Chancellor Rachel Reeves has revealed the latest adjustments to the pricing of cigarettes, cigars, tobacco, and other smoking products in the current Budget. These changes will determine the costs that smokers and tobacco consumers will face in the upcoming year, playing a significant role in the UK economy. It is projected that tobacco duties will contribute approximately £8.1 billion to tax receipts in 2025–26, making up 0.7% of the total tax revenue.
Under the new measures, the duty on cigarettes will rise in line with inflation, expected to be the September RPI figure of 4.5%, plus an additional two percentage points. Similarly, duty rates on all tobacco items will escalate by RPI inflation plus two percentage points. These adjustments are scheduled to come into effect on 26 November 2025 at 6 pm.
Furthermore, a one-time increase of £2.20 per 100 cigarettes or 50g of alternative tobacco products, along with an annual uprating of tobacco duty by RPI plus two percentage points, will be implemented from 1 October 2026, as outlined in the Finance Bill 2025-26.
In a related move at the Autumn Budget 2024, the government confirmed a fixed-rate excise duty of £2.20 per 10ml on all vaping liquids, which will be enforced from 1 October 2026. Additionally, a plan to adjust tobacco duties by Retail Prices Index (RPI) plus two percent was also presented.
Historically, the imposition of statutory tobacco duties traces back to the Finance Act 1976, which introduced excise duties on cigarettes, cigars, hand-rolling tobacco, and other tobacco products. Initially, the duty was based on a percentage of the retail price for cigarettes (20%) or set pound-per-pound rates for other tobacco variants.
Throughout the late 1980s and early 1990s, successive governments adopted a strategy of raising tobacco duty “in real terms,” committing to at least a 3% annual increase from 1993 to 1997, followed by an average of at least 5% starting from mid-1997.
In 2001, the government halted this “escalator,” temporarily freezing duty increases in real terms. Later, in December 2008, after a temporary reduction in VAT, the specific duty on tobacco was raised to offset the VAT cut. Despite the VAT restoration, the increased duty persisted.
In the 2010s, an escalator was reintroduced, typically elevating duties slightly above inflation, though subject to occasional freezes or minor increments based on the prevailing government and fiscal circumstances. In May 2017, the UK transitioned to a hybrid duty system for cigarettes, incorporating a specific duty (per 1,000 sticks) coupled with an ad-valorem component (a percentage of the retail price), alongside a minimum excise floor to prevent extremely cheap cigarettes from falling below a certain tax threshold.
Furthermore, the classification of “tobacco” has broadened over time, with heated-tobacco products (HTPs) included under the category of “tobacco for heating” since 2019, managed similarly to hand-rolling tobacco for duty purposes.
Tobacco duties apply to the purchase of cigarettes, hand-rolled tobacco, cigars, and other tobacco variations, each subject to distinct duty rates. The application of VAT follows tobacco duty, meaning that the current price of a 20-cigarette pack reflects the pre-tax price, a 16.5% ad valorem, £6.69 duty tax, and a 20% VAT on both the pre-tax price and the duty.
Following today’s announcement, all these figures are set to increase, impacting consumers’ expenses on tobacco products.