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Vapes will have to be digitally stamped in a bid to deter a booming black market in the devices, the Chancellor will announce in next week's Budget.
And Rachel Reeves will warn that rogue traders caught dealing in illegal vapes could face £10,000 on the spot fines and a potential prison sentence.
She will also launch a crackdown on vape shops and checks on those who work in them in an attempt to bring the industry under control.
New compulsory rules designed to tackle the vast underground market in unlicensed vapes will be introduced next October.
Traders will require a licence to sell vapes and right to work checks will be introduced to verify workers in the thousands of vape shops that have popped up in UK High Streets in a bid to stamp out tax evasion and exploitation, according to the BBC.
All vapes sold in the UK will be required to carry a cutting edge digital stamp including a QR code to show that they comply with safety and sales regulations.
The system should ensure that consumers should be able to spot the difference between a fake and a genuine device.
A staggering one in ten adults in the UK is now believed to vape with a significant industry growing up around the habit.
Reeves will announce in Thursday's Budget that legitimate businesses can register from next April for the scheme with a six month window to sell old stock.
New enforcement measures will also include greater powers for Border Force and HMRC officials. They will be permitted to seize illegal vapes, including at the border.
The new rules follow the government's ban on the sale of single use e cigarettes in the summer.
Critics of the ban say it has simply driven the industry underground with 80% of retailers polled by one industry group saying it would drive consumers towards the black market
Two thirds of retailers polled also said they did not stock refillable capsules for vapes since most consumers simply bought another reusable vape each time.
The Tobacco and Vapes Bill currently going through parliament will ban the advertising and sponsorship of vaping and provide powers for regulating flavours, packaging and how and where vapes are displayed in shops.
The government said the new measures would 'disrupt criminal networks behind black market vapes, protecting the public from dangerous, unregulated products'.
Hazel Cheeseman, chief executive of Action on Smoking and Health welcomed the government's plans to clamp down on the industry.
She told the BBC: 'Alongside the measures in the Tobacco and Vapes Bill to limit the promotion of vapes, the excise tax will further help to address youth vaping while keeping products available and affordable for adult smokers who want to use them to quit smoking.'
And John Herriman, chief executive of the Chartered Trading Standards Institute, said the move would 'make a real difference to something that has been a real scourge of the high street for too long now'.
Earlier this month, police arrested hundreds of suspects as they raided nearly 3,000 barbers, nail bars and vape stores nationwide in a clamp down on High Street crime.
Over 111,000 harmful vapes and four and a half million illegal cigarettes along with 70kg of cannabis and £10m were seized.
More than 300 businesses were reported on suspicion of employing illegal migrant workers and 924 people were detained.