Criminals illegally trading in tobacco are gaining market share and costing more than £2bn in lost tax revenue, according to latest government estimates.

HMRC’s Tobacco Tax Gap Estimates 2013-14 report provides an upper estimate, a mid-point estimate and lower estimate for the trade in illegal cigarettes, and all of them show an increase over the previous year.

The mid-point estimate for 2013-2014 is that the illegal trade accounted for 10% of the market, up from 9% for the previous year. This would mean £1.1bn was lost in tax revenue.

For hand rolling tobacco the mid-point estimate is that the illicit trade has a 39% market share, up from 36% the previous year, and the loss in tax revenue was £1.0bn.

A spokesperson for tobacco manufacturer JTI commented: “Successive governments have followed a policy of above inflation duty increases resulting in the highest tobacco prices within the EU which is a key driver of illegal tobacco and cost the UK Government up to £2.9bn last year.

“JTI calls on the Chancellor to abandon the duty escalator as this only provides further incentives for criminals to prosper. The consequence of this tax policy is the creation of an extremely serious problem in the UK, as the scale and its impacts undermine businesses, revenue receipts and health policy.”