Where a packet of cigarettes will soon cost £50

Would an astronomical rise in the cost of cigarettes make you give up? One nation hopes so, and it putting it to the test.

You might be forgiven for thinking the title is a typo.  But, if you live in New Zealand this might become a reality as the government considers increasing the cost of a packet of cigarettes to NZ$100 (around £50).

This drastic proposal aims to eradicate smoking completely by 2025. Would it work over here?

A brief history of price hikes

Cigarette prices have rocketed in the UK over the last few years, and in the latest budget George Osborne added another 37p to a pack of 20, taking the average price to £7.36p. Friends who smoke fondly remember the days, around ten years ago, when you could buy a pack for about £3.

However, despite general anger at the massive price hikes, most agree that it has helped them to give up. Experts believe that price increases and taxation are the only factors that have any real impact on the attitude of smokers.

But the hardcore of ‘addicted’ smokers aren’t going to let a little thing like money stand in the way of their habit, are they?

What if the UK copies New Zealand?

The vast majority of people quite simply could not afford to spend an amount like £50 on a single packet of cigarettes – it is quite a chunk out of the weekly household budget!

The chances are that cigarettes will just be sold on the black market and become as expensive and illicit as any other drug. Will it really help the government if they are no longer able to collect the revenue from huge taxes on tobacco?

As we highlighted last month, the cigarette black market cost the nation an incredible £12.2 billion in lost tax revenues in the four tax years up to  2009/10.

What are the real costs of smoking?

It’s not rocket science: giving up the cigarettes will have positive effects on both your health and your finances. Take a look at the cold, hard figures.

If you smoke a pack of 20 a day at £7.36p per pack, you will spend £51.52 a week.

That’s a scary £2,686.40 a year!

So the immediate savings from giving up are obvious. But, there are other fringe benefits to quitting that will have a positive impact on your finances.

Saving on life insurance

Unsurprisingly, smokers pay higher premiums on their life insurance than non-smokers. A 30-year-old smoker can expect to pay a third more than a non-smoker and a 50-year-old could pay up to twice as much as their non-smoking counterparts!

So, if I was a smoker, as a 30-year-old female looking to buy life insurance from a provider like Aviva, I could expect to pay a monthly premium of £10.03. This equates to £120.36 a year.

As a non-smoker, my premium would be £6.51 equating to £78.12 a year.

That is a saving of £42.24 a year. It may not sound like much, but if you assume a cover term of 25 years, that is a total saving of £1,056!

You can shop around for the best deal using our life insurance engine.

Other insurance savings

Remember, it’s not just life insurance that will be cheaper! You can also make considerable savings with things like critical illness cover, private medical insurance and mortgage endowments if you are a non-smoker! Savings galore!

Are you classed as a smoker?

Whether you smoke one cigarette a week, have the occasional puff on a cigar, or are a 50 a day addict, if you have used tobacco within the last 12 months you are classed as a smoker for health insurance purposes. Strictly speaking you should not have used any nicotine replacement products during this period either!

Insurance providers run spot-checks on the medical histories of about 20% of applicants to try to catch cheats out. If you are being less than truthful then the insurance company may not pay out at all, or pay a much reduced sum.

Will my premiums go down straight away if I give up?

Research conducted by Sainsbury’s Finance last year showed that around 3.3 million ex-smokers in the UK are paying approximately £316m more for life insurance premiums than they need to. This is simply because they have failed to tell their insurer they have given up!

But, even if you tell your insurer as soon as you drop your final fag end into a designated smoking receptacle, will they immediately drop the premium?

The Association of British Insurers states that best practice is for the company to look into your medical profile, often seeking a report from your doctor. If there are health concerns you may be asked to have further investigative tests, such as chest x-rays. Your age and the value of your policy will also be considered.

If you want help quitting order a free quit kit from the NHS, or speak to your GP.

More on tax:

Why all taxes must rise by 16%!

Tax amnesty for eBay traders and electricians

Ten ways to avoid Capital Gains Tax

HMRC: new PAYE system to ensure you ALWAYS pay the right tax

Tax and benefit changes for 2012/13