This is the first time a government tax has been earmarked for a specific cause - a measure known as tax hypothecation. A 5 per cent real-term rise in the price of all tobacco products from April will raise an extra pounds 300m for the NHS in 2000-2001, the Chancellor said.
Medical organisations welcomed the "ash cash" but said it was a fraction of the pounds 6bn in taxes raised from cigarette sales and only one-quarter of the pounds 1.2bn estimated cost to the NHS of treating smokers.
The NHS Confederation said the historic move to introduce a hypothecated tobacco tax had taken the health lobby by surprise. The Treasury has resisted the idea because of fears it would encourage lobbyists for different causes.
Stephen Thornton, the chief executive of the NHS Confederation, said: "I think the Government has been very clever. This will, I am sure, be a popular move, even with smokers. If they are going to be taxed, it may as well go to a good cause."
The "ash cash" is the first addition to the three-year pounds 21bn deal for the NHS announced by Gordon Brown in July last year. Mr Thornton said the amount was small - it would not go even halfway towards meeting a 2 per cent increase in the NHS employers' pension contributions next year - but the principle was important.
"It is the first time the Government has added to the pounds 21bn, and I hope it is genuinely additional. This may be the beginning of a realisation by the Government that if they are going to modernise the NHS it is going to need substantial extra resources."
The British Medical Association said the cigarette tax would not solve the NHS's pressing financial problems. Dr Ian Bogle, the chairman, said: "Whilst it is reasonable for the Government to push some of its tax revenues from cigarettes into health care, the priority must be to persuade young people not to smoke and to help smokers to stop."
The Royal College of Nursing said the tax should not be regarded as a "quick fix" solution for the NHS. Christine Hancock, general secretary, said: "Although this money is desperately needed... some of it must be targeted at public health initiatives, in particular to help people to stop smoking."
Smokers will start paying for their health care. Five per cent on tobacco products will raise pounds 300m for the NHSReuse content