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Richard Bacon MP, Member of the Committee of Public Accounts, today said:

"HMRC's drive to tackle alcohol duty evasion is being seriously hampered by a lack of information.

Alcohol fraud is big business. The Department estimates that the gap between taxes due on alcohol and the amount actually collected might be as large as £1.2 billion.

The Department does not, however, have enough reliable information on the returns from tackling different types of alcohol duty evasion. It cannot say, therefore, whether a more effective targeting of its resources might not secure a better return on its investment.

It is unacceptable that the Department has still to produce an estimate of the tax gap for wine, despite a commitment to this Committee’s predecessors to do so. The absence of information on the scale and nature of wine duty fraud undermines the basis on which the Department directs its resources to tackling the problem.

Since the criminal gangs who perpetrate major alcohol duty fraud operate across national boundaries, the Department needs to strengthen its intelligence by developing better links with the industry, the UK Border Force and other EU Member States.

The Department seems to be reluctant to prosecute offenders. Over a recent four year period, there were successful prosecutions in no more than six cases a year. This sends the wrong message to perpetrators and the wider public about the Department’s commitment to reducing alcohol duty evasion. It should give more weight to the deterrent impact of pursuing perpetrators through the courts."

Richard Bacon was speaking as the Committee published its 6th Report of this Session which, on the basis of evidence from HM Revenue & Customs (the Department), examined its progress in implementing the revised Renewed Alcohol Strategy since April 2010.

In April 2010, the Department launched its renewed strategy to reduce the amount of tax lost each year due to alcohol duty evasion, principally through fraud which often involves exporting duty unpaid alcohol to the near continent, which is then redirected to the UK and released to the market with no duty paid. In 2010-11, the renewed strategy delivered £433 million in financial benefits against a target of £390 million.

The Department collected £9.5 billion of revenue from excise duties on alcohol in 2010-11. However, it estimates that there is a tax gap—the difference between taxes due and the amount actually collected—of up to £1.2 billion. The Department has not produced an estimate of the tax gap for wine, despite a commitment to our predecessors to do so. Without reliable information on the scale and nature of duty evasion for each category of alcohol (beer, wine and spirits) the Department cannot tailor its approach to target its efforts to tackle evasion to maximise value for money

The Department does not yet have good enough information on the returns it secures from investing in specific areas of activity to make best use of the additional £917 million it plans to spend on reducing all kinds of tax avoidance and evasion. It told us that the rate of return on its work to reduce alcohol duty fraud is approximately £17 to £1 but it is not clear whether it could target its resources more effectively to secure a better return on its investment.

The Department is consulting on a range of measures to reduce alcohol duty fraud, including a proposal to introduce fiscal stamps for beer, an approach which appears to have been successful in reducing duty evasion on spirits. The Department does not yet have a full understanding of the costs and benefits of these proposals, including the compliance costs for the industry of introducing fiscal stamps for beer and the impact on legitimate wholesalers and retailers.

The Department does not make best use of intelligence and technology to detect and prevent alcohol duty evasion. The Department needs to work more closely with the industry to improve its understanding of legitimate export markets, and improve how it works with the UK Border Force to gather intelligence on illegal alcohol imports. In addition, the Department does not yet use the full capability of the Excise Movement Control System (EMCS), which facilitates the tracking of freight across the European Union, and could be used to target interventions and investigations more effectively. The Department implemented EMCS in phases over two years as planned, but did not make full use of its capabilities when implementation was completed.

Despite an estimated £1.2 billion being lost each year from duty evasion there are very few successful prosecutions for alcohol duties fraud. In the four years from 2006-07 to 2009-10 the highest number of successful prosecutions in any one year was six and the highest number of defendants was 16. The Department does not take enough account of the deterrent effect of successful prosecutions when considering the cost and benefits of pursuing perpetrators through the courts.

Further Information

• About Parliament: Select Committees
• Topics: Taxation