By Richard Johnstone | 10 October 2013
Revenue & Customs is unlikely to meet its target to cut the amount of tax lost through tobacco smuggling by £900m by 2015, MPs have warned.
The Public Accounts Committee examined the department’s plans to tackle the £1.9bn of revenue lost through illegal cigarettes and other tobacco products.
HMRC launched the latest iteration of its tobacco strategy in April 2011, following a Spending Review settlement that gave the department £25m to invest in new initiatives over four years.
However, the PAC found that, by the end of 2012/13, three of the five projects funded by this Spending Review allocation had yielded no extra money. One of the schemes – intended to tackle the fact that tobacco supplies far in excess of local demand are sent overseas, and then smuggled back in to the UK – had to be abandoned due to legal concerns.
Overall, HMRC reduced losses by £328m to the end of 2012/13 as a result of the five new initiatives. But this was less than two-thirds of the benefit expected by that time, which was £527m.
The committee concluded the strategy had not been subject to proper scrutiny ahead of implementation, and HMRC did not make a realistic assessment of the achievable benefits.
As a result, the programme to cut losses by £900m over the current Spending Review period, was unlikely to be successful.
PAC chair Margaret Hodge said HMRC and the Border Force, which have a shared anti-smuggling strategy, had been ‘painfully slow’ in taking forward new proposals to improve performance.
She said: ‘This committee welcomes innovative approaches. However, HMRC and Border Force failed to make a realistic assessment of what really could be achieved and by when. We are not convinced that the projects will cut revenue loss by £900m by March 2015, as predicted by the department.’
Tobacco smuggling was not a victimless crime, Hodge added. ‘Each year it constitutes a theft of revenue to the tune of some £1.9bn, 20% of the total sum collected through tax. It undermines drives to cut smoking and is also linked to the activities of organised crime.’
Responding to the report, an HMRC spokesman said the department had more than halved the size of the illicit market in cigarettes through seizures and prosecutions.
He added: ‘Additional investment has been made by this government to tackle tobacco smuggling, and our officers posted overseas have made a significant contribution to the drive against smuggling as the PAC recognises.
‘The government is reinvesting nearly £1bn in HMRC to continue the fight tackling evasion, fraud and avoidance.’
