Once again, British American Tobacco (BAT) is pushing back against the government's proposals to create a so-called tax floor ahead of next week's Budget.
A minimum excise tax (MET) will set a minimum amount of tax payable on any packet of cigarettes. After former chancellor George Osborne announced plans to instate an MET in 2016, the government now says it will announce its chosen rate during next week's Budget.
A spokesperson for BAT, which has a stake in low-cost options, said an MET set too high will hit lower earning smokers hardest as it will have little effect on those buying premium brands.
Setting the MET rate too high will push more lower earning smokers into the black market and could cost UK taxpayers over £1.2bn in lost revenue between 2017 and 2020, according to research by KPMG.
The Treasury lost more than £31bn in tax revenue between 2010 and 2015 due to high taxes on alcohol and tobacco, a report by the TaxPayers' Alliance said.
The Tobacco Manufacturers' Association said the government's policy of increasing taxes on tobacco above the rate of inflation each year has already pushed British consumers into the black market, and the group called for the government to scrap the tobacco duty escalator.
Minimum pack sizes are also fuelling the illicit market. More than a quarter of smokers, 28 per cent, said they would actively seek "alternative sources" of tobacco as a result of the EU's Tobacco Products Directive, which scraps packs of 10 cigarettes, according to research from Oxford Economics.