Legitimate retailers will suffer at the hands of the tobacco duty rise announced in today’s Budget while black marketeers prosper, industry chiefs have warned.

Fears of a boost to the illegal trade were raised after the Chancellor, George Osborne, increased tobacco tax by 2% above inflation in today’s Budget.

Industry figures said the duty hike would fuel the illicit trade, arguing that the move risked undermining the Government’s own strategy to tackle tobacco smuggling.

Christopher Ogden, chief executive of the Tobacco Manufacturers’ Association, blasted the announcement for demonstrating a “complete lack of joined-up thinking”. He said taxation was a known driver of the illicit tobacco trade.

“The Irish government recognised that tax increases were driving the illicit trade in tobacco and decided not to raise duties in the last two budgets,” he said. “The Chancellor should have followed their example.”

James Lowman of the Association of Convenience Stores added: “The rise in tobacco duty will drive consumers away from legitimate retailers into a dangerous illegal trade that costs the taxpayer billions every year and already accounts for 20% of all tobacco consumed in the UK.”

“This persistent policy of making UK tobacco more expensive than most other countries in Europe means we need a new and credible strategy for catching and deterring those selling cigarettes on our streets.”

Smokers’ lobby group Forest warned that law-abiding consumers who buy tobacco in British shops would be unfairly penalised and said the elderly and low-earners would fare worst under the policy.

“Increasing tobacco duty could cost the government billions of pounds,” Forest director Simon Clark said. “The people who will benefit most are black marketeers and those who purchase their tobacco abroad.”

In more welcome news for the trade, the Chancellor announced a surprise cut in fuel duty by 1p per litre, effective from 6pm tonight. The planned 4p per litre rise due in April has been delayed until 2012.

The duty escalator on beer has been retained.

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Budget 2011: Osborne announces fuel duty cut (Convenience Store; 23 March 2011)