Big tobacco groups are warning Treasury and Customs officials to brace themselves for a tsunami of smuggled cigarettes hitting Britain's pubs and streets this year as criminal gangs seek to cash in on the UK's exceptionally high tax rates on tobacco products.

Tobacco companies have told ministers that the "tax clouds are gathering" as George Osborne prepares to push through a second year of above-inflation excise duty rises next month, on top of the already increased rate of VAT.

The industry, dominated by Imperial Tobacco and Gallaher, claims the rate of smuggling and the volume of contraband sold on Britain's streets rockets when excise duty goes up. The tax on a packet of 20 cigarettes rose 34p last year and the budget is scheduled to bring the increase for 2011 to 39p a pack. This compares with the previous nine years of inflation-only duty rises, adding between six and 12 pence a year to the cost of a pack.

The average price of a pack of 20 cigarettes reached £6.29 in the UK last summer, compared with £2.80 in Spain and £1.57 in Poland, according to official European figures. While Customs officials have made good progress in curbing an explosion in smuggled tobacco sales in recent years, Chris Ogden, chief executive of the Tobacco Manufacturers' Association, warns their good work could be destroyed as organised criminal gangs target their tax evasion efforts on the UK.

Tobacco sales are a major contributor to Treasury coffers, with about 77% of the pack price going directly to the chancellor. VAT and duty already raises £11bn a year for the Treasury – more than the £7.6bn raised in corporation tax from the UK's financial sector. It is more than enough to pay for the entire costs of running the army, or about a third of the cost of general and acute hospitals.

Governments like to tax tobacco in a recession as it is regarded as one of the easiest ways of boosting Treasury coffers. The addictive nature of cigarettes means that consumers tend swallow the extra expense rather than cutting back on consumption as they might do with other heavily taxed products. In 1993 the then chancellor Ken Clarke introduced a duty escalator to shore up hard-hit public finances. A year ago, Alistair Darling revealed a similar initiative: 1% for 2010 then 2% a year for 2011 to 2014.

However, tobacco smuggling presents is a major threat to this valuable excise duty stream. Latest figures from Revenue & Customs estimates 11% of cigarettes smoked in the UK were brought into the UK illegally in the year to April 2009, with a further 5% legally avoiding excise duty because they are bought abroad. For rolling tobacco, some 49% of the UK market is believed to be illicit.

However, the amount of illegal tobacco consumed was far higher – more than 20% – when excise duties were rising more quickly, suggesting the issue will become more acute as the escalator kicks in. Revenue & Customs officials admit that widening disparities between European tobacco tax rates are likely to be pounced on by industrial-scale tax evasion gangs. Andy Leggett, deputy director of alcohol and tobacco policy, said despite the seizure of more than 20bn cigarettes, and more than 3,300 prosecutions, organised gangs still regarded view the amounts lost in Customs raids to be little more that "a cost of doing business".

Customs have been promised more resources to tackle the anticipated rise in smuggling and its work is expected to be co-ordinated by a newly appointed head of counter-smuggling activities.

Health campaigners dispute assumptions that there is a necessary link between tobacco tax rates and smuggling. Deborah Arnott, chief executive of Action on Smoking and Health, said: "Tough law enforcement measures are the way to tackle tobacco smuggling. The tobacco industry is being disingenuous in claiming that tax increases will result in massive leaps in smuggling. This did occur in the UK in the 1990s but only because the tobacco industry allowed it to happen.

"Since the government started cracking down on smuggling and new laws were put in place with the threat of heavy fines for manufacturers which allow their products to be smuggled, smuggling has reduced dramatically. Tobacco taxes have risen above inflation for the last two years and there has been no sign of an increase in smuggling."