Name: Richard Hyslop
Company Name: Independent British Vape Trade Association (IBVTA)
Dear MHRA Team,
The Independent British Vape Trade Association (IBVTA) welcomes the opportunity to respond to this consultation.
Founded by some of the UK’s leading independent manufacturers, importers, distributors, and vendors, IBVTA is a not-for-profit trade association representing all responsible and ethical independent vaping businesses in the UK irrespective of the size of their companies and operations. IBVTA members make up more than 50 per cent of independent market making IBVTA the largest trade association in this sector and the only one dedicated exclusively to the independent sector.
Based in the heart of Westminster, IBVTA is supported by a dedicated secretariat and a science and regulatory committee made up of engineers, chemists, and pharmacists.
The mission of IBVTA is to provide credible knowledge and guidance to support the independent vaping sector and promote constructive interaction between this industry sector and the scientific community, vapers, policy makers, and the general public.
IBVTA fosters research and manufacturing excellence in order to deliver a robust yet proportionate consumer regulatory landscape that adequately reflects the needs of vaping stakeholders and recognises vaping as a sector in its own right.
All IBVTA members are free from any ownership or control by the tobacco and pharmaceutical industries.
As far as IBVTA is concerned the work done by the MHRA to determine the fees is unsatisfactory as, being based on the Nielsen database it ignores the much larger independent vape sector, including manufacturers and specialist bricks-and-mortar and online vape shops. IBVTA understands that the MHRA is aware of this problem.
As a trade association with more than 50 per cent market coverage, IBVTA is in a position to provide the MHRA with credible and up-to-date generic data on the independent sector.
Due to the current lack of appropriate data, the MHRA in IBVTA’s opinion, has significantly underestimated the market size and the number of notifications it should expect to receive. Based on the consultation document the MHRA states that it expects to receive 3,000 – 4,000 notifications in year one; a conservative estimate based on IBVTA members is that the MHRA is in reality likely to receive 12,000 – 14,000 notifications in year one from the independent sector alone.
Finally, and most importantly, IBVTA believes that the fees proposed by the MHRA are unnecessarily high and totally disproportionate. The fees as proposed by the MHRA will disproportionately impact the smallest and more innovative companies in this sector. The primary competitive advantage the independent sector has over the tobacco industry is the diversity of product range. Such fees as proposed by the MHRA would effectively penalise those companies that through responding to customer demand have a wide-range of products to notify. Based on the plans of IBVTA members it is fair to state that such companies will be forced to scale back their product range and reduce innovation. This will have two impacts, firstly it may see specific products withdrawn, without justification, that some former smokers rely upon to prevent them from returning to tobacco, and secondly it would hand a competitive advantage to the tobacco industry whose larger and more established businesses will be able to meet these fees.
In the spirit of constructive engagement IBVTA has set out a range of more proportionate fees with the necessary reasoning. IBVTA is firmly of the opinion that if the MHRA does not gain a realistic understanding of the size and scope of this sector then, it will be unable to cope with the notification process. Furthermore, if it does not modify its
proposed fees then smaller independent businesses will close, and products that many vapers rely upon to prevent them going back to smoking, will be needlessly withdrawn from the market.
If the MHRA would like to discuss anything in this response in more detail, please do not hesitate to contact us.
For a better understanding of IBVTA’s response to this consultation document, the definitions below must be considered:
Product for hardware – Defined combination of the heating unit and different individual components in a tank system or ‘cig-a-like’ ignoring the different packaging, colour or branding options that when attached to a battery can heat a Ready to Use e-liquid (RTU), producing vapour. Any substantial modifications to a defined combination will result in a different hardware product.
Hence, if a hardware product is produced in different packaging formats, it is one product. If a device “full kit” contains a component that can contain e-liquid, but is sold separately (e.g. Tank Atomizer) the packaged component should be considered as having been satisfactorily notified.
Product for e-liquid – RTUs containing a percentage of flavour concentrate plus propylene glycol (PG), vegetable glycerine (VG) and different nicotine concentrations e.g. flavour A, nicotine 3mg/ml; flavour A, nicotine 6mg/ml; flavour A, nicotine 9mg/ml; flavour A, nicotine 12mg/ml; flavour A, nicotine 18mg/ml; Flavour B, nicotine 3mg/ml, etc.
Hence, from the example above one flavour at one nicotine concentration is one product.
Flavour for e-liquid – All RTUs containing a percentage of flavour concentrate plus PG and VG, ignoring the different nicotine concentrations e.g. flavour A, nicotine 3mg/ml, 6mg/ml, 9mg/ml, 12mg/ml, 18mg/ml.
Hence, from the example above one flavour has five products.
1. Do you agree or disagree with the levels of the proposed fees in Annex A? If you disagree, please explain why.
IBVTA disagrees with the levels of the proposed fees in Annex A.
