Imperial Tobacco and BAT pledge to fight new packaging rules as shares in the two firms fall after Government U-turn

By Rob Davies for the Daily Mail

Updated: 17:20 EDT, 28 November 2013

Britain's two listed cigarette companies could launch legal action against the Government if it goes ahead with plans to ban colourful packaging.

The stock market value of Imperial Tobacco – led by chief executive Alison Cooper – and British American Tobacco fell by a combined £860million, after the Government performed a U-turn, having earlier rejected calls for plain cigarette packets.

Sources close to both firms indicated they would consider a legal challenge, via the World Trade Organisation, to any government effort to roll out plain packets.

Legal challenge: Imperial Tobacco, led by Alison Cooper (left), and British American Tobacco could launch legal action against the Government if it goes ahead with plans to roll out plain cigarette packets

‘Clearly it’s an absolute last resort, not a preferred option, but we did take legal action in Australia,’ said a spokesman for Imperial Tobacco, which owns Lambert & Butler and Gauloises.

Another industry source said: ‘We’ll do anything we need to, to protect our brands.’

Analysts at Oriel Securities played down the likely impact on Imperial Tobacco, saying the commercial effect of plain packs in Australia had been ‘negligible’.

But cigarette lobbyists are still battling the plan, claiming that one year on from Australia introducing plain packaging, the move has been counterproductive.

A KPMG survey, commissioned by the tobacco industry, found that illicit cigarettes now make up 13.3 per cent of consumption in Australia, compared to 11.8 per cent when the ban came into force.

The report also found that the decline in smoking rates had eased, rather than picking up pace. But the British Heart Foundation said the main aim was to prevent young people starting smoking, quoting a poll that suggested that plain packaging was having an effect.

The BHF survey found that just 36 per cent of UK teenagers were deterred from smoking by existing packets, compared to 48 per cent in Australia, where plain packs also bear graphic health warnings.

‘The sooner tobacco products are stripped of their glamorous allure, the sooner we can see these benefits here,’ said BHF chief executive Simon Gillespie.

Imperial fell 45p to 2316p, while BAT lost 22.5p to close at 3250.5p.