Funds from the so-called "latte levy" would be used to improve recycling facilities nationwide, Parliament's cross-party Environmental Audit Committee said on Friday in an emailed report.
It follows research which shows the United Kingdom throws away 2.5 billion paper cups every year, with many consumers believing they are being recycled when less than 1 per cent actually are.
While looking like paper, they have a polypropylene plastic lining.
If the target for recycling all disposable coffee cups by 2023 was not met, then the government should ban them altogether, the committee added.
"The revenue should be used to invest in reprocessing facilities and 'binfrastructure" to ensure that the remaining disposable cups are recycled'.
The Environmental Audit Committee believes that all disposable coffee cups should be recycled by 2023.
In October 2015, Britain introduced a charge of 5 pence on all single-use plastic bags provided by large shops, which led to an 83 percent reduction in United Kingdom plastic bags used in the first year.
The committee last month recommended the government introduce a plastic bottle deposit scheme to cut plastic waste and leakage into the oceans.
"We will investigate the impact of a 5p charge on a paper cup, coupled with prominent marketing of reusable cups, on customer behaviour", it said in a statement posted on its website.
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It added: "We recommend that the Government sets a target that all single use coffee cups disposed of in recycling bins should be recycled by 2023".
"Disposable coffee cups may only represent a small fraction of the national annual tonnage of card and plastics produced which are lost from our recycling streams, but they leave the worst taste reminder of how on-the-go consumption can result in needless waste of our precious natural resources".
Instead coffee chains perpetuated customer confusion that cups are widely recyclable when they are not. This is strong stuff, but in the meantime - with 2.5 billion coffee cups being dished out yearly - we need to make sure this happens sooner rather than later. Often described as "recyclable", such cups are only very rarely actually recycled.
Some coffee shops in Britain already provide discounts to customers who bring their own cups.
In addition, the committee also has suggested that the government should set up a producer responsibility compliance fee structure that rewards packaging design which facilitates recycling and puts a fine on packaging, which is hard to recycle.
Dr Laura Foster, head of clean seas at the Marine Conservation Society welcomed the recommendations.
"Only by treating this issue as one that is the responsibility of both industry and consumers will re-use become the norm".
The government plans to produce a new plastics policy later in the year. "A "latte levy" of 25p will remind people that their normal coffee cup is typically lined with plastic making it hard to recycle, with more than 99% of them destined for landfill or incineration".