£4.5bn in lost tax revenue from illegal cigarettes in the UK has reached a record high, with over half of all smoked cigarettes now coming from the black market, according to a report by KPMG and Philip Morris. The analysis reveals that 1.5bn more illicit cigarettes were consumed in 2025 compared to 2024, pushing the total to 10bn units. Of these, 13% were legally purchased abroad, and 32% were counterfeit. The findings position the UK as Europe’s second-largest market for illegal tobacco, trailing only France.
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The report highlights two key factors driving the surge: the proliferation of “front” shops—retail outlets operated by organized crime gangs—and a rise in domestic illegal manufacturing. Philip Morris, which commissioned the study, warned that the illegal market is growing despite overall cigarette consumption falling. The company estimates that the lost tax could fund “vital public services” but instead fuels criminal networks.
Smuggled and counterfeit cigarettes typically originate from Turkey, Poland, and Belarus, as well as free trade zones in the Middle East. However, the UK is now seeing more local production, with police raids uncovering factories capable of producing hundreds of millions of illicit cigarettes annually. Philip Morris managing director Peter Nixon called the situation a “major wake-up call” for the government, citing “poorly resourced enforcement” that allows criminal gangs to operate with little consequence.
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The tobacco firm emphasized that illegal traders are not only exploiting the market but also threatening legitimate businesses. “Criminal gangs have waged a war of intimidation against shopkeepers,” said Catherine Goger, head of illicit trade prevention at Philip Morris. The company has expanded undercover operations to gather intelligence but urged the government to introduce a “robust licensing scheme” to curb the spread of illicit products.
Labour’s newly enacted Tobacco and Vapes Bill, aimed at reducing smoking and youth vaping, has faced criticism for failing to address the criminal networks behind the black market. Shadow policing minister Matt Vickers warned the legislation could inadvertently benefit organized crime by not targeting the root causes of the illegal trade. Analysts also noted that global cigarette sales are projected to decline by 2.5% in 2026, adding pressure on traditional tobacco markets.
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The report shows the scale of the problem: counterfeit cigarettes now dominate the illicit trade, with organized crime groups profiting from both smuggling and local production. Philip Morris stressed that without urgent action, the illegal market will continue to expand, draining public funds and undermining legitimate businesses. The call for stronger enforcement and licensing measures remains central to the debate over how to tackle the growing shadow economy in tobacco.