New Chapter for Tax Policy: UK Introduces Vape Tax

The British government plans to impose a tax on e-cigarettes for the first time starting in 2026 to deter non-smokers from trying them. This measure was introduced by Finance Minister Rachel Reeves as part of the latest budget announcement, which also includes tax increases on tobacco, as well as wine and spirits. A week earlier, the government announced a ban on disposable vapes in England and Wales starting in June. The new regulation builds on a consultation by the previous conservative government, which aimed to restrict the sale of cigarettes to individuals born after January 1, 2009. A tax of £2.20 per 10 ml of liquid is planned from October 2026, while the tax on 100 cigarettes will increase by the same amount to encourage switching from tobacco to vapes. In addition, the so-called tobacco tax escalator clause will be renewed during the current parliamentary term and increased by 2 percent above the retail price index of inflation. The duty on roll-your-own tobacco will increase by 10 percent this year. While the vape tax is only expected to bring in £15 million by 2028/29, the combined tobacco tax is expected to rise to £180 million by then. Asli Ertonguc of British American Tobacco praised the introduction of a fixed tax rate on vapes as a simplifying measure but emphasized that it should be implemented earlier to combat the already thriving illegal market. Imperial Brands also supports the taxation of e-cigarettes but calls for additional investments in law enforcement. Nicky Small from JTI, however, warned of unexpectedly negative consequences of the tobacco tax adjustment, which could fuel the consumption of cheaper, illegal products. Furthermore, changes are being introduced to the existing alcohol tax framework. Starting in February, the tax on wine and spirits will be increased in line with inflation, while the duties on draft beer will be reduced by 1.7 percent. The UK Spirits Alliance criticized the increase as a setback for the industry, while the importance of British pubs was acknowledged. Despite the reduction in duties on draft beer, the industry expressed dissatisfaction due to additional financial burdens arising from increased employer insurance contributions and wage costs.