£4.5bn black market cigarette tax loss should be ‘a major wake-up call’ for Labour

Over half of cigarettes smoked in the UK are black market and are contributing £4.5bn to the country’s tax losses – a record high – according to new analysis from KPMG and tobacco giant Philip Morris.

The findings show that 1.5bn more black-market, tax-free cigarettes were consumed by UK smokers last year compared to 2024, bringing the total to 10bn, with 13 per cent legally purchased abroad and 32 per cent counterfeit.

The tobacco firm said the lost tax revenue could have been spent on “vital public services” and makes the UK the second-largest market for illegal cigarettes in Europe, behind France.

Philip Morris, the UK and Irish branch of tobacco giant Philip Morris International, which commissioned the research, said two new trends have been identified as being “significant contributing factors to the boom” – the rise of retail outlets set up by organised crime gangs, known as ‘front’ shops, and an uptick in illegal cigarette manufacturing in the country.

The company said it “is calling on the government to take urgent action to tackle illicit tobacco and nicotine products, warning that the illegal market for cigarettes is growing exponentially, even as overall cigarette consumption continues to decline.”

Global cigarette industry volume is expected to drop by 2.5 per cent in the 2026 financial year, up from the prior expectation of two per cent, with analysts citing increased pressure on traditional products.

“This should be a major wake-up call for the government; poorly resourced enforcement is depriving the UK of almost £4.5bn a year. The past few years have been a boon time for organised crime gangs who are selling illicit cigarettes and vapes with impunity, ruining our high streets and communities,” Philip Morris managing director, Peter Nixon, said.

The tobacco company found that counterfeit-branded and smuggled cigarettes are typically imported from Turkey, Poland, and Belarus, as well as from free trade zones in the Middle East.   

However, factories in the UK are increasingly being set up to manufacture counterfeit cigarettes, and over the past year, a number of high-profile raids on large factories in the UK, which were producing hundreds of millions of cigarettes between them, were carried out, the tobacco company said.

Labour’s youth smoking ban fuelling black market trade

This follows shadow policing minister Matt Vickers in October last year, telling City AM Labour’s proposed Tobacco and Vapes Bill could hand a significant boost to criminal gangs and fuel the growing black market in illicit goods across the UK.

Vickers said the legislation, which became law at the end of April and is aimed at curbing smoking and youth vaping, fails to address the entrenched criminal networks behind the illegal tobacco and vape trade, leaving communities vulnerable and legitimate businesses exposed.

Philip Morris said the criminal gangs “have waged a war of intimidation against legitimate UK shopkeepers, threatening their livelihoods and, in some cases, even their personal safety.”

“In our fight against these ‘front’ shops, we have expanded our undercover teams who gather evidence and intelligence in communities across the UK. To drive illicit products off our high streets, the government needs to introduce a robust licensing scheme as soon as possible,” Catherine Goger, illicit trade prevention manager at Philip Morris, said.