In the comments people have already pointed out some of the key flaws in Policy Exchange's new report calling for increased taxes on smoking. The critical table in their report is this one:
Their source for healthcare costs - a report from the taxpayer funded political campaign ASH - has an extremely dodgy methodology. While the report is quite vague about its data and method (often a sign people are up to something dodgy) it compares rates of "hospital admissions, outpatient visits, GP and practice nurse consultations and prescriptions". That is a problem because smokers don't die more often that non-smokers, we all die once, just of different conditions. And I'm pretty certain that method won't properly count care for Alzheimer's sufferers for example, which smokers tend to avoid by dying early.
The loss of productivity statistic is even less reliable. It is based on an estimate that smokers spend ten minutes a day smoking. But, of course, we all spend a lot of our time doing things other than working. There is no evidence presented that non-smokers like me don't make it all up by wasting our time in other ways, the world of social networking offers plenty of options.
The absenteeism statistic is interesting because the same logic would also imply imposing greater taxes on public sector workers, who take more time off sick than private sector workers. Beyond that, absenteeism at a private sector employer is dubious as a genuine externality. If a worker is regularly off work sick you have to assume they will undermine their career and pay a price for it at some stage.
The output loss statistics counts the time people aren't in work before retirement. There are a couple of big problems with that. First, that loss is clearly mostly to the smoker themselves (the income they miss out on), that means it isn't a societal cost but a private one and can't justify Pigovian taxation. Second, if you take the logic of the healthcare costs entry in their table then smokers save society a huge amount of money by being less likely to claim a pension.
I'll ignore the other lines in that table for the sake of brevity, they don't add up to very much money in the grand scheme of things. But I think it is quite clear that none of the major societal costs that Policy Exchange use to justify their new policy really stand up to scrutiny.
But it's worse than that. The policy isn't just an unjustified and therefore unfair attack on embattled smokers. It is also extremely regressive, here are graphs of taxes on tobacco as a share of income and as a share of expenditure (data from the ONS):
Their answer to this issue is: "we believe that a proportion of the additional revenue generated should be targeted towards helping people quit, particularly hard to reach groups such as pregnant teenagers." Which is obviously an utterly inadequate answer to the fact that a big increase in taxes on tobacco would increase poverty and benefit dependency. Coming from 'David Cameron's favourite think tank', this hardly squares with his call to "make sure the system always considers the effect of any policy response on the position of the poorest in society".
Finally, one quick question if anyone from Policy Exchange is able to respond to this post. Was this research funded with taxpayers' money? Either directly from the Department of Health or a quango or through a taxpayer funded political campaign like Action on Smoking and Health?