Why ‘sin taxes’ could play a significant role in Britain’s high-stakes budget

Britain's Labour government appears poised to raise "sin taxes" in its highly anticipated October budget as it seeks to cash-in on lucrative industries to bolster Treasury revenues.

U.K. Finance Minister Rachel Reeves is scheduled to deliver the government's budget on Wednesday afternoon, bringing an end to months of speculation about how hard Labour's measures will hit "working people" and the extent to which the government intends to borrow to support long-term investment.

Prime Minister Keir Starmer has warned it's time for the world's sixth-largest economy to "embrace the harsh light of fiscal reality" and run toward "tough decisions" to avoid getting stuck on a downward trajectory.

Among a litany of measures, including a major change to the government's fiscal rules, Reeves is reported to be considering a sin tax raid.

These levies, which are regularly hiked in government budgets, commonly refer to taxes on harmful goods such as alcohol and cigarettes, as well as the gambling sector.

Analysts say that while sin taxes will likely play a significant role in the budget by raising billions of pounds in revenue, they alone will not be able to plug what has been described as a "black hole" in the country's public finances.

"Sin stocks are a good place to start. One would assume that they have already been taxed into oblivion but there is always the opportunity to rinse them a little bit more," Michael Field, Europe market strategist at Morningstar, told CNBC via video call.

"I think the government might view them as low-hanging fruit in terms of no-one coming to defend them, but you do have to be wary of killing the golden goose at the same time — and the ramifications for a black market if indeed the industry becomes not