Chancellor George Osborne has announced a 5% rise in tobacco duty above inflation, in a Budget described as “devastating” to small shops.

The increase in tobacco duty will equate to 37p on a pack of cigarettes and will take effect at 6pm today [Wednesday]. The chancellor said there was “clear evidence that increasing the cost of tobacco encourages smokers to quit and discourages young people from taking it up”.

But Association of Convenience Stores (ACS) chief executive James Lowman described the announcement as “a smugglers charter, pushing more customers away from legitimate retailers into the black economy”.

The chancellor also confirmed that Sunday trading laws will be suspended during the eight weeks of the Olympic and Paralympic Games, while failing to reduce both fuel duty and the 5.6% hike in business rates.

“This Budget is devastating for tens of thousands of small retail businesses across the UK. The chancellor has set out his view that this budget will help to stimulate growth, however on the specific retail issues there is nothing for retailers to cheer,” Lowman said.

“Sunday Trading relaxation will cost small businesses more than £480m and wipes out any hopes local shops had for a sales boost from the Olympics. Imposing such a measure at the last minute without consultation is plain wrong,” he added.

“Local shop hopes for a last minute reprieve on April’s business rates bill have been dashed and our members will be forced to will cut back on the investment and job creation our high streets need.”

Scottish Grocers’ Federation (SGF) chief executive John Drummond said: “Whilst we welcome the direction corporation tax is going, there is little else in this budget which will support local retailers in Scotland.

“Inaction on fuel duty and VAT is a recipe for more shutters closing whilst a 5% rise above inflation on tobacco is only going to drive more of our customers out of responsible and regulated stores and onto the black market.”  

Corporation tax will fall by one percentage point to 24% from next month.