One in five cigarettes smoked in Britain now comes from black-market or duty-free sources, losing the Government more than £3bn a year, Imperial Tobacco has said.
"There has been a sharp upsurge in illegals in the last few weeks," an Imperial spokesman said. "Last year, it was running at 16 per cent but, according to our most recent collection of discarded packets, that has risen to 20 per cent."
Imperial warned that the rapid growth in black-market cigarettes across Europe meant that first-half profits this year would be down on last year's.
Imperial said that in December and January it reckoned the legal cigarette market in the European Union had seen an unprecedented 7 per cent decline as cash-strapped smokers opted for illegal cigarettes or rolled their own.
The company's own worldwide sales in the first quarter of its financial year were down only 1 per cent by volume and ahead by 2 per cent in revenue, reflecting successful price rises.