Tobacco Duty: what is it, how does the 2021 Budget affect tobacco prices, have they gone up – and by how much?

In last year's Budget, Rishi Sunak raised the tobacco duty by an extra 2% above the inflation rate at the time

Cigarette prices rose twice last year, but were unaffected by the most recent budget announcement (Picture: Getty Images)

UK chancellor Rishi Sunak outlined the budget on 3 March, and many retailers and tobacco smokers were expecting another hike in prices, following two rises on tobacco products last year.

The budget has included a rise on the tax paid for products containing tobacco - there were two rises on tobacco products last year - but this was not addressed.

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So, will there be a rise in the cost of tobacco and cigarettes, and why do retailers pay a Tobacco Duty? Here is what you need to know.

What is Tobacco Duty?

Tobacco Duty is the name of the tax paid by retailers when they import tobacco products or when tobacco is manufactured into a smokable condition.

Products which are affected by the tax include:

- Cigarettes and Cigars

- Hand-rolling tobacco, pipe tobacco and any other smoking tobacco

- Chewing tobacco

- Cigarette rag and expanded tobacco if you can smoke it without further processing

- Herbal smoking products that do not contain tobacco or tobacco substitute

- Tobacco for heating

You do not have to pay the tax if you manufacture or import tobacco for research purposes.

Has the price of tobacco products risen?

Rishi Sunak has confirmed that the price of tobacco will not rise following his announcement of the budget.

There was no mention of a rise in his statement or in the government’s budget document, but the Treasury has now confirmed there will be no rise for the time being.

Simon Clark, director of smokers' lobby group Forest, told The Sun: "Common sense suggests this is no time for yet another increase in the cost of tobacco.

"A further rise, following two tax hikes last year, would be another kick in the teeth for consumers who buy their tobacco from legitimate retailers."

This comes after Sunak announced two inflations of the tobacco tax last year.

Following confirmation from the Treasury, Chief Executive of Action on Smoking & Health (ASH) Deborah Arnott said: “ASH is disappointed that the Chancellor hasn't increased taxes on cigarettes by per cent above inflation as we recommended.

“The Government says it is willing to take bold action to make smoking obsolete, which we welcome, but that has to include further tax rises.

“Making tobacco less affordable is crucial to discouraging children from starting to smoke and delivering the Smokefree generation the Government has said it wants to see by 2030.”

How much did the price of cigarettes rise last year?

Sunak raised the price of cigarettes last year in his Spring Budget, before raising them again in the November 2020 Spending Review.

In March last year, he announced tobacco duty would climb by two per cent above inflation rate.

This hiked the average pack of the most expensive cigarettes in the major supermarkets from £12.46 to £12.73.

Meanwhile, the average price of the cheapest 20-pack of cigarettes in ASDA, Tesco, Sainsbury’s and Morrisons rose from £8.82 to £9.10.

In November, he announced a further inflation of prices as well as a two per cent increase every year until 2024. The initial increase added another 22p to a 20-pack.

What about taxes on alcohol and fuel sales?

The chancellor also stated that the price of alcohol would remain frozen for a second year and a planned hike in fuel prices had also been scrapped.

Announcing his decision not to drive up tax on alcohol and fuel, Sunak said: “All alcohol duties are frozen for the second year in a row - only the third time in two decades.

“And right now, to keep the cost of living low, I'm not prepared to increase the cost of a tank of fuel. So the planned increase in fuel duty is also cancelled.”