A new tobacco levy would send pricing into “chaos” and drive even more smokers to buy illicit goods, the government has been warned.

Responding to the government’s consultation on a new tobacco levy on manufacturers and importers, Imperial Tobacco said a levy could prompt a rise in the retail price for tobacco products.

“The impact of the levy would be exactly the same as the impact of excise increases. The only difference would result from the unpredictability created by the ill-designed construction of the levy,” it stated.

“As after all excise increases, the retail prices for tobacco products would increase. As cigarette prices in the UK are coming closer to £10 per pack, it would not only put higher tax and financial burdens on consumers but also hit an important psychological threshold accelerating the usual unintended consequences of tax increases: down-trading, increase in illicit trade and cross-border shopping.”

The levy could in fact end up costing the government “more than it raised”, Imperial’s head of UK corporate and legal affairs Duncan Cunningham added.

“If the government was to move forward with a levy it would damage business confidence through an unpredictable taxation of tobacco products whilst threatening the sustainability of current government revenues by helping to drive adult smokers into the illicit trade,” he said.

“Ultimately the whole tobacco supply chain, including retailers, would suffer through its likely impacts. Our message to the government is simple; like plain packaging, a tobacco levy would be bad for business and bad for UK Plc.”

The consultation has now closed. The government will now consider all of the responses before determining its course of action and developing a framework for implementation and policy design.