As indicated in the consultation document, the Nielsen database used to determine the fees for notification is limited primarily to ‘big tobacco’ brands and major distribution channels, such as Walmart or Tesco. Thus, the data set used is not accurate as it does not include the much larger ‘independent’ vape sector, including specialist bricks-and-mortar and online vape shops.
The independent vape industry is not only rapidly growing, but also very complex; diversity of offer and affordability are key characteristics of the industry. But the financial burden caused by the proposed notification fees will hinder these key aspects of the industry, will force many businesses to reduce their product portfolio, and will also slow significantly the growth rate of the market, whilst offering unjustified competitive advantage to those larger tobacco owned brands with limited product range and established conventional distribution models. However, there are some commonalities among products that should not be considered as burdens, i.e. the nicotine range. One flavour at 6mg/ml will be identical to another at 12mg/ml of nicotine with regards to the analytical results and toxicology, so notifying five different products of the same flavour is illogical and supports no justified end, whilst unnecessarily increasing the work for all parties five-fold.
As previously stated, it is IBVTA’s belief that the MHRA has underestimated the size of the market resulting in the excessively high notification fees as set out in Annex A. Furthermore, IBVTA is of the opinion that such levels of fee would result in revenues that exceeded the MHRA’s related costs.
IBVTA has a number of vape device and e-liquid manufacturers amongst their membership. These companies alone will have around 250 different hardware products and around 1,000 e-liquid flavours. This results in approximately £3,400 products to notify with an implied cost for IBVTA manufacturer/importer members alone of £750,000.
Looking at the independent sector as a whole, IBVTA is able to credibly estimate there being a total of between 12,000 and 14,000 products to notify at a total cost of roughly £3 million in year one alone. These are significantly higher figures than those provided by the MHRA.
Based on the number of notifications that the MHRA can expect to receive, compared to their own estimate, if they charge companies the fees listed in Annex A then it is clear that they would generate an income in year one alone way in excess of their costs.
Assuming no rationalisation of product range requiring notification then in year 2016/17 an average IBVTA manufacturer/importer member will be paying the MHRA notification fees approaching £200,000 for initial notifications.
IBVTA does not agree that a periodic service fee of £60 per notification is justifiable and strikes IBVTA as being little more than a revenue generating tool. As an example, an average IBVTA manufacturer/importer member would be paying in the region of £51,000 annually in periodic fees in 2017/18. Looking at the independent sector as a whole, such a fee is likely to generate nearly £1 million in revenue for the MHRA. Based on the incomplete data used to calculate this proposed fee, IBVTA proposes that the MHRA recalculates the fee when a better estimate of the total product range on the market is available.
IBVTA agrees that a notification (modification) fee in the region of 50 per cent of the original notification fee is justifiable, but believes the initial notification fees to be unjustifiably high. These proposed fees would, as IBVTA has already made clear, fall disproportionately on the smaller and micro businesses operating in this sector, many of which having already invested significant capital in this TPD compliance process. IBVTA manufacture members, for example, are in the process of testing their e-liquid products as stipulated in the TPD, such that they are analysing the ingredients in the products, performing toxicological reviews on said ingredients, and analysing the products for emissions, prior to conducting toxicological reviews on any emissions detected. The costs involved in such processes are considerable.
Importantly, it appears to IBVTA that the MHRA is expecting the independent sector to pay the bulk of the fees for the costs of notifications, somewhere in the region of 90 per cent, with tobacco owned companies paying only 10 per cent.
IBVTA proposes that the MHRA does two things. Firstly, the MHRA should change the notification regime so that manufacturers and importers are only notifying per flavour of e-liquid rather than the proposed regime of having to notify each flavour and each strength of flavour. This would reduce costs significantly, and in proportion to a reduction in MHRA workload. Secondly, the proposed £220 per product notification fee is based, as IBVTA has pointed out, on a significant underestimate of the size of the market and therefore the number of notifiable products. This fee should therefore be adjusted accordingly. IBVTA believes that it would be more credible for the MHRA to be charging a fee of £50 – £100 per notification.
If the MHRA were to adopt these two proposals, they would have both a more proportionate notification regime and a fee level that more accurately reflected the MHRA’s costs.
2. Would you prefer a fixed fee covering a number of modifications to be added to the Periodic Fee? Please provide any information that could justify a change towards this alternative model.
IBVTA would not prefer a fixed fee covering a number of modifications to be added to the Periodic Fee. IBVTA believes that such a fee could not be fairly charged to businesses that notify, but make few or no modifications to their notifications.
3. Are the proposed fee levels tolerable or will they cause a significant impact on your business’s finances? (Please indicate if you represent a small or micro business).
