More than a quarter of all tobacco smoked in the UK is either fake or smuggled - costing the country billions of pounds in lost tax revenue.

The latest figures from Japan Tobacco International show that although HMRC has enjoyed some success in tackling illicit tobacco, counterfeit and smuggled tobacco is still a major problem, with up to 27% of all tobacco smoked being non-UK duty paid.

The 5.1% duty hike expected in next month’s Budget would only prove a further catalyst for the illicit trade, it warned. “Criminal gangs would welcome another boost to their ill-gotten profits and with many cigarette packs sold in the UK now over £7, a fourth tax increase in two years will help them market their fakes to even more customers,” said JTI UK MD Martin Southgate.

The research is the first to have looked both at cigarettes and roll your own tobacco to get a clearer picture of the full scale of the illicit trade.

JTI estimates that up to 12% of cigarettes smoked in the UK are non-UK duty paid, while the figure for RYO is 50%.

The percentage of non-UK duty paid RYO tobacco has fallen dramatically in the past 10 years from a peak of 76% in 2000, but the category has grown dramatically over the same period, neutralising much of this progress.

“There is a tobacco display ban on the horizon and a consultation planned for the spring to discuss options to introduce uniform packaging. Increasing the tax just doesn’t make any sense,” argued Southgate.

A pack of premium cigarettes typically sells for £7.09 in the UK but just £3.50 in Spain, while a 50g pouch of premium RYO tobacco, which sells here for £14.82, will cost £4.50 in Belgium. It is believed counterfeit cigarettes are selling in the UK for as little as £2.50.

The research also revealed significant regional variations in terms of the impact of the illicit trade. As much as 36% of the tobacco smoked in the North of England around Tyneside and Cumbria is non-UK duty paid, and a third is in East Anglia. Scotland and Northern Ireland had the lowest levels, with 20% and 22% respectively.

Southgate called on the government to focus on cracking down on the black market operators. “It should be helping us to eradicate this crime by seizing the profits made by these criminals and putting them in jail for a length of time that befits this serious crime,” he said.