I have been refused a UK visa because of a fake immigration stamp. The picture attached is the document I was given. However, I am a British citizen by descent but haven't made applications for my passport.. Is this an outright ban and can I still apply for a British passport or does this affect my British passport applications?
If you are indeed a British citizen, by descent or otherwise, then the provisions of the Immigration Act 1971 pertaining to foreign citizens do not apply to you. The portion defining the offence of deception begins:
A person who is not a British citizen is guilty of an offence if...
Furthermore, deception as a ground for refusal is defined in the Immigration Rules. Part 9 concerns "General grounds for the refusal of entry clearance, leave to enter or variation of leave to enter or remain in the United Kingdom (paragraphs A320 to 324)." None of that has to do with passport applications.
There is a policy document about refusal of passport applications. It says nothing about deception.
There is also a document describing the issue of passports as an exercise of royal prerogative. This document suggests that your passport will be granted unless your
past or proposed activities are so demonstrably undesirable that the grant or continued enjoyment of passport facilities would be contrary to the public interest (these cases are very rare and decisions on this category are made personally by the Home Secretary);
If you’re a British citizen by descent, then it’s odd that you went through the visa process when you could have instead obtained a genuine British passport (possibly even for less money and/or with less admin than for a visa).
If you’re a British citizen by descent, then you can apply for a British passport. You will need to provide documentation pertaining to your parents, and possibly also your grandparents.
You can start your application here: https://www.gov.uk/apply-renew-passport
If you have a genuine right to citizenship by descent, then this right is unaffected by any criminal activity or denied visas. But you can be sure they will take a hard look at your application.