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 financial burden on smokers and tobacco users in the upcoming year. Tobacco plays a significant role in the UK economy, with government estimates projecting tobacco duties to generate around £8.1 billion in revenue during the 2025–26 fiscal year, representing 0.7% of total tax receipts.
Reeves has declared that the duty on cigarettes will rise in line with inflation, likely based on the September RPI figure of 4.5%, plus an additional two percentage points. Duty rates across all tobacco products will see an increase of RPI inflation plus two percentage points. These modifications will come into effect from 6 pm on November 26, 2025.
A one-time elevation of £2.20 per 100 cigarettes or 50g of other tobacco products, coupled with an annual adjustment of tobacco duty by RPI plus 2 percentage points starting from October 1, 2026, will be integrated into the Finance Bill 2025-26.
During 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 enforced from October 1, 2026. Additionally, a framework for uprating tobacco duties by Retail Prices Index (RPI) plus two percent was outlined.
The initiation of the first statutory tobacco duty system in the modern era traces back to the Finance Act of 1976, which introduced excise duties on cigarettes, cigars, hand-rolling tobacco, and other tobacco products. Initially, the duty was a percentage of the retail price for cigarettes (20%) or fixed pound-per-pound rates for other tobacco products.
From the late 1980s to the early 1990s, successive governments implemented a policy of increasing tobacco duty in “real terms,” committing to at least a 3% annual rise between 1993 and 1997, followed by an average increase of at least 5% from mid-1997.
In 2001, the “escalator” strategy was halted as the government froze duty increases in real terms. However, in December 2008, after a temporary reduction in VAT from 17.5% to 15%, the specific duty on tobacco was raised to compensate. Despite the VAT restoration, the higher duty rates were maintained.
The 2010s saw the reintroduction of an escalator approach, typically elevating duties slightly above inflation rates, with occasional freezes or minor increments based on governmental and fiscal circumstances. In May 2017, the UK transitioned to a “mixed” duty system for cigarettes, incorporating a specific duty (per 1,000 sticks) along with an ad-valorem component (percentage of retail price), supported by a minimum excise floor to prevent extremely low-priced cigarettes from falling below a certain tax threshold.
Moreover, the definition of “tobacco” expanded to include heated-tobacco products (HTPs) as part of the “tobacco for heating” category since 2019, aligning their tax treatment closely with hand-rolling tobacco for duty purposes.
Tobacco duties are imposed on purchases of cigarettes, hand-rolled tobacco, cigars, and other tobacco variants, with distinct rates applicable to each product type. VAT is calculated post-tobacco duty, meaning that the current price of a 20-cigarette pack reflects the pre-tax amount plus 16.5% ad valorem, £6.69 in duty tax, and 20% VAT on both the pre-tax price and the duty.
Following today’s announcement, all these figures are expected to increase.