The Chancellor has missed an opportunity to end the "ridiculous" situation of a pack of cigarettes costing less in real terms than 50 years ago, health campaigners have said.

Tobacco duty will rise by 2% above inflation, and the escalator will be extended for the rest of the next Parliament.

British Lung Foundation chief executive Dr Penny Woods said: "By not heeding the recommendations of health experts to increase tobacco taxation by 5% above inflation, the Chancellor has missed a great opportunity to help put an end to this ridiculous situation in which a pack of cigarettes today costs less in real terms than it did in the 1960s.

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"This Government has made encouraging moves on issues such as standardised packaging and smoking in cars carrying children to try and cut the impact smoking has on the nation's health.

"However, with research showing taxes to be one of the most effective tools in encouraging people to quit smoking, medical professionals and health campaigners around the country will be disappointed with the Chancellor's decision not to use this tool to the extent so many of them have called for.

"A 5% real terms increase in tobacco taxation may only have increased the cost of a pack of cigarettes by a few pence, but the evidence suggests it could have saved thousands of lives."

Action on Smoking and Health chief executive Deborah Arnott said: "While we are pleased that the Chancellor has made a commitment to extend the annual 2% above inflation tax rise on tobacco, he has missed an opportunity to give smokers a strong incentive to stop smoking. Although some people will cut down or quit, there is a real risk that many smokers will simply switch to cheaper brands or hand-rolled tobacco."

Meanwhile, tobacco retailers across the UK expressed disappointment over the tax.

The Tobacco Retailers' Alliance (TRA), which represents 26,000 UK shopkeepers, campaigns to raise awareness of the link between high tobacco tax and tobacco smuggling.

Marco Sinforiani, a member of the TRA and a retailer from Kilmarnock, said: "Every time the government raises the tax on tobacco, it plays in to the hands of tobacco smugglers who make more money selling their illegal product here compared to anywhere else in the EU. With the Chancellor's announcement, smugglers will now make even more profit, encouraging more of them to ply their illegal trade in communities across the UK, selling to customers no matter what their age. This in turn will mean lost sales for legitimate retailers like myself."

The black market in tobacco loses the Treasury almost £8 million a day.