The Chancellor has been given serious warnings over her anticipated tobacco duty increases, with a senior Australian retail figure urging her to avoid the violent criminal fallout that followed similar measures in his country.

Theo Foukkare, who heads the Australian Association of Convenience Stores, has directly cautioned Rachel Reeves about the potential for British streets to witness the same gangland conflicts that have plagued Australia since steep tobacco tax rises were introduced.

His intervention comes as the Treasury considers major duty increases on cigarettes and rolling tobacco ahead of the Budget.

Since 2012, excise hikes of more than 400 per cent have led to an explosion in organised crime and black market activity, devastating legitimate retailers and communities.

Mr Foukkare said: “Exorbitant continued excise increases are the single biggest reason that the illegal tobacco trade has enabled organised crime groups to create chaos among communities.

“More than 250 firebombings, constant ram raids, one innocent person murdered, two underworld figures murdered, robbery, intimidation and threats are now an everyday occurrence.”

His message to the Chancellor was blunt: “Unless you want crime groups to take control of the market and watch crime explode under your nose, then I urge you to not take the same approach.”

Illicit tobacco has now captured half the Australian market, matching legitimate sales volumes.

Government revenue has collapsed from AU$16.3billion to AU$9.7billion since 2020 — a fall from £7.9billion to £4.76billion.

Even Mark Butler, Australia’s Health Minister, has admitted the policy’s failure, warning that illegal tobacco consumption “is now the biggest threat to our most important public health programme”.

Speaking to an Adelaide radio station, he conceded: “There is violence and arson taking place as rival gangs try to take control of what is a very high-revenue market for them.”

Britain already faces a significant illicit tobacco problem. KPMG research shows one in four cigarettes consumed in the UK is illegal, typically selling for around one-third the cost of legitimate products.

In 2024, authorities seized more than one billion counterfeit cigarettes valued at £496million — the third consecutive annual increase in seizures.

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HM Revenue & Customs (HMRC) estimates £3.1billion in excise duties was lost to black market activity last year, with illegal tobacco accounting for £1.4billion of that total.

Despite these warnings, Treasury officials are said to be contemplating duty hikes modelled on Australia’s failed approach.

The UK is already Europe’s third-largest market for illegal cigarettes — a position experts fear could worsen dramatically if excessive tax rises go ahead.

The UK now has among the highest cigarette prices in the world, a factor experts say has turned the country into a magnet for smuggling operations.

HMRC figures show that legal cigarette sales have fallen sharply, dropping from 23.6 billion sticks in 2021 to 13.2 billion in 2024.

Analysts note that while legal sales have collapsed, smoking rates in some English regions have risen for the first time in almost two decades, indicating a shift towards illicit supply rather than reduced consumption.

Official estimates put the cost of the tobacco tax gap at £1.3billion for 2024–25, though independent research suggests the true figure could be significantly higher, potentially exceeding £4billion.

The Government’s enforcement strategy, including its ‘Stubbing Out the Problem’ programme, has so far struggled to make a dent in the illicit trade, according to industry and local authority sources.

Border and trading standards officials have warned of limited resources and weak penalties, which criminal networks are exploiting to move large volumes of counterfeit cigarettes into the country.

Policy changes, including the generational smoking ban and plain packaging, have created an increasingly restrictive legal market, which critics argue has opened the door for black market operators.