LONDON (Reuters) -British finance minister Jeremy Hunt said he plans an extra tax on vaping products from October 2026 to make the habit more expensive and deter non-smokers from taking it up.
Hunt said the government would introduce a one-off increase in tobacco duty at the same time to maintain the financial incentive to choose vaping over smoking.
The duty, which would be introduced from October 2026, was intended to "discourage non-smokers from taking up vaping," Hunt said in his budget speech to parliament on Wednesday, adding the government would consult on its design.
Given ever-stricter tobacco regulations and falling smoking rates in some markets, for tobacco giants like British American Tobacco (NYSE:BTI) vapes potentially represent an increasingly important revenue stream.
Jefferies analyst Owen Bennett said the tax could benefit larger players such as BAT (LON:BATS) by making it harder for smaller players to compete.
"BAT, especially given its highly profitable broader cigarette business, can afford to swallow the tax and not adjust prices," he said, whereas it could make smaller firms' products unviable.
BAT's shares were flat at 1451 GMT, while rival Imperial Brand's were just over 1% higher.
BAT said it supports the introduction of a "low" excise tax on the nicotine-infused liquid in vapes to better control the market, but said a tax linked to nicotine content would be difficult to enforce.
"We encourage the government to implement a vape tax sooner than October 2026 to tackle the illicit market that is already prolific," a BAT UK spokesperson added.
A sharp rise in vape use by non-smokers and young people has forced the British government - a relative proponent of vaping as a way to reduce the harms of smoking - to consider tougher controls.
Most vapes are subject to value-added tax at the standard 20% rate, but no extra levy is applied.
Maggie Rae, president of the Epidemiology & Public Health Section of the Royal Society of Medicine, said any tax must be carefully considered to ensure it does not undermine efforts to encourage smokers to quit.