Lets Rethink Policy-Making: Illegal Drugs – A cheaper alternative.

What Happens If You Stop Pretending the Market Will Disappear

---

In Lets Rethink Policy-Making: Filthy Lucre – Whos Getting Rich?, we did something unfashionable.

We stopped arguing about morality and added up the costs.

What fell out of that was awkward but hard to ignore: in England & Wales alone, we appear to spend around £20bn a year dealing with the consequences of illegal drugs, while the market itself is worth around £9–10bn.

That leaves us with a question that doesn’t go away just because it’s uncomfortable:

If some level of use is persistent, and we already spend more managing the fallout than the market is worth — what happens if we redesign where the money flows?

This isn’t about being “soft”.
It’s about whether the system we’ve built is doing the job we think it is.

---

A quick reality check before we go any further

What follows is not a forecast.

It’s a counterfactual thought experiment — the same kind governments quietly use all the time, just usually without saying so out loud.

A few ground rules:

• Costs are estimated generously
• Revenues are estimated conservatively
• A messy 5–10 year transition period is assumed
• Regulation, enforcement, and failure are built in
• No assumption that use magically disappears

If anything, this errs on the pessimistic side.

---

Starting at the bottom: raw production

If the illegal retail drugs market in England & Wales is roughly £9–10bn a year, then the value of raw production inputs is surprisingly small.

International studies of illegal supply chains consistently show that farm-gate or raw material costs account for only a few percent of final retail value — often less than 3%.

So as a rough, conservative anchor:

• Raw production inputs: ~£300m per year

That number isn’t meant to be precise. It’s meant to stop us imagining that most of the money goes to farmers or producers.

It doesn’t.

---

What happens when you replace a criminal supply chain with a regulated one?

Here’s where the money actually starts to move.

A regulated system would introduce costs that simply don’t exist — or are violently enforced — in an illegal market:

• processing and quality control
• standardisation and testing
• licensed distribution and storage
• regulated retail or controlled access
• compliance, auditing, and inspection
• enforcement against diversion and coercion

Being deliberately cautious, you might plausibly end up with something like:

• Processing, testing, standardisation: ~£1bn
• Distribution, retail, compliance: ~£0.5–1bn
• Regulatory bodies & enforcement: ~£0.3–0.7bn

Call it £2–3bn a year in steady-state system costs.

That’s not cheap.

But it’s still a long way south of the £9-10bn a year that currently flows to criminal markets under a system we refuse regulate.

Put another way, that figure sits in the same broad range as what it might cost to return to a system not unlike the one that existed in the UK prior to the late 1960s, where supply for a limited group was managed within a regulated public framework — not because this is what’s being proposed, but simply as a way of anchoring scale.

---

“But what about the people currently earning a living in the trade?”

This is the part most proposals quietly step around — and it’s where a lot of policy fails.

If you bring a £10bn illegal market into the open, you collapse an informal labour market overnight.

Some of that market is violent, coercive, or exploitative — and nobody should pretend otherwise. But a lot of it involves people who are:

• low-level participants
• paid in product
• selling to fund their own use
• pulled in through vulnerability rather than intent

If policy ignores that, the outcome is predictable: people don’t vanish — they fall into the next shadow economy.

So a grown-up balance sheet has to include a transition line.

That means:

• treatment capacity expansion
• retraining and exit routes
• safeguarding and support for those leaving county-lines-style networks
• legitimate pathways into regulated parts of the new system where appropriate

All of that costs money.

Assume £0.5–1.5bn a year for a decade while the system adjusts.

That’s not a failure. That’s the price of replacing chaos with control.

---

“Won’t this just create a new black market?”

This is where tobacco gives us a useful — but incomplete — lesson.

In the UK, around 80% of the retail price of cigarettes is tax. That has helped drive smoking rates down over decades.

But it has also created a persistent illicit market. Smuggled packs selling at around half the legal price remain attractive, even though they’re unregulated and often don’t meet UK or EU standards.

The lesson isn’t that taxation “doesn’t work”.

It’s that price pressure without supply control creates opportunities.

That matters enormously for drugs.

If you legalise use but don’t regulate supply, you get:

• no quality control
• no tax base
• no funding for treatment
• and a black market that keeps most of the profits

Which is why half-measures tend to disappoint everyone and why we are not talking about just decriminalising use, but decriminalising the who market and regulating it tightly.

---

A design choice worth being honest about: domestic supply

One way to reduce smuggling incentives is to shorten and harden the supply chain -in non business gobble de gook – that means don’t import, produce locally.

