Britain’s war on tobacco is increasingly being waged in the wrong theatre. As the Government ramps up taxes, advertising bans and generational smoking restrictions, it is losing sight of the basic economic truth that when legal supply is throttled and demand endures, the black market fills the gap. And now, the cost of that blind spot is becoming unmissable.
New data from KPMG shows that one in four cigarettes consumed in the UK now comes from the illegal market – a shadow network of smugglers, counterfeiters and ruthless criminal gangs. On British streets, a pack of illicit cigarettes can be bought for as little as £5 – less than a third of the £15+ price tag for a pack of Marlboro Golds in supermarkets. It’s no surprise then that legal sales have collapsed. According to HMRC’s own figures, duty-paid cigarette sales have fallen by a staggering 45% in just three years – from 23.6 billion in 2021 to 13.2 billion in 2024.
But this isn’t a public health success story. While politicians celebrate falling tax-paid consumption, new peer-reviewed research by University College London reveals that smoking rates in some English regions have actually risen for the first time in almost two decades. What we’re witnessing isn’t a mass shift towards health – it’s a shift underground, not a drag off the legal market.
And the cost? A staggering £4.5bn. This is not according to the Government, who argue that an implausible £1.3bn is lost to criminals in lost tobacco taxes this year. That’s the projected ‘tobacco tax gap’ for 2024–25, according to preliminary Treasury estimates. For context, that’s more than the government spends annually on GP services, or enough to fund a £750 pay rise for every NHS employee. It’s also more than double the entire tax gap from beer and spirits combined. And to add insult to injury, the Treasury admits that these estimates are ‘high’ in uncertainty.
What’s fuelling this explosion in illicit trade?
First, price. The UK now has among the highest cigarette prices in the world, thanks to an escalator tax system that has relentlessly hiked duties year after year. While well-meaning in theory, these steep levies have made the country a honeypot for smugglers. A van-load of cigarettes bought legally in Eastern Europe can be sold for three times the price on British high streets. That margin is irresistible.
Second, enforcement capacity is badly lagging. In response to growing public concern, HMRC and Border Force last year launched a new five-year crackdown strategy: ‘Stubbing Out the Problem’. It promised £100 million in funding and the creation of regional enforcement hubs. But so far, results have been underwhelming. Despite the rhetoric, seizure volumes have barely dented the market, and anecdotal reports from trading standards officers point to chronic under-resourcing, poor intelligence-sharing, and weak penalties. Indeed – there are stories of illicit Philippine importers adding in an ‘eleventh shipping container’ for redundancy, to indicate that only 1 in 10 containers are seized by Trading Standards.
Third, and perhaps most damningly, government messaging has helped drive smokers into the arms of criminals. The introduction of the generational smoking ban, banning anyone born after 2009 from ever buying cigarettes, has created an air of prohibition. Combined with plain packaging laws, which are shown to draw more people to smoking, and the clampdown on disposable vapes, the state has waged an all-fronts war on legal nicotine consumption, creating a vacuum the black market has enthusiastically filled.
The result is a lose-lose: smokers still smoke, but taxpayers foot the bill and criminals profit.
The solution isn’t easy, but it is clear. Enforcement must be serious, with proper funding and cross-border cooperation. Punitive fines for retailers and smugglers must be matched by smarter border checks and digital tracking of tobacco products. But perhaps most crucially, government policy must start to treat smokers like adults rather than criminals. If legal nicotine alternatives, like vaping and heated tobacco, are accessible, affordable and well-regulated, then the incentive to go illicit collapses.
Until then, the Treasury will keep haemorrhaging revenue, public health will stagnate and Britain’s anti-smoking agenda will remain, quite literally, up in smoke.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
