Vote to ban branded cigarette packs sparks row

British politicians are expected to approve laws on Wednesday to enforce plain packaging for cigarettes, amid strong opposition by major tobacco companies and some lobbying groups and think tanks.

"Plain packaging will boost the black market and is a disaster for the free market," said the U.K's right-leaning Institute of Economic Affairs in a statement on Wednesday.

If Parliament passes the plain packaging law, all logos, trademarks and graphics would be removed from tobacco products sold in Britain, leaving standardized brand names and health warnings on what's likely to be an olive green background, according to a parliamentary note.

The new rules would only take effect in England only at first although Welsh government has said it will follow suit and Northern Ireland and Scotland are considering a similar step, Reuters reported.

"The perverse decision to introduce plain packaging is a triumph for gesture politics and a kick in the teeth for evidence-based policy-making," the IEA added

"Parliament has set a precedent for wholesale confiscation of intellectual property on the whim of zealous pressure groups. No doubt food and drink will be next."

An illustration of how a UK cigarette packet would look if the plain packaging regulations were introduced.
UK House of Commons
An illustration of how a UK cigarette packet would look if the plain packaging regulations were introduced.

The move is viewed by health campaigners as likely to discourage children and young people in particular from taking up smoking, and comes after a 2014 U.K. public health review concluded that standardized packaging would "lead to a modest but important reduction in the uptake and prevalence of smoking and would have a positive effect on public health."

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The influential Confederation of British Industry (CBI) has warned against the law, while British American Tobacco (BAT) has threatened to sue the U.K. government if the laws are approved, due to potential violation of intellectual property (IP) rights—which the U.K. has an international reputation for strongly upholding as a rule.

"Legal action is always a last resort for us, and we didn't want to find ourselves in this situation," a BAT spokesperson told CNBC via email.

"However, we don't think it should come as a surprise that we feel the need to defend our property that is being illegally taken from us. Surely any other business would do the same."

Corporate identity 'undermined?'

The head of the influential CBI said that introducing the plain packaging policy could harm the U.K.'s "global reputation for IP."

"Customers identify with brands, so companies are understandably uneasy at the prospect of a key part of their identity being undermined. There is therefore a sound business case for voting against the proposals in Parliament," CBI Director-General John Cridland said in an article published on the organization's website.

Australia was the first country to introduce plain packaging laws, which are being challenged at the World Trade Organisation by the governments of Ukraine, Cuba, Honduras, the Dominican Republic and Indonesia with regards to potential violations of international trade agreements.

Nonetheless, France is mulling similar laws, while Ireland finalized a plain packaging bill earlier on Wednesday.

One analyst told CNBC that despite complaints from the likes of British American Tobacco (BAT), there was little prospect of a big decline in sales for major tobacco companies.

"Regulatory headwinds have been massive for a while now…It's not ideal for the industry, but demand is not going to go anywhere because of it," Brewin Dolphin equity analyst Rob Scott Moncrieff told CNBC on Wednesday.

"It's generally not going to be that big an issue, they've dealt with it before," he added.

Moncrieff said the U.K.'s move would likely steer consumers away from more expensive tobacco products, but that legislation was unlikely to have a big impact on the share prices of big tobacco companies.

"If we going to see any negative reaction, we would have already seen it. I think that these guys have shrugged it off," he said, adding that there was little share price response in January when the U.K. government originally pledged to push the bill through ahead of May's general election.

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FTSE 100-listed tobacco companies have performed well this year, with BAT shares gaining more than 3 percent and shares of Imperial Tobacco gaining closer to 9 percent.

Plain packaging would have less impact on tobacco companies than the U.K.'s indoor smoking ban, introduced in 2007, Moncrieff added.

"They shrugged that off, and at the time it was the big story, of how no one is going to want to go outside and smoke, and how it would hurt demand. But it didn't play out that way," he said.

"Consumers will adapt."

—With contribution from CNBC's Katy Barnato