All IBVTA members are SMEs according to the EU definition. All companies operating in the independent vape sector are also SMEs with the overwhelming majority of them being small or micro businesses.
It is vitally important that the MHRA understands that their notification fees are but one part of the costs IBVTA members have to bear when it comes to regulatory compliance. IBVTA manufacture members, for example, are in the process of testing their e-liquid products as stipulated in the TPD, such that they are analysing the ingredients in
the products, performing toxicological reviews on said ingredients, and analysing the products for emissions, prior to conducting toxicological reviews on any emissions detected. The costs involved in such processes are considerable. MHRA notification fees come on top of these costs and many, many more.
Such fees as proposed by the MHRA would effectively penalise those companies that through responding to customer demand have a wide-range of products to notify. Based on the plans of IBVTA members it is fair to state that such companies will be forced to scale back their product range and reduce innovation. This will have two impacts, firstly it may see specific products withdrawn, without justification, that some former smokers rely upon to prevent them from returning to tobacco, and secondly it would hand a competitive advantage to the tobacco industry whose larger and more established businesses will be able to meet these fees.
IBVTA members are clear that the proposed fee of £220 per notification will have a significant impact on their businesses finances. As IBVTA members are representative of the independent sector as a whole this negative impact is going to be felt across the entire independent sector.
To mitigate this impact, it is highly likely that companies will significantly reduce their product range, something a number of IBVTA members are already planning to do. Worryingly, some less scrupulous companies may decide not to notify and to operate in the informal economy. If this does happen, and if the Government and local authorities fail to police this illegitimate trade accordingly, then it will be very difficult for ethical companies to compete. Finally, a number of the smallest businesses will simply close due to their inability to absorb such significant costs.
The MHRA could mitigate this impact by introducing a more tolerable notification fee based on the true size of the market and the number of notifiable products. This fee should therefore be adjusted accordingly. IBVTA believes that it would be more credible for the MHRA to be charging a fee of between £50 and £100 per notification. This approach would allow independent businesses to maintain their current product portfolio, without the financial burdens unjustifiably imposed, that would consequentially cause SMEs to limit severely range and choice, thus reducing the positive discriminatory appeal between current vaping product ranges and smoking.
4. Please provide any data or information that will assist us to refine our volume estimates for notifications in year one (16/17) and subsequent modifications.
Based on its membership, IBVTA can credibly estimate that there are likely to be between 12,000 and 14,000 notifications in the year 2016/17. This is based on the estimate of 25 per cent of e-liquid and vaping products on the UK market being produced by IBVTA board members.
Based on the proposed notification fees set out in Annex A, and the significant impact these will have on all IBVTA members and the wider independent sector, it is expected that the number or notifiable products will diminish going forward as companies are no longer able to produce the same range of products they do at present. This would impose a real existential risk to many hundreds of smaller independent vape vendors and distributors. Moreover, such a reduction in product ranges risks many former smokers being denied access to their particular flavours, nicotine strengths or certain hardware with the concomitant risk of these vapers reverting to their old smoking habits.
Conversely, if the lower proposed fees by IBVTA are accepted (or fees of a similar proportion), then many more legitimate and responsible independent SME businesses will be able to notify their current viable product portfolio, without the unintended severe commercial risk being exposed.
5. Please provide any data or information that will assist us to refine our volume estimates for notifications after Year one (2017/18 onwards).
To comply with the notification process with the proposed fees in Annex A, IBVTA members and many others will need to change their business models and/or reduce the range and future diversity of their product portfolio to adapt to their business to this financially punitive regime.
IBVTA will be supporting members through the process of TPD compliance, such compliance will have a significant impact on the future development of the independent vape sector. Whilst the TPD is still being implemented, it is difficult to know exactly what the sector will look like to 2017/18 let alone the years after that.
Within the new constraints imposed by the TPD, IBVTA manufacturer/importer members currently plan to continue to provide consumers with a diversity of products in an attempt to protect the industry’s fundamental commercial and competitive viability. Going forward therefore, current IBVTA manufacturer/importer members expect to notify an average of 135 new products per year per company, which will incur combined approximate costs across IBVTA board members alone of £119,000 for notifying new products in year 2017/18 (£220 notification fee) along with periodical fees of £204,000 for existing products.
2016/17 2017/18 2018/19
MHRA HIGH COST ESTIMATE (000S) £930 £192 £193
IBVTA costs (000s) – notification per product
(assuming no modifications) £744 £323 £323
% of MHRA high cost estimate 80% 168% 167%
If IBVTA members maintain their business models and continue to produce an average of 135 new products a year per company, with a similar number of product withdrawals over the same period, the MHRA will recover a substantial surplus income. In doing so it will significantly impact independent businesses preserving their current business model. The proposed fees should therefore be modified accordingly.
Independent British Vape Trade Association
50 Broad Way
London SW1H 0RG