Rachel Reeves’s tobacco tax strategy has left a £1.3billion gap in Treasury finances, according to fresh HMRC figures revealing widespread evasion through black market purchases.The Chancellor had anticipated tobacco duties would generate £9.2billion for Treasury coffers, yet actual receipts amounted to just £7.9billion.This substantial shortfall indicates British smokers are increasingly circumventing official duty payments by sourcing cigarettes from overseas suppliers or turning to illicit dealers.The revenue data exposes the unintended consequences of the Government’s high-tax approach to tobacco, with consumers finding alternative routes to avoid paying premium prices for legal productsBritain’s underground tobacco trade has expanded significantly, with HMRC data showing illicit products now represent 14.2 per cent of total consumption, rising from 13 per cent over the past two years.But research conducted by University College London and published this month found one in four cigarettes comes from the black market.IPSOS data found it could be as high as one in two.The UCL study further revealed 1.6 million people in Britain purchased illegal tobacco between November 2024 and April 2025.The financial incentive driving this shift is significant.ONS statistics reveal that a standard pack of 20 cigarettes now averages £16.60, having climbed from £12.84 in 2023.Rachel Reeves’ taxing of tobacco has backfired and left a £1.3billion hole in the treasury, new HMRC figures have revealed | GETTY By contrast, black market alternatives can be obtained for as little as £3.50 per packet.Stephen Rooney, Senior Government Affairs Manager at Imperial Brands UK, condemned the findings, stating: “These figures lay bare the scale of Britain’s illegal tobacco market, which now accounts for 14.2 per cent of all tobacco consumed and is depriving the Treasury of £1.3billion in lost duty every year.”He added: “UCL research shows smoking rates are climbing in parts of the country as ever-increasing duties are driving law-abiding customers to dangerous illicit alternatives. “This profits organised criminals who don’t contribute a penny in tax.”The price for a pack of 20 cigarettes has risen £4 in the last three years | GETTY Mr Rooney urged ministers to prioritise evidence over ideology, arguing that enforcement measures alone cannot resolve the crisis created by sustained above-inflation duty rises.The UCL study suggested that escalating costs may be fuelling the surge in illegal purchases. Researchers noted that financial pressures from the ongoing cost-of-living crisis appear to be a significant factor.Their report highlighted that illicit buying was particularly prevalent among those from less affluent backgrounds. Many of whom faced considerable economic strain before the cost-of-living crisis increased household spending.Despite these warning signs, tobacco duties are scheduled to increase again in October, with prices set to rise by two per cent above inflation alongside an additional £2.20 levy per 100 cigarettes or 50g pouch of rolling tobacco.HMRC’s annual tax gap report revealed that non-duty paid products have reached their highest proportion since 2021.A Government spokesman said: “The main driver of declining tobacco duty revenue is less people smoking – taxing tobacco has helped nearly half of UK smokers stub out smoking since 2011, saving thousands of lives.”