The price of a pack of cigarettes jumped 37p from 6pm on Wednesday to an average of £7.46 as George Osborne signalled a determination to both increase the exchequer's tax take from tobacco and encourage smokers to quit.
"Smoking remains the biggest cause of preventable illness and premature death in the UK," he said, announcing a duty increase of five percentage points above inflation for all tobacco products. "There is clear evidence that increasing the cost of tobacco encourages smokers to quit and discourages young people from taking it up."
The "sin tax" is expected to be followed up in coming days by a new initiative to introduce a minimum price for alcohol, a measure already planned in Scotland. Osborne said the imminent alcohol strategy paper would "address the growing problem of alcohol abuse, and the many billions of pounds it costs our NHS and criminal justice system".
Duty on alcohol was raised by two percentage points above inflation, in line with previously set out "escalator" plans.
The 37p duty hike on cigarettes doubles the combined tax hit from the two previous budgets, underlining Osborne's determination to target tobacco. For the previous nine years inflation-only duty rises had added between six and 12 pence to the cost of a pack.
The move delighted health campaigners. Deborah Arnott, chief executive of Action on Smoking and Health (Ash), said: "This is excellent news. Raising the price of tobacco through taxation is the most effective way of encouraging smokers who want to quit to make that first step.
"We are delighted that the chancellor has listened to the voices of the health community and taken decisive action to tackle the greatest single cause of ill health and premature death. This tax rise will also put cigarettes out of the price range of many young people making it
less likely that they will take up this lethal habit."
Before Wednesday's the duty rise, VAT and duty made up about 77% of a pack price, raising about £11bn for the Treasury – more than enough to pay for the entire cost of running the army, or about a third of the cost of general and acute hospitals. The further five-point rise in duty is expected to add £70m to Treasury coffers this year, according to the budget small print.
Ash estimates that every 10-point duty rise typically has an impact of reducing tobacco consumption by about 4%.
Tobacco firms, meanwhile, warned that Britain could now expect to be flooded with smuggled and counterfeit cigarettes and rolling tobacco. UK cigarette prices are already more than double those in Spain and quadruple Poland's levels. The price gap is even greater in rolling tobacco.
Britain's market leader, Imperial Tobacco, said: "The chancellor's making a big mistake – his heavy-handed tobacco taxation policy will simply tempt more smokers to buy illicit tobacco products. The UK is already a key target market for criminal gangs of tobacco smugglers and counterfeiters. Today, the government has given further encouragement to these criminals at the expense of shopkeepers, many of whom are struggling to make ends meet."
Simon Clark, director of the pro-smoking group Forest, said: "This is a smugglers' charter. More and more consumers will turn to the black market or buy their tobacco abroad."
In recent years Revenue & Customs has made strides in curbing smuggling. HMRC figures estimate 16% of cigarettes were smuggled or counterfeit in 2009-10, down from 20% in 2005-06. This is still a loss to the Treasury of up to £2.2bn.
The illicit trade in rolling tobacco costs up to £880m in lost revenue and accounts for about half of the UK market.