Chancellor Rachel Reeves has unveiled the latest adjustments to the pricing of cigarettes, cigars, tobacco, and other smoking products in the current Budget, determining the upcoming costs for smokers and tobacco consumers. Tobacco plays a significant role in the UK economy, with the government projecting tobacco duties to generate approximately £8.1 billion in the fiscal year 2025–26, making up 0.7% of total tax revenues.
Reeves announced that the duty on cigarettes will increase in line with inflation, expected to be the September Retail Price Index (RPI) figure of 4.5%, plus an additional two percentage points. Duty rates on all tobacco items will rise by RPI inflation plus two percentage points. These adjustments will come into effect at 6 pm on November 26, 2025.
A one-time hike of £2.20 per 100 cigarettes or 50g of other tobacco products, along with an annual uprating of tobacco duty by RPI plus two percentage points starting from October 1, 2026, will be included in the Finance Bill 2025-26.
In the Autumn Budget of 2024, the government confirmed a fixed-rate excise duty of £2.20 per 10ml on all vaping liquids, set to be implemented from October 1, 2026. Additionally, the government outlined a plan to increase tobacco duties by the Retail Price Index (RPI) plus two percent.
The inception of the first statutory tobacco duty regime in modern times can be traced back to the Finance Act of 1976, which imposed excise duties on various tobacco products. Initially, the duty was a percentage of the retail price for cigarettes or fixed pound-per-pound rates for other tobacco products.
Throughout the late 1980s and early 1990s, successive governments adopted a policy of raising tobacco duty “in real terms,” committing to annual increases of at least 3% initially and at least 5% on average from mid-1997.
Starting in 2001, the “escalator” was put on hold, with duty increases being frozen in real terms. Following a temporary cut in Value Added Tax (VAT) in December 2008, the specific duty on tobacco was raised to offset the reduction. Despite the VAT restoration, the higher duty remained in place.
During the 2010s, an escalator was reintroduced, typically raising duties slightly above inflation, with occasional freezes or smaller increments depending on the government’s fiscal stance. In May 2017, the UK transitioned to a “mixed” duty system for cigarettes, incorporating a specific duty and an ad-valorem component to prevent very low-priced cigarettes from falling below a certain tax threshold.
Moreover, the definition of “tobacco” has broadened over time, with heated-tobacco products (HTPs) being taxed under the category “tobacco for heating” since 2019, treated similarly to hand-rolling tobacco for duty purposes.
Tobacco duties are imposed on purchases of cigarettes, hand-rolled tobacco, cigars, and other tobacco varieties, each attracting different duty rates. Value Added Tax (VAT) is added after tobacco duty, meaning that the current price of a pack of 20 cigarettes includes the pre-tax cost plus 16.5% ad valorem, £6.69 of duty tax, and 20% VAT on both the pre-tax price and the duty. These figures will all see an increase following today’s announcement.