Government must take responsibility for VAT fraud and act to plug the leaking fiscal gap in EU finances, says Lords

17 April 2013


The Government is not doing enough to ensure that fraud committed against the EU is detected, investigated and punished, says the House of Lords Justice, Institutions and Consumer Protection EU Sub-Committee in its report, The fight against fraud on the EU’s finances, published today.

And the Committee believes that the key way to do this is for the Government to charge a single department with the task of coordinating the fight against EU fraud and take responsibility for attempting to quantify the problem; a problem which, according to latest figures from the Treasury, last year amounted to a loss of up to £1 billion a year in VAT fraud in the UK and €77 million and €204 million against EU agricultural and cohesion policy programmes respectively. This information should then be shared with other EU crime-fighting agencies and relevant Member State government departments.

The Committee also expresses concern about several other areas of fraud committed against EU finances, including:

  • the lack of engagement by the Government in this inquiry and its view that VAT fraud is not fraud committed against the EU;
  • the shortage of enthusiasm displayed by Member States in reporting fraud to the European Commission, as well as the lack of uniformity across the EU as to what exactly constitutes fraud;
  • the lack of information from Member State government departments responsible for EU-funded programmes, shared with the UK organisations charged with this task (City of London Police and the National Authority);
  • the breakdown of the relationship between OLAF (Office Européen de Lutte Anti-Fraude) and its EU Supervisory Committee; and
  • the “tangled web” between the three EU crime agencies of Europol, Eurojust and OLAF, which contributes to a lack of coordinated response to fraud against the EU’s budget.

Committee Chairman, Lord Bowness, said:

“Money is tight for everyone, right across the European Union. It is extremely worrying that so much money is disappearing from the EU’s budget without anyone really having a handle on where and why it is happening and – most importantly – who is responsible.

“That we have no control over how other Member States organise their affairs is a given, but what we can – and are failing - to do, is to monitor what is happening on our own doorstep. The Committee were extremely alarmed at the lack of both engagement from and, seemingly, interest in the huge financial problem that fraud committed against the EU budget is in the UK. If the EU is, by introducing this Directive, attempting to make headway in stemming the flow of financial irregularities, we must ensure that we are committed to doing nothing less than the same. By identifying a single Government department to lead the fight against EU fraud, the UK would be demonstrating our commitment to stemming the fiscal flow of fraudulent money.

“The Committee welcomes this Directive as we believe it is a coherent attempt to bring uniformity and consensus to the explanation of what fraud against the EU’s finances means. We also believe that this will, in turn, enable more accurate reporting on levels of VAT fraud and fraud in general, which will help everyone to protect the EU’s financial interest.  In these difficult economic times, protecting the public purse must be of paramount importance to us all.”

Other key recommendations from the Committee include that:

  • the Government addresses the lack of cross-border working between the anti-fraud bodies in the UK and those in other Member States;
  • the Government takes its responsibility to report EU fraud to the Commission more seriously and looks for ways to address this;
  • Member States consider charging their respective authorities with providing OLAF with feedback on the cases they prosecute; and
  • the Government explain why they are not keen to participate in any European Public Prosecutor’s Office and what they propose instead.

To read a copy of the report, please visit the Committee's webpage.

Subscribe to Lords newsletter

Sign up for the House of Lords newsletter for the latest news, debates and business