Chancellor avoids temptation of huge 'sin tax' rises

There was a pleasant surprise for smokers with a rise in duty on cigarettes pegged to the level of inflation, confounding fears that the so-called "sin taxes" would be used to boost tax receipts even further.

There was a pleasant surprise for smokers with a rise in duty on cigarettes pegged to the level of inflation, confounding fears that the so-called "sin taxes" would be used to boost tax receipts even further. Drinkers were less pleased, with duties on wine and beer rising for the first time in two years, although spirits escaped a duty increase for the sixth year in a row.

The price of a packet of 20 cigarettes will rise by 8p, to an average of £4.59. Beer drinkers will pay an extra penny a pint from Monday, while a bottle of wine will cost 4p more. Both rises were in line with inflation. Duties on cider and sparkling wine were frozen, after a cut in cider duty last year.

While the Government's policy U-turn of the past two years to freeze cigarette duty in real terms has helped to stem the flood of illegal imports, the tobacco companies said any rise in duty would open the door for smugglers. Gareth Davis, the chief executive of Imperial Tobacco, said: "We remain concerned that UK tobacco taxes are among the highest in the world." A spokesman for British American Tobacco said the increase "added to the industry's woes" given that cigarettes cost more in the UK than on the Continent.

The Tobacco Manufacturers' Association went further, warning the rise was likely to cost the Treasury "yet another" £3bn this year on top of the £12bn lost to the black market since Labour took office. Tim Lord, the TMA's chief executive, said: "An increase is still an increase, which means the gap between UK cigarette prices and the rest of Europe gets even bigger." The average price of a packet of cigarettes in Spain, Greece, France and Belgium is just over £2 – more than £2.50 cheaper than in Britain.

The Tobacco Alliance, which represents independent retailers, said the increase in the cost of cigarettes would leave shopkeepers "facing an uncertain and bleak future". It said: "Retailers' livelihoods are being put at risk, as is the much-valued 'open-all-hours' service we provide.... Unless something is done to address the wide price differentials, the black market will continue to grow."

The anti-smoking organisation Ash called yesterday a "lost opportunity" for the Chancellor. "An inflation-only increase will not be sufficient to give people the real incentive they need to quit smoking," a spokeswoman said. The duty change took effect from 6pm last night.

Since 2001, when the Government reverted to an inflation-only increase in cigarette duty, the consumption of duty-paid cigarettes in Britain has stabilised at about 56 million a year, according to the TMA. It had fallen from 77.4 million in 1997, when Labour introduced a 5 per cent rise in real terms.

The beer industry attacked the rise in the cost of a pint, with Gordon Brown scoring "a classic own goal", in the words of the British Beer and Pub Association. Rob Hayward, the body's chief executive, said British drinkers already paid nearly seven times more in tax on their beer than the French. He added: "Far from replenishing Treasury coffers, this tax rise will push more people onto booze cruises and boost illegal smuggling."

Camra, which fights to increase the popularity of real ale, said the increase in beer duty would keep drinkers away from their local pubs and encourage them to stay at home drinking cheap duty-free beers from the Continent. "Someone with a garage full of cheap low-tax French fizz is unlikely to use their local," said Mike Benner, its campaign head.

The Wine and Spirit Association said it was "outraged" at the 4p increase on a bottle of wine, because it would hurt a drinks industry that had already "suffered so much from cross-border shopping, smuggling and fraud".

But the move to freeze spirit duty – for the longest consecutive stretch in 50 years – was more popular. Diageo, the world's biggest drinks groups with brands such as Johnnie Walker whisky and Smirnoff vodka, was "very pleased". It said that since duty on spirits was frozen in 1998, revenue from spirits had risen 36 per cent to the £2.2bn collected last year. The Scotch Whisky Association said distillers would "be raising a collective toast to the Chancellor for a move that will boost a major Scottish and UK industry".