Big tobacco groups are warning Treasury and Customs officials to brace themselves for a tsunami of smuggled cigarettes hitting Britain's pubs and streets this year as criminal gangs seek to cash in on the UK's exceptionally high tax rates on tobacco products.
Tobacco companies have told ministers that the "tax clouds are gathering" as George Osborne prepares to push through a second year of above-inflation excise duty rises next month, on top of the already increased rate of VAT.
The industry, dominated by Imperial Tobacco and Gallaher, claims the rate of smuggling and the volume of contraband sold on Britain's streets rockets when excise duty goes up. The tax on a packet of 20 cigarettes rose 34p last year and the budget is scheduled to bring the increase for 2011 to 39p a pack. This compares with the previous nine years of inflation-only duty rises, adding between six and 12 pence a year to the cost of a pack.
The average price of a pack of 20 cigarettes reached
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