This is false; the extra tax contribution does not pay for the increased health costs.
Do you have a reliable source for these figures?
Here you go. From Ash themselves...
http://www.ash.org.uk/files/documents/ASH_95.pdf
So that'll be £12 billion from smokers into the treasury, and £2 billion in NHS costs per year. So a £10 billion surplus. Since ASH are a lobby intent on stopping smoking, their figures are either going to be on the money, or shooting too high (with respect to the costs) as it's in their interest to do so.
Now, elsewhere they do have some costs for other aspects of smoking related costs as mentioned elsewhere.
• loss in productivity due to premature deaths (£3bn)
Well, I don't see this at all. Smoking related premature deaths aren't quick. Usually there is time to train and replace the person who is about to die. Moreover, this is just freeing up a job for someone else to do, who didn't previously have a job. So good for the economy really.
What it also fails to mention is that, on average, a smoker will die 5 years earlier than a non smoker. So that's 5 years less of state pension to go out the door. So on the top of the extra £10 billion every year smokers are ADDING to the country, each individual is also taking £29,400 LESS from the government here.
cost to businesses of smoking breaks (£5bn)
Again, this is another falsity in my eyes. I've never had a job with specific smoke breaks. You smoke on your proper breaks, same breaks as everyone else gets.
There are other costs that go on from here too, but realistically, they aren't hitting the government anyway, more likely private business (sick days etc..), so has no real bearing on your point anyway.
Just because you don't smoke, or don't like smoking, and knowing it kills people, does not necessarily mean it is costing you anything. In fact, it is saving you money. Without smokers taking the hit, everyone else would have to pay more taxes. THAT is why it isn't illegal.