ONE in five corner shops in the region could face closure because of a prospering trade in illegal tobacco, experts have warned.

A national survey has identified the North-East as the worst region in the country for counterfeit tobacco sales.

The survey, carried out by pressure group Retailers Against Smuggling (RAS), identifies the North-East and Yorkshire as a hotspot for fake and smuggled tobacco products, with the problem expected to get much worse.

And it is newsagents and retailers that are paying a heavy price for the illegal tobacco trade, the survey reveals.

Seventy-seven per cent of shopkeepers in the region are aware of smuggled tobacco being sold in their area and feel the effects on their business - the highest rate for a region.

Only Holloway, an area of north London, has an overall problem estimated to be worse than the region when sales of smuggled tobacco are taken into account.

Katherine Graham, spokeswoman for RAS, said: "Illegally smuggled cigarettes and counterfeit tobacco on the streets of the region are threatening the livelihoods of small newsagents.

"Not only do they lose out on tobacco sales, but also the loss of customers reduces sales of other goods to the point that many small shops are cutting back staff and, in some cases, facing closure."

The average newsagent loses about £20,000 a year in lost sales, while the Treasury is losing £2.6bn a year in lost taxes - more than £7m every day.

Beryl St James, spokeswoman for HM Customs, said this was money that could be spent on schools, hospitals and other public services.

She said: "People who knowingly buy counterfeit and smuggled cigarettes are not just cheating themselves, but the tax- paying public generally. It has an immediate knock-on effect on us all."

HM Customs has highlighted tobacco smuggling as a major priority, and dedicated street teams are operating in the region to tackle the problem.

But retailers want tougher sentences for those who sell illegal tobacco. Members of RAS also want extra customs officers at ports and airports to help combat the problem.

John Abbott, an independent trader from Darlington and member of RAS, said that reducing or freezing tax on tobacco could ease the problem as it would cut smugglers' high profit margins.

He added: "The Government raised taxes on cigarettes to force people to quit, but all it's done is to make the UK a very profitable destination for tobacco smugglers.

"But people have not stopped smoking - they have simply looked for a cheaper source for cigarettes instead."

Mr Abbott said the black market was run by large organised gangs and declined to disclose the location of his shop because he feared the gangs would seek retribution.

He added: "A few years ago, the people who organise all this made threats to one of our representatives.

"It's our livelihood, and people don't realise that it is organised crime that is responsible - it's not the small-timers, bringing 200 cigarettes back from their holidays.

"We really don't want to get tangled up in it.

"The criminals don't care if they sell to underage smokers, they do not check the customers' ID and only sell to over-16s like responsible shopkeepers do.

"It could be a five-year-old child - the gangs don't care as long as they get their £3 a pack. There's no due diligence with them."

A spokesman for HM Customs said counterfeit cigarettes, mostly imported from China and other countries in the Far East, also posed a health risk.

Because they are not from a legitimate source they are not subject to the strict regulations governing tobacco manufacturers. Therefore, no guarantee can be made on quality or ingredients.

He said: "We have found cigarettes that contain mercury and other chemicals that definitely shouldn't be there."

The cigarettes are offered for sale at pubs, car-boot sales and on the streets at half of their true retail price, but many smokers who cannot resist a bargain fail to realise they are breaking the law by buying from illegal vendors.

Those bringing the cigarettes into the country without paying UK duty and then selling them on, face a seven-year jail sentence and an unlimited fine.

If you have information about smuggling or counterfeit cigarettes, call Customs Confidential on 0800-595000.