Legalising cannabis would raise £1bn a year in tax for the UK, a think tank has estimated.

The report from the Institute of Economic Affairs has valued the UK’s black market in cannabis at £2.6bn.

Legalising the class B drug would also lead to savings for public services including the police, it said.

It comes after former Conservative leader Lord Hague called on the government to consider legalising cannabis for recreational use.

The government has promised to review the use of medicinal cannabis following two high-profile cases involving severely epileptic children.

But the Home Office stressed that the drug will remain banned for recreational use.

According to the drugs advice service Frank, cannabis is the most widely-used controlled substance in Britain.

Anyone found in possession of the drug can be imprisoned for up to five years while supplying it can be punished with a 14-year jail sentence or an unlimited fine.

In its report, the Institute of Economic Affairs estimates that around three million people in Britain used a total of 255 tonnes of cannabis last year.

The average cannabis user consumes an average 82.5g of the drug per year, or 1.6g per week, the think tank said. One gram is currently worth £10.

If the drug was legally available, it would generate sales of £2bn – twice the size of the cider industry.

The think tank said that VAT, excise duty, plus new streams of business and income taxes, would lead to a “windfall” for the Treasury of £1bn.

And savings to the NHS would work out at around £300m a year, the IEA said.

It added that legalisation would “virtually eradicate” the black market, although previous studies have indicated the illegal market would still continue, with dealers selling more potent types of the drug.

Legalisation “is a win-win-win”

Chris Snowdon, head of lifestyle economics at the IEA, said: “Canada and the

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