Tobacco tax in crisis: time for a national reckoning on revenue, health and crime

17 June 2025, 07:49

For 400 years, governments have regarded the taxation of smoking as both a reliable income source and an effective way of warning about its negative health effects.

But we have now reached a tipping point where not only has tobacco excise become a volatile, poor-quality revenue stream, it is also no longer an effective deterrent.

And this week the HM Revenue & Customs will publish new data which will bring into sharp focus the growing crisis facing Britain’s excise regime.

It was King James I, an early critic of smoking, who in 1604 introduced the first tobacco tariffs, set then at a rate of 6 shillings and 8 pence per pound of tobacco.

Since then, successive governments have refined these early initiatives into a well-established system of taxation.

Over the past two decades, tobacco taxation has raised £189 billion for the Treasury, consistently contributing around £8-10bn to total annual government revenues.

During the same period, the incidence of smoking has fallen from 23.9% of the adult population to 11.9%.

We at Imperial Brands, the UK’s largest provider of tobacco headquartered in this country, fully recognise the health impacts of the products we sell.

And we therefore have a serious role to play in this highly regulated market environment. We enable government objectives, in particular by collecting excise revenue. We serve those adults who choose to smoke. And we offer a responsible range of smoke-free alternative nicotine products.

However, over the past few years we have observed with growing concern as excise revenues have fallen, while at the same time the long-term reduction in smoking incidence has stalled.

Indeed, in a recent study, University College London found since 2020, in some UK regions smoking rates are increasing again.

This Thursday [19 June], the Treasury will publish the latest figures quantifying the gap between the expected sum raised by tobacco excise and the actual amount received.

We expect the government will state that this gap has grown from 14.5% or £1.7 billion in 2022-235 to around 20% or £2.5 billion in 2023-2024.

Our own data suggests that the official methodology significantly underestimates the gravity of the situation. We believe the actual gap now exceeds £4.5 billion.

The reason is simple. Successive above-inflation excise rises have made British duty-paid tobacco among the least affordable in the developed world.

Indeed, gram for gram, rolling tobacco is now more expensive than silver.

This lack of affordability has stimulated a growing illicit trade in tobacco backed by serious and organised crime gangs.

According to surveys of discarded empty packs, around four out of every 10 cigarettes smoked in the UK has avoided paying British government excise.

With a pack of 20 on the black market costing just £5, the actual cost of smoking for many is in fact becoming more rather than less affordable – disincentivising smokers from quitting.

For the sake of our public finances, public health - and public order – it is time now for a national debate on how we tax tobacco and control the criminals who peddle illegal products.

Doing nothing is no longer an option.

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Stephen Rooney is UK Senior Government Affairs Manager at Imperial Brands

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