Committee of Public Accounts

Press Notice No. 32 of Session 2003-04, dated 22 July 2004

(HC 284)

Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today that Customs should work with industry to minimise the burden of introducing tax stamps, and expressed concern at cases where poor cooperation between Customs’ anti-fraud teams had hampered Customs’ efforts to bring fraudsters to trial.

Mr Leigh was speaking as the Committee published its 32nd Report of this Session, which examined HM Customs & Excise’s approach to combating the problem of alcohol fraud, and their management of revenue from large traders. HM Customs & Excise (Customs) collect around £150 billion in VAT, excise and customs duties each year from over 1.7 million business traders.

The Committee found that there is significant uncertainty about any estimates of spirits fraud based upon current methodologies and data sources. The methodologies and data sources used by Customs and the Scotch Whisky Association for estimating spirits fraud levels result in widely different estimates of consumption. Customs should disclose ranges of values to reflect the uncertainty.

Manufacturers will face significant costs in buying tax stamps and incorporating them into production processes. Measures were announced in the Budget speech aimed at offsetting additional costs caused by introducing tax stamps. Drawing upon the recently completed Regulatory Impact Assessment, Customs need to identify likely additional costs arising from the introduction of tax stamps and take appropriate steps to mitigate these costs.

Customs should make better use of existing information from alcohol producers to track suspected illicit products. Customs could then target resources more effectively at the point where alcohol is diverted in the supply chain. They should also discuss with the trade the effectiveness of current anti-fraud measures and the opportunity for further regulatory or operational improvement.

Customs’ estimates would suggest that there is no beer and wine duty fraud though operational teams have seized non-duty paid beer and wine so fraud is clearly taking place. Customs should seek to develop alternative methodologies and identify new data sources to produce better estimates.

Poor communication within Customs has undermined anti-fraud operations and prosecutions. Customs need to improve communication between their anti-fraud teams throughout the Department to avoid repeating failures in previous operations which have led to the loss of key evidence and the destruction of documentation. Customs also need to improve the sharing of lessons learned from successful operations across the Department to allow these to be taken into account in future anti-fraud activities.

Customs need a consistent and effective way of evaluating the results of the work of the Large Business Group and the Regional Business Services and the contribution of these groups to departmental targets. Customs have established the Large Business Group to improve the management of risk and the collection of revenue from large traders. They have improved relations with business and improved the training and professionalism of their own staff, but need to develop more effective measures than are currently available to evaluate the return on their investment in large business work.

Mr Leigh said today:

“It is right and proper for taxpayers and the legitimate trade that alcohol spirits fraud is tackled vigorously. The spirits industry is concerned, though, that the cost of implementing the new tax stamps will outweigh increases in revenue. Customs should do more to identify the likely additional costs and work with industry to minimise this burden.

I am particularly concerned that poor cooperation between Customs’ anti-fraud teams has, in some cases, resulted in the loss of important evidence and documentation, hampering Customs’ efforts to bring fraudsters to trial. The National Audit Office found problems in five of the thirty-six cases it reviewed. Customs’ must, as a matter of some urgency, improve its internal communication.”

Note for Editors

1.The Comptroller and Audit General reported and the Committee took evidence before the Chancellor of the Exchequer announced in his budget speech on 17 March 2004 that Customs were to merge with the Inland Revenue, and before he confirmed the decision to require bottled spirits sold in the UK market to be tax-stamped from 2006, which was originally announced in the Pre-Budget Report on 10 December 2003.

Click here to view Report