The tobacco industry is concerned that chancellor Philip Hammond could introduce a so-called tax floor on cigarettes in the autumn statement this month.
It’s thought the chancellor could bring in plans first floated by his predecessor George Osborne that could see the cost of even the cheapest pack of cigarettes rise to £8.68 — a jump of almost 50 per cent.
In his March budget Osborne announced an “effective floor” on the price of cigarettes and inflation-busting increases in tobacco duty. The policy, if enacted by Hammond in his 23 November statement, would set a minimum amount of tax payable on a pack and could force manufacturers to raise prices to protect their margins.
The move would be another blow to the embattled tobacco industry – which has endured tax increases of more than 40 per cent over recent years – in May lost a high court challenge against new plain packaging rules. Under the regime all cigarette packets are required to have a similar design.
Tobacco companies argue that a minimum tax that pushes up prices will encourage people to buy cigarettes on the black market. Last year the black market tobacco trade cost the taxman £2.1bn in lost revenue, an increase of £500m on 2011/12 figures.
Tobacco duties were one of 20 different major taxes the Institute of Economic affairs said should be scrapped by the government earlier this month. The radical think tank proposed replacing the traditional taxes with a supposedly “simpler” system including include new taxes on land-value and an effective VAT charge on elements of housing costs.