

LSD

108621

£ 6.99

44%

21%

£ 9,111,103

Total Spending by Occasional Users

32%

10%

£ 686,676,390

Overall size of UK Drugs market:

The total size of the UK drugs market would thus be estimated at between £2.15 Billion and £6.54 Billion per annum.

 

Total Value of UK Drugs Market

Drug

Minimum Value

Maximum Value

Share of min

Share of max

Cannabis

£ 978,320,712

£ 3,843,635,072

46%

59%

Amphetamine

£ 261,180,701

£ 371,545,918

12%

6%

Cocaine

£ 502,357,244

£ 642,063,840

23%

10%

Crack

£ 141,166,684

£ 565,289,538

7%

9%

Heroin

£ 164,566,411

£ 848,777,021

8%

13%

Ecstasy

£ 79,225,379

£ 231,032,896

4%

4%

LSD

£ 20,914,104

£ 42,645,689

1%

1%

Total

£ 2,147,731,236

£ 6,544,989,974

100%

100%

Potential for Excise Duties

 

2003 UK Drug Prices & Profit Margins:

Current prices of drugs, from 2003 survey. Production costs are based on the following:

Cocaine/Crack - $2000 per kilo (Columbia) at 70%, ounce/gram @ 40%

Cannabis Resin - £150 per kilo (Morocco), UK Kilo and 1/8oz prices

Cannabis Skunk " estimated £170 per kilo in electricity, nutrients and equipment, UK Kilo and 1/8oz prices

Amphetamine/Heroin " Pharmaceutical prices at 100%, retail at typical street purity, wholesale amphet at "base" prices @ 40%, street @ 14%, heroin at 50% purity

LSD/Ecstasy " guesstimates for production, UK 100 tab and 1 tab prices

 

2003 UK Drug Prices per gram equivalent

Drug

Production Cost

Distributor Price

Max Retail Price

Cannabis Resin

£ 0.15

£ 0.90

£ 2.85

Cannabis Skunk

£ 1.70

£ 2.85

£ 5.75

Amphetamine*

£ 6.86

£ 12.67

£ 60.64

Cocaine*

£ 1.20

£ 35.10

£ 117.65

Crack*

£ 1.50

£ 40.17

£ 139.63

Heroin*

£ 12.30

£ 57.14

£ 207.20

LSDâ

£ 0.20

£ 1.51

£ 3.91

Ecstasyâ

£ 0.20

£ 1.58

£ 4.02

* Per pure gram - â Per tab/dose

UK Drug Price Trends

Prices of cannabis resin, ecstasy and heroin have fallen sharply in recent years (all by 50% or more), although skunk, amphetamine and cocaine prices have remained stable, and LSD prices have increased over the past 10 years.

 

UK Drug Price Trends 1995-2003

Drug

1995

1997

1998

1999

2000

2001

2002

2003

Resin 8th

£ 14.39

£ 14.06

£ 13.64

£ 12.88

£ 12.01

£ 11.29

£ 10.74

£ 9.96

Skunk 8th

£ 20.21

£ 20.63

£ 20.82

£ 20.98

£ 20.70

£ 19.94

£ 19.95

£ 20.14

Amphet gram

£ 8.28

£ 8.07

£ 8.04

£ 8.74

£ 8.43

£ 8.71

£ 8.85

£ 8.49

Cocaine gram

£ 56.66

£ 50.51

£ 51.92

£ 50.55

£ 49.38

£ 46.20

£ 47.95

£ 47.06

Crack rock

£ 21.50

£ 21.64

£ 19.38

£ 23.65

£ 20.48

£ 18.91

£ 22.23

£ 22.34

Heroin gram

£ 83.33

£ 69.69

£ 71.25

£ 56.40

£ 60.00

£ 54.00

£ 48.54

£ 35.83

LSD Tab

£ 2.99

£ 3.25

£ 3.28

£ 3.26

£ 3.53

£ 3.73

£ 3.68

£ 3.91

Ecstasy tab

£ 11.65

£ 9.84

£ 9.46

£ 8.38

£ 6.99

£ 6.24

£ 5.47

£ 4.02

 

Market Shares of Illicit Drugs

Cannabis accounts for the vast majority of spending on drugs in the UK, and clear trends are apparent, notably an increase in the use of cocaine and crack at the expense of amphetamine, and an increase in heroin usage. Use of LSD is in long-term decline, and ecstasy use may have peaked, with a fall in market share over the past two years.

The key to maximising excise revenues is to keep the user price low enough to undercut the illicit market, learning the lessons of cross-channel alcohol and tobacco smuggling. Furthermore, if the worldwide market was liberalised, the "crime tariff" would be reduced across the board, in the illicit as well as the newly-legitimate and licensed market.

