Tobacco firms face investigation over price fixing

Major tobacco firms are being investigated for alleged price fixing by the Government's competition watchdog.

The companies could face fines running into millions of pounds if they are found guilty of ripping off consumers by fixing the cost of cigarettes in contracts with major British retailers. Shares in Imperial Tobacco and Gallaher, which between them have around 82 per cent of the UK tobacco market, dropped sharply yesterday as the Office of Fair Trading (OFT) confirmed that it had launched a formal investigation into the companies' trading practices. The watchdog has written to Imperial Tobacco, Gallaher and British American Tobacco, which has around 6 per cent of the market, asking for copies of contracts with major retailers including Tesco, WH Smith and Safeway. Petrol station operators, including BP, Texaco and Esso, have also been contacted as part of the inquiry.

The investigation follows another continuing inquiry by the OFT into Imperial Tobacco. Sources said investigators had stumbled across suggestions of cigarette price fixing when they were looking into the sale of Imperial's Rizla rolling papers.

The OFT said yesterday: "We have reasonable grounds to suspect a breach of the competition act. We have launched an investigation into price fixing in the tobacco trade. We have written to a number of tobacco manufacturers and retailers."

A packet of 20 cigarettes costs between £4.50 and £5 but some brands cost around £4. Eighty per cent of the price goes on tax but tobacco firms still make huge profits. The tobacco firms could face a fine of up to 10 per cent of their turnover for up to three years if found guilty of price fixing.

Imperial Tobacco, Gallaher and British American Tobacco said yesterday that they had received requests for copies of their contracts and were co-operating with the OFT investigation.

Imperial Tobacco, which makes Lambert & Butler, John Player Special and Superkings and has a licence to distribute Malborough, issued a statement which said:"Imperial tobacco along with a number of other companies received a request for information from the Office of Fair Trading concerning certain aspects of the UK tobacco supply chain. We are co-operating with the OFT and have provided the information requested."

Gallaher, which makes Benson & Hedges and Silk Cut, said: "We have had a request for information from the Office of Fair Trading. They are looking at our relations with our retail customers."

British American Tobacco (BAT), which makes Rothmans, said that the OFT was investigating "a vertical agreement between each tobacco company and major retailers." "We have been asked to make copies of our contracts with the retailers. We have provided the documents. We are not concerned about the legality of our business," said a BAT spokeswoman.

Health campaigners yesterday welcomed the inquiry. "We ... hope that the OFT carry out a thorough probe and are not fobbed off by industry spin," said Amanda Sandford, of anti-smoking group Action on Smoking and Health. If the consumer is being ripped off then this should be exposed."