A 2011 study by the Institute for Social and Economic Research (ISER) estimated that a UK cannabis tax could bring in between £397m and £871m annually, depending on the demand response and the level of taxation.

The upper estimate was based on taxes levied at 79% of cost price and a demand response that meant most cannabis consumed was taxed. The lowest was assuming taxes levied at 51% and a response that meant much of the market remained untaxed.

Health Poverty Action says it has now re-assessed these figures, using data from the US states of Colorado and Washington which have legalised and taxed cannabis, and the Netherlands.

Its calculations suggest that a similar UK system to the one implemented in the US could generate income (from tax and license fees) of as much as £2.26bn. If the tax income in the UK was equivalent to that in the Netherlands, it suggests a UK tax haul nearer £1.4bn.

The charity notes that it may be difficult to transition from the current illegal market for to a regulated market that is taxed as heavily as the alcohol or tobacco industries. However, if the cannabis market worked more like the alcohol or tobacco markets in terms of levels of tax income then the tax income from cannabis duties alone (not including VAT or income/corporation taxes) could be conservatively estimated at £1.9bn or £3.5bn respectively, based on a £7bn cannabis market.

Health Poverty Action concedes it does not know exactly how the market will respond to regulation, but the report claims ‘it is a ‘fair assumption that a legal recreational cannabis market is likely to bring in at least £1bn annually, and it could be much more.’

As well as the direct tax take from cannabis sales, the charity says  there would also be income tax gains because people who would have been criminalised or imprisoned for cannabis-related offences could be economically active and paying taxes. The 2011 ISER study estimated the benefits to income tax from reduced ‘scarring’ and people not being in prison at £23m and £10m respectively.

Additionally, ISER predicted that the increased costs or savings for mental health services could vary from a saving of £16m to an extra cost of £41m, depending on the impact of legalisation on consumer behaviour.

Health Poverty Action advocacy officer Natasha Horsfield said: ‘Prohibition has failed. From our perspective, it’s about regulating the market to improve public health outcomes and create a safer environment. But we can see the potential benefits from a taxation perspective if we were to regulate it.’

Report by Pat Sweet