 

The fall in prices of cannabis resin, heroin and ecstasy has highlighted the potential for the illicit market to cut prices, and the criminal organisations currently involved in smuggling drugs have the infrastructure in place to continue importing from producer countries. The fall in the prices of these drugs shows no signs of bottoming out at the present time, and it is conceivable that cannabis resin could become as cheap as £5 per 1/8oz (3.5g), ecstasy at £2 per tablet and heroin at £20 per gram, within the next 5 years if current trends continue.

 

One solution is for the legitimate market, whether state/UN controlled, or licensed private companies, to purchase the drugs at source from the producers, paying a better price than the smuggling cartels, and depriving the cartels of their raw material. For the heroin and cocaine markets, this would be cheaper than the current worldwide expenditure on interdiction and within the criminal justice systems treatment of offenders.

 

Excise Duty Levels & Estimated Revenues

Realistic levels of excise duty would not therefore exceed the following levels, representing approximately 50% of the anticipated retail price. Duty levels could be related to purity or potency of the drug, as is the case with alcohol.

 

Cannabis Resin (<10% THC) - £1 per gram

Cannabis Skunk (>10% THC) - £2 per gram

Amphetamine (15% purity) - £3 per gram

Cocaine (40% purity) - £15 per gram

Crack (80% purity) - £30 per gram

Heroin (50% purity) - £15 per gram

LSD " £1 per tab (80 µg)

Ecstasy - £1 per tab (80mg)


At the above levels of duty, and the minimum/maximum market estimates above, the potential duty revenues which could be raised would fall between £878 Million and £2.86 billion. Also, assuming duty represents 50% of the retail price, the VAT revenues from retail sales would fall between £307 million and £1 billion, the total take for the exchequer falling between £1.185 billion and £3.864 billion per annum.

 

Potential Excise Duty Revenues

Drug

Unit price 2003

Min Units

Max Units

Duty per unit

Min Duty

Max Duty

Resin

£ 2.85

154471691

606889748

£ 1.00

£ 154,471,691

£ 606,889,748

Skunk

£ 5.75

93578503

367652050

£ 2.00

£ 187,157,006

£ 735,304,101

Amphetamine

£ 8.49

30763333

43762770

£ 3.00

£ 92,290,000

£ 131,288,310

Cocaine

£ 47.06

10674825

13643516

£ 15.00

£ 160,122,368

£ 204,652,733

Crack

£ 22.34

6319010

25303918

£ 30.00

£ 189,570,301

£ 759,117,553

Heroin

£ 35.83

4592978

23689004

£ 15.00

£ 68,894,674

£ 355,335,063

LSD

£ 3.91

20262245

59087697

£ 1.00

£ 20,262,245

£ 59,087,697

Ecstasy

£ 4.02

5202513

10608380

£ 1.00

£ 5,202,513

£ 10,608,380

Total

325865099

1150637084


£ 877,970,799

£ 2,862,283,586





VAT 17..5%

£ 307,289,780

£ 1,001,799,255





Total

£ 1,185,260,579

£ 3,864,082,841

Domestic Cannabis Cultivation

Domestically produced cannabis currently accounts for over 50% of the UK Market. Systems range from small cupboards to industrial units, with the typical system involving a spare room partitioned into separate areas for growth and flowering. It is reasonable to assume that such levels of production would continue or even increase following a change in the law.

Growers could be licensed to cultivate cannabis for personal use or social supply, with the licence permitting cultivation (flowering) of cannabis plants up to a certain surface area and/or wattage of lighting, based on a reasonable estimate as to the production capacity of a typical system of such size.

Enforcement of licensing conditions for domestic cultivation would be one of the duties of Offdrug, with growers subject to random inspections to ensure conditions are not breached. Any unlicensed growers would face the full force of the law.

 

Expenditure Savings

Based on separate estimates from the late 1990s[3][4], the current cost of enforcing drug prohibition is likely to fall between £1.5 billion and £2 billion per annum. The cost of processing users and traffickers through the criminal justice system would be dramatically reduced in a licensing regime, although some costs would remain for prosecution of unlicensed suppliers or growers.

 

Knock-on benefits

Our 1994-1997 surveys[5] found that users who had a drugs record earned, on average, approximately £1000 per year less than those users with a clean criminal record. The benefits of financial activity would be most keenly felt among those users most dependent on state benefits but who, given a clean supply of drugs, could be expected to develop marketable skills. This would result in reduced benefit expenditure and income tax revenues, possibly to the extent of a further £1 billion per year.

 

New Costs

There would be additional cost implications in the following areas:

Excise duty collection and testing of samples for purity to determine duty payable.

