Budget '97: Sharp shock for smokers

The Chancellor has stunned the tobacco industry by announcing a hike in excise duty equivalent to 19p on a packet of 20 cigarettes from 1 December. Alcohol duty will also be increased by 3 per cent in line with inflation from next January, equivalent to 19p on a bottle of spirits, 1p on a pint of beer or cider and 4p on a bottle of wine. But he has chosen to ignore calls from campaigners and politicians for a drastic rise in the duty on alcopops.

The Government has outlined plans to raise tobacco tax by a least 5 per cent above the rate of inflation annually. It will form the main thrust of its policy to crack down on smoking. The new hardline stance includes plans to ban tobacco advertising and sponsorship.

The announcement was treated with dismay by Gallaher, the UK's largest cigarette producer, which makes brands such as Benson and Hedges and Silk Cut. "The industry already pays tax of around pounds 10bn a year to the Treasury. We are always disappointed when we have to pay more and our customers are asked to dig deeper still," said a Gallaher spokesman yesterday. The new rise, coming on top of last year's 15p hike, will increase to price of a typical pack of 20 cigarettes to pounds 3.30.

But the tobacco price rises were welcomed by the British Medical Association (BMA) and anti-smoking campaigners. "The tobacco price rise will help to encourage people to give up smoking and we see no reason why it should not take place immediately," said Sandy Macara, chairman of the BMA.

The anti-smoking lobby group Ash believes the price rise will save 3,500 lives a year by reducing the annual number of cigarettes consumed in the UK by as many as 2.2 billion.

The Chancellor also announced a review into excise duty on alcohol in light of the growing problem of smuggling from the Continent and the rapid increase of cross-Channel shopping. But the drinks industry was alarmed that excise duty will still rise next January, even though the results of this review are not yet known. "This will do nothing to stop the gangs that smuggle beer and wine between France and England or help the drinks companies in the South-east which are really suffering from European imports," said Dr Barry Sutton, chairman of the Wines & Spirits Association.

The Campaign for Real Ale said: "We argued for a significant cut in duty to save British pubs and safeguard jobs."

The Chancellor has ignored the clamour to slap a higher tax on alcopops. The lobby group Alcohol Concern was outraged by the decision not to single out alcopops for higher duties. "We wanted the price of a bottle to rise by 40p and hope the Government's review will lead to higher excise duties next year as alcopops raise real social concerns," said a spokesman.