Requiring UK-based production and processing, at least initially, would:

• increase costs compared to global illicit production
• create domestic employment
• simplify inspection and oversight
• reduce international enforcement noise

It isn’t cost-free, and it isn’t simple. But it’s a control choice, not a moral one.

One thing worth noting is that the market has already moved in this direction.

Over the past two decades, the UK cannabis market has shifted heavily from imported resin to domestically grown herbal cannabis. Enforcement data shows fewer border seizures and far more inland discoveries of cultivation sites — a clear sign that production moved closer to consumers in response to smuggling risk.

In other words, domestic supply isn’t a radical idea. It’s what the market does when international routes become expensive or risky.

The question isn’t whether production can be localised — it already is. The question is whether that production remains unregulated, exploitative, and criminal, or whether it’s brought under inspection, labour standards, and tax.

The real risk isn’t higher prices — it’s pricing so high that illegal supply remains competitive.

That’s a design problem, not a philosophical one.

---

Making the industry pay for harm — automatically

One of the strongest objections to regulation is also one of the most valid:

“Won’t companies just try to grow the market?”

Tobacco shows that risk is real.

Which is why the lesson isn’t to ignore it, but to learn from it — and design regulation that’s at least as tight as the current tobacco market, not as loose as it was in the 1930s and 40s.

Doing the latter would just recreate an escalating game of whack-a-mole, along with all the costs and harms that come with it.

Which is why a regulated drugs market would need built-in brakes, not trust.

A straightforward mechanism already exists elsewhere in UK policy – you’re right, not in the Tobacco or Alcohol industries, but more tellingly in the way we regulate branded pharmaceuticals.

In that system, industry isn’t just licensed and left alone. It’s bound into:

• mandatory levies tied to harm
• automatic clawbacks when costs rise
• funding for treatment and prevention baked in from the start

If harms rise, industry contributions rise.
If treatment demand increases, industry pays more.

That does two things at once:

• funds support properly
• removes the incentive to expand demand irresponsibly

That’s not softness.
That’s alignment.

---

So where does the balance land?

Put very crudely — and deliberately conservatively — you end up with something like this (England & Wales):

• Current system:
  • ~£20bn/year in social and economic costs
  • ~£10bn/year flowing to criminals
• Regulated system (steady state):
  • ~£3–4bn/year in regulation, supply, enforcement, and support
  • plus a temporary transition cost
  • with revenue, taxation, and workforce contributions replacing criminal rents

Not all costs disappear.
Some harms remain.
Some enforcement is still needed.

But the direction of travel changes.

We stop paying to look tough — and start paying to be effective.

---

This isn’t about approval — it’s about control

None of this requires pretending drugs are harmless.
None of it requires endorsing use.
None of it assumes perfect outcomes.

It rests on a much simpler idea:

If a behaviour persists, the question isn’t whether we approve of it — it’s whether the system we’ve built makes things better or worse.

Right now, we appear to have built one of the most profitable unregulated industries in the country — and then spent billions trying to suppress the symptoms.

That’s not morality.

That’s poor design.

---

Further reading & supporting information

As with Part 1, this post uses order-of-magnitude estimates to explore system behaviour rather than produce a definitive fiscal model.

Illegal drug supply chains

• UNODC & EMCDDA analyses – show raw production costs are a very small fraction of final retail value, with most price inflation driven by risk, distribution, and enforcement pressure.
• Academic studies of cocaine and heroin markets – estimate farm-gate value at well under 5% of final price.

UK market size and costs

• Carol Black Review of Drugs – estimates total social and economic cost of illegal drugs in England at ~£20bn per year.
• Home Office & parliamentary briefings – place retail market value in the ~£9–10bn range for England & Wales.

Tobacco as a comparator

• OBR & ASH publications – show tobacco taxation raises ~£8bn+ annually while total social costs exceed £20bn, illustrating how legal markets can both generate revenue and require harm management.
• EU studies on tobacco smuggling – demonstrate how high tax differentials without aligned supply controls create persistent illicit trade.

Regulation and clawback models

• VPAG (Voluntary Scheme for Branded Medicines Pricing) – demonstrates how the UK already uses profit caps, rebates, and automatic funding mechanisms to align industry incentives with public outcomes.

On uncertainty and transition

All figures involve uncertainty, and transition periods would likely see temporary increases in visible cost as treatment, regulation, and enforcement capacity are expanded. That should be understood as a feature of redesign, not a failure of it.

---