Chancellor Rachel Reeves has revealed the latest adjustments to the pricing of cigarettes, cigars, tobacco, and other smoking items in today’s Budget, determining the expenses for smokers and tobacco consumers in the upcoming year. Tobacco plays a significant role in the UK economy, with the government estimating that tobacco duties will generate approximately £8.1 billion in 2025–26, representing 0.7% of total tax receipts.
The Chancellor has confirmed that 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. Duties on all tobacco products will see an increase of RPI inflation plus two percentage points. These adjustments will come into effect from 6 pm on November 26, 2025.
A one-time increase of £2.20 per 100 cigarettes or 50g of other tobacco products, along with the annual uprating of tobacco duty by RPI plus 2 percentage points next year, will be implemented starting from October 1, 2026, and 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, effective from October 1, 2026. Additionally, a plan to increase tobacco duties by Retail Prices Index (RPI) plus 2% was outlined.
The inception of the first statutory tobacco duty regime in modern times traces back to the Finance Act 1976, which imposed excise duties on cigarettes, cigars, hand-rolling tobacco, and other tobacco products. Initially, the duty was either a percentage of the retail price for cigarettes (20%) or fixed pound-per-pound rates for other tobacco.
From the late 1980s to the early 1990s, successive governments adopted a policy of raising tobacco duty “in real terms,” initially committing to a minimum of a 3% annual increase (1993–1997), then an average of at least 5% (from mid-1997).
Following a pause in the “escalator” in 2001, the government halted duty increases in real terms. Subsequently, in December 2008, after a temporary reduction in VAT from 17.5% to 15%, the specific duty on tobacco was raised to offset the change. Even after the restoration of VAT, the higher duty remained in place.
In the 2010s, an escalator was reintroduced, typically raising duties slightly above inflation, with occasional freezes or smaller increments depending on the government and fiscal circumstances. In May 2017, the UK transitioned to a “mixed” duty system for cigarettes, incorporating a specific duty (pounds per 1,000 sticks) alongside an ad-valorem component (percentage of retail price), while maintaining a minimum excise floor to prevent extremely low-priced cigarettes from falling below a certain tax threshold.
Furthermore, the definition of “tobacco” broadened from 2019, encompassing heated-tobacco products (HTPs) taxed under the category “tobacco for heating,” 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. Different rates apply to each product type. VAT is levied after tobacco duty, meaning the price of a 20-cigarette pack currently reflects the pre-tax price, a 16.5% ad valorem, £6.69 of duty tax, and 20% VAT on both the pre-tax price and the duty.
Following today’s announcement, all these figures will experience an increase.
