Chancellor Rachel Reeves has unveiled a fresh financial blow for smokers in the UK, confirming an increase in tobacco duty as part of her inaugural Budget statement.
The Budget's Impact on Your Wallet
The key change announced is that duty on cigarettes will rise in line with inflation, which is expected to be set at the September Retail Price Index (RPI) figure of 4.5%. This decision continues the government's long-standing policy of using tobacco as a significant revenue stream. In the financial year 2025–26, the Treasury estimates that tobacco duties will raise approximately £8.1 billion, contributing to 0.7% of all tax receipts.
The current tax structure on tobacco is complex. For a standard packet of 20 cigarettes, the price includes the pre-tax cost, plus a 16.5% ad valorem duty, plus a specific duty of £6.69. Crucially, the 20% VAT is then applied on top of both the pre-tax price and the duty amount, significantly inflating the final cost to the consumer.
A History of Tobacco Taxation
The modern framework for tobacco duty was established by the Finance Act 1976, which first imposed excise duties on various products. Initially, the duty was a simple percentage of the retail price for cigarettes. Over the following decades, governments adopted a policy of increasing the duty “in real terms”, with commitments to annual rises of at least 3%, and later 5% on average.
This so-called “escalator” was paused in 2001 but saw a significant shift in May 2017 when the UK moved to a “mixed” duty system for cigarettes. This system combines a specific, fixed pound-per-thousand-sticks charge with the ad-valorem percentage component, and also introduced a minimum excise floor to prevent ultra-cheap cigarettes from evading a certain tax threshold.
The definition of taxable tobacco has also evolved. Since 2019, heated-tobacco products (HTPs) have been brought into the tax net and are treated similarly to hand-rolling tobacco for duty purposes.
What You'll Pay Now
The new rates mean the cost of all tobacco products is set to climb. Here is a breakdown of the current duty rates that form the basis for the increase:
- Cigarettes: 16.5% of the retail price plus £6.69 on a packet of 20.
- Hand-rolling tobacco: £14.30 for a 30g packet.
- Cigars: £4.17 for a 10g cigar.
- Other smoking and chewing tobacco: £5.50 for a 30g packet.
- Tobacco for heating: £2.06 for a 6g pack.
With the inflation-linked rise confirmed, smokers across the UK will soon feel the pinch at the till, as the government continues to balance public health objectives with substantial fiscal income.