Regulation and processing of licence applications (Offdrug)

Policing of compliance with licensing regulations

Law enforcement costs in respect of smuggling and unlicensed sales

Health education, prevention costs & treatment costs (some health costs may be offset via wider medicinal uses of cannabis)

Total costs of Offdrug would be anticipated in the region of £250-£500 million per annum

 

Models of Distribution

The preferred model of distribution would aim to satisfy existing demand without attracting new customers, via regulation. Different drugs would require different levels of regulatory control.

Cannabis Cafes These are successful in the Netherlands, allowing sales to the public with a maximum which could be purchased at any one time

Members Clubs These could operate on a model similar to Working Men"s clubs, providing drugs to members, with reciprocal arrangements for affiliated clubs in other conurbations

Licensing Users A user of current class A drugs could be licensed to purchase a certain quantity of drugs (e.g. from a chemist), having to produce a "smart card" to do so.

General sales (Off Licence) Cannabis products could be sold commercially via off licences and tobacconists. This model should not be considered for other drugs, for which some restraint on consumption is desirable.

Prescription Similar to licensing users, although the control of supply is in the hands of the doctor rather than Offdrug"

 

Changes in Prevalence

One anticipated consequence of a change in the law would be an increase in the prevalence of drug use. IDMU surveys have addressed this question by asking respondents who had not yet used a drug whether or not they would consider doing so in the future.

 

Market Saturation

Drug

Might Use

Ever Used

Total Non-Users

Potential Increase

Cannabis

31

9554

4998

0.32%

Amphetamine

171

6174

8378

2.77%

Cocaine

306

5154

9398

5.94%

Crack

223

1026

13256

21.73%

Heroin

193

1257

13295

15.35%

LSD

381

5883

8669

6.48%

Ecstasy

304

5592

8960

5.44%

 

The figures for cannabis are skewed by the targeting of cannabis users within the survey methodology. The figures for crack and heroin do give cause for concern, although these partially reflect the relatively small numbers of respondents who had tried these drugs, the vast majority of whom were experimental or occasional users.

It is likely that prevalence of cannabis use would increase most dramatically among the older generation, in particular pensioners using the drug medicinally, as the generation most likely to be deterred by illegality, rather than regarding it as a challenge as do many younger users. It is possible that if cannabis is no longer forbidden it may lose much of its sweetness among the younger generation, and fall out of fashion as a symbol of rebellion.

 

Conclusion

Licensing and regulating the drugs trade would require international agreement to work effectively, with purchase of drugs at source from producers in developing countries. The UK could go it alone, and licence domestic cultivation and supply, although there will always be a demand for higher quality cannabis resins (e.g. Moroccan Pollen, Charas, Nepalese, Minali etc), although this could partially be supplied by (potentially very high potency) resins produced from domestic plants.

The financial effects of legalisation and regulation of the drugs trade would have benefits " in excise duty, VAT, general economic growth and expenditure savings, with modest additional expenditure required to establish a regulatory authority and give the regulator effective "teeth" to tackle abuses of the system.

 

Revenue Implications

Item

Minimum

Maximum

Excise Duty

£ 877,970,799

£ 2,862,283,586

VAT

£ 307,289,780

£ 1,001,799,255

Income Tax

£ 1,000,000,000

£ 1,000,000,000

Savings

£ 1,500,000,000

£ 2,000,000,000

Total

£ 3,685,260,579

£ 6,864,082,841

New costs

-£ 250,000,000

-£ 500,000,000

Net Benefit

£ 3,435,260,579

£ 6,364,082,841

 

Regulation and licensing of the drugs trade could reasonably be expected to result in a net gain to the exchequer of between £3.4 billion and £6.4 billion per annum.

 

Click Here to download as a pdf

 

Matthew J Atha BSc MSc LL.B

5 October 2004

 

 


 

References


[1] Bramley-Harker E [2001] Sizing the UK Market for Illicit Drugs Home Office Research & Statistics Directorate " Occasional Paper No 74

[2] Bennett T (1998) Drugs and crime: the results of research on drug testing and interviewing arrestees. Home Office Research Study 183. Appendix E (pp103-104)

[3] Tackling Drugs to Build a Better Britain " The Government"s 10-year Strategy for Tackling Drug Misuse (1998) " London HMSO Cm 3945 - £1.4 Billion in 1997-98

[4] Atha MJ, Blanchard S & Davis [1999] Regular Users II " UK Drug Market Analysis, Purchasing Patterns & Prices 1997 " Wigan " IDMU Publications " Estimate of £1.6 Billion for 1997

[5] Atha MJ & Blanchard S (1997) Regular Users - Self-reported drug consumption and attitudes to drugs among 1333 regular cannabis users. Wigan - IDMU Publications.