HMRC’s takings from ‘sin taxes’ have fallen by 35% over the past decade to £24.2bn or 2.8% of its total revenues in 2024/25, versus 4.3% in 2015/16, according to research from UHY Hacker Young, the national accountancy firm*.
The decline in receipts from sin taxes reflect a long-term shift in consumption, UHY Hacker Young says, with consumers reducing their spending on tobacco and alcohol partly in response to repeated tax increases and rising prices.
According to UHY Hacker Young, falling takings from sin taxes could prompt the Government to increase existing rates or even introduce new levies, as it seeks to close its budget gap.
James Simmonds, Tax Partner at UHY Hacker Young, says: “Traditional sin taxes now collect a small and shrinking slice of the pie for Government coffers, a gap that Rachel Reeves may look to fill with further rises.”
UHY Hacker Young says the gambling industry may be a key target for potential tax rises, given the taxes it paid increased 7% to £3.6bn in the last year, up from £3.4bn. Senior politicians, including former Prime Minister Gordon Brown**, have already called for higher taxes on the sector.
Simmonds says: “It has been widely rumoured that bigger taxes will come, especially those aimed at the gambling industry, which some politicians argue have been undertaxed.”
The firm warns new ‘sin taxes’ could likewise be introduced, along the same lines as the 2019 Soft Drinks Industry Levy and the Plastic Packaging Tax in 2022. These newer taxes raised only £580m last year — 1% of total receipts and down from £608m the year before — which UHY Hacker Young warns it could prompt the Government to increase them further. A new packing recycling levy has also just been introduced.
Simmonds says: “The Government may seek to include new taxes on products it deems ‘unhealthy’ or ‘polluting’, but it could also raise existing taxes on sugary drinks and plastic packaging. Given how little revenue they bring in, the Government may feel there’s still room to push them up.”
UHY Hacker Young says that the large number of new taxes and their complex structures is already making it harder to do business in the UK and that extra “sin taxes” would add to this.
“The sheer number of different taxes — many with complex, sliding structures — harms business confidence. How are companies supposed to know which products will be added to the blacklist next?” Simmonds says.
Of the £14 cost of a pack of cigarettes, £11 is tax and just £3 covers the product itself, while a litre of alcohol over 22% ABV carries £32.69 in duty. Taxes on gambling can reach up to 50% of marginal revenue, with companies having to pay Corporation Tax on the remaining profit.
Taxes from ‘sin taxes’ have fallen 35% over the past decade – percentage of overall tax revenues that are sin taxes
* In 2024/25 the so-called “sin taxes” raised £24.2bn out of total receipts of £858.9bn (2.8%), compared with £22.8bn out of £532.5bn in 2015/16 (4.3%). The decline from 4.3% to 2.8% or about a third in relative terms. Source: HMRC.
** Source: Gordon Brown urges Rachel Reeves to hike gambling taxes at Budget – BBC News
