SMUGGLERS COST EXCHEQUER UP TO UKP7BN IN LOST REVENUE

Tobacco and alcohol smuggling is costing the Government up to UKP7bn a year
in lost VAT and excise duty, Whitehall warned last night.

In the first-ever comprehensive report into the problem, the National Audit
Office (NAO) said the lost revenue amounted to 6.3 per cent to 7.1 per cent
of the indirect taxes collected in 2000-01, or the equivalent of 3p on the
basic rate of income tax. The NAO welcomed some of the steps taken by the
Treasury to combat the fraud, but called for better intelligence, use of
technology and more co-operation with the European Union to cut the losses.

In its report to be published today, the spending watchdog discovered that
Customs and Excise inquiries discloses that between UKP6.4bn and UKP7.3bn
in indirect taxes went illegally unpaid last year.

The sum is almost exactly the amount the independent Institute for Fiscal
Studies has estimated the Chancellor, Gordon Brown, will have to raise
taxes by in his Budget to meet Labour's spending plans for the National
Health Service.

The biggest single loss was due to cigarette duty fraud, which accounted
for an estimated UKP3.5bn in lost revenue. Some UKP450m was lost in diesel
fraud, while a further UKP2.6bn was lost as fraudulent traders abused
VAT-free regulations within the EU.

Sir John Bourn, the head of the NAO, said that that VAT fraud continued to
be a "major problem both for Government and for citizens".

Sir John said that much more progress could be made on tobacco duty if HM
Customs used its 12 new X-ray scanners more effectively to spot lorries
loaded with illegal cigarettes.

Despite the Government setting a detection target of 50 million cigarettes
by the machines in 2000-1, only 13 million were actually found because of
delays with procurement and other blunders.

This year, Customs aimed to scan 30,000 freight containers and 50,000
roll-on, roll-off lorries at each of the main ports, but scanner teams were
already having difficulties, the report found. All of the scanners, which
cost up to UKP1.9 million each, were mobile but so far their had been
little attempt to move them between ports to respond to intelligence reports.

The chairman of the powerful Commons cross-party Public Accounts Committee,
Edward Leigh, said that he was "shocked" by the scale of the losses.

"The size of this sum is hard to comprehend. It is nearly UKP300 of revenue
lost to the public coffers for each and every household in the UK," he
said. "The department must get a better grip in key areas."