Almost half of all cigarettes consumed in the UK are now either smuggled, counterfeit or purchased outside the country, according to a new report that highlights the growing scale of the illicit tobacco trade.

New analysis by KPMG found that 45 per cent of cigarettes consumed in the UK during 2025 paid no UK tobacco duty, making Britain one of the largest illicit cigarette markets in Europe.

The report estimates that more than 10 billion illicit cigarettes were consumed across the UK last year.

Researchers found that 13 per cent of cigarettes consumed in the UK were legally purchased abroad, while 32.3 per cent were counterfeit or contraband products.

The findings represent an increase of 1.5 billion illicit cigarettes compared with 2024 and place the UK second only to France for illegal cigarette consumption by volume in Europe.

The report estimates that the illicit trade cost the UK Treasury more than £4.46 billion in lost tax revenue during 2025.

According to the analysis, organised crime groups are increasingly using so called “front shops” to distribute illegal tobacco and vaping products.

These businesses often present themselves as convenience stores, vape shops, sweet shops, barbers or mobile phone retailers while allegedly acting as outlets for illicit products.

The report also points to a growing number of illegal cigarette manufacturing operations being uncovered within the UK itself.

Previous trends had shown production moving closer to key markets in western Europe, but investigators say several large scale factories have now been discovered operating inside Britain.

Philip Morris Limited says the findings should act as a warning to policymakers and enforcement agencies.

Managing Director Peter Nixon said:

“This should be a major wake-up call for the government; poorly resourced enforcement is depriving the UK of almost £4.5 billion a year.

“The past few years have been a boon time for organised crime gangs who are selling illicit cigarettes and vapes with impunity, ruining our high streets and communities.”

The company is calling for stronger enforcement measures and the introduction of a licensing scheme for retailers selling tobacco and nicotine products.

Catherine Goger, Illicit Trade Prevention Manager at Philip Morris Limited, said:

“In our fight against these ‘front’ shops, we have expanded our undercover teams who gather evidence and intelligence in communities across the UK.

“To drive illicit products off our high streets, the government needs to introduce a robust licencing scheme as soon as possible.”

While smoking rates continue to decline, the report suggests the illegal market is moving in the opposite direction, creating growing challenges for public finances, legitimate retailers and law enforcement agencies across the UK.