Tobacconist in Gibraltar. Credit: 4kclips – Shutterstock
Gibraltar has delivered a hefty shock to tobacco shoppers, with minimum prices rising by as much as 46 per cent and potentially changing the economics of the traditional cross-border shopping trip.
The latest Gibraltar Gazette has introduced new minimum retail prices for packets of 20 cigarettes, with increases ranging from 23 per cent to 46 per cent depending on the category. The changes came into effect on October 1. The biggest jump is for Mid-High cigarettes, where the minimum price has risen from £3.20 to £4.68 per packet, an increase of more than 46 per cent. Premium cigarettes have gone from £4.20 to £5.44, a 29.5 per cent increase. Mid-Ordinary cigarettes have risen from £3 to £3.69, while Ordinary cigarettes have increased from £2.70 to £3.35. The figures were reported by GBC and are set out in Gibraltar’s latest tobacco legislation.
Gibraltar’s cheap tobacco advantage takes a hit
The increases could prove particularly important for shoppers from Spain, as cheap tobacco has traditionally been one of the reasons people make the journey across the border to Gibraltar.
A packet that previously cost a minimum of £2.70 in the cheapest category now costs £3.35. At the other end of the scale, the minimum for Premium cigarettes has jumped by £1.24 per packet.
That does not mean every packet sold in Gibraltar will suddenly cost these exact amounts. The figures are minimum retail prices, meaning shops cannot sell cigarettes in the relevant categories below the amounts set by the Gibraltar Government.
The latest increases therefore raise a bigger question for Gibraltar’s shopping trade: how attractive will the Rock remain to people making a special trip to buy tobacco? It is too early to say that shopping habits have changed, but the price difference that has helped make tobacco attractive to cross-border shoppers is clearly being squeezed.
New rules link Gibraltar prices to Spain
The increases are not simply a decision by Gibraltar to make cigarettes more expensive. They are part of the new arrangements introduced following the UK-EU agreement concerning Gibraltar and the associated customs agreement between Spain and the UK.
Under the new system, Gibraltar must operate a price-differential mechanism for cigarettes. The difference in retail price between Gibraltar and Spain cannot exceed €0.80 or 15 per cent per packet, with the lower differential applying. The system continues to divide cigarettes into four categories.
Gibraltar had already explained that its new system would involve quarterly adjustments to minimum cigarette prices. The Government said prices would be changed if Spanish tobacco prices or exchange rates moved, allowing the Gibraltar minimums to be kept within the limits required by the agreement. That means October’s increases are not necessarily the end of the story.
More changes could follow
The new framework also changed the way tobacco is taxed in Gibraltar. From July 14, different excise rates began applying to the four cigarette categories, while a 15 per cent Transaction Tax is also applied to the relevant tobacco transactions. Gibraltar’s Government said the changes were designed to meet the objectives of the treaty and increase government revenue.
The tobacco-price mechanism is therefore likely to become a regular feature of life on the Rock rather than a one-off increase. For Spanish residents and visitors who have long regarded Gibraltar as a place to pick up cheaper cigarettes, that could make the difference between a tobacco purchase being an obvious bargain and one that is simply a little cheaper than buying in Spain.
Is Gibraltar’s bargain-shopping era changing?
The new prices do not mean Gibraltar is suddenly losing its appeal as a shopping destination. The Rock has many other attractions, and the new arrangements are also designed to make movement between Gibraltar and the EU easier in several respects.
But tobacco has been a particularly visible part of Gibraltar’s cross-border shopping economy, and a 46 per cent increase in one cigarette category is difficult to ignore. With prices now linked more closely to those in Spain, shoppers could see further changes whenever Spanish tobacco prices or the pound-euro exchange rate move.
For anyone crossing the border mainly because cigarettes are cheaper on the Rock, the calculation has therefore changed considerably.
And with the new system requiring Gibraltar to keep cigarette prices within an agreed distance of Spanish prices, the days when tobacco provided a particularly large saving could be coming under increasing pressure.