|Gerry Steinberg MP||In the House...|
HM Customs and Excise: Tackling VAT Fraud (HC 512-I)
Public Accounts Committee 31 Mar 2004
Evidence given by Mr Mike Eland, Acting Chairman, Mr Mike Wells, Director of Law Enforcement Policy, and Mr Richard Summersgill, Head of VAT Assurance, HM Customs and Excise.
Q31 Mr. Gerry Steinberg (City of Durham): I would like to begin with a very basic general point. If you could look at figures 1 and 5 together, in figure 1 we can see clearly that the biggest source of revenue is VAT at £63.6 billion where you have the biggest fraud of £11.9 billion. Yet, if you look at figure 5 and paragraph 2.10, it shows that in fact the percentage of intelligence resource that is put into the system seems to be completely out of proportion. You have Class A drugs, 33% for intelligence source. I can understand that; I have no quibble with that at all. What I do have a quibble with is that you have VAT and insurance premium tax, a fraud of £64 billion, yet you have a 13% resource looking at that. On the other hand, you have tobacco smuggling/tobacco sales and that involves £8 billion and yet you have 28% of your resources looking into that. On the other hand, you have other tax coming in which total something like £8 billion and yet you have 13% of your resources in that. So, you actually have many more resources looking at £8 billion worth of income from tobacco, yet for £64 billion worth of income, you only have 13%. That seems totally out of proportion. Why is that?
Mr Eland: It is the nature of the intelligence task in each of the taxes. When it comes to those excise taxes to which you have referred, the problem is largely one of anti-smuggling, i.e. people who are looking to keep away from us, and therefore the intelligence task there is intelligence gathering and attempting to detect those people ---
You are not answering the question, are you?
Mr Eland: I think I am.
Q33 Mr. Gerry Steinberg (City of Durham): Why have you put so much resources into that?
Mr Eland: Because we do not need that type of intelligence resource as much in the VAT system because, as I was attempting to explain, we have a whole range of sources of information that companies have to deal with and have to come into the system in order to perpetuate the fraud. So, the problem is a totally different one. The intelligence resource is not ---
Q34 Mr. Gerry Steinberg (City of Durham): That is irrelevant.
Mr Eland: I do not think it is.
Q35 Mr. Gerry Steinberg (City of Durham): In terms of resources, the way I interpret this, it is a case of you getting a certain amount of money or resources to put into intelligence to find out who is smuggling, who is defrauding and who is doing what, and you spend less money on trying to find out who is defrauding out of £64 billion worth of tax that is coming in than you do on £8 billion worth of tax of tobacco. You have more people looking at smuggling tobacco than you do of defrauding the VAT. It seems crazy.
Mr Eland: No, we do not. We have resource in the VAT area who are collecting the information and analysing it for risk purposes and passing it to our intelligence people and to our investigation people but who are not called intelligence staff. They are doing other activities within the VAT system as well. So, to get a true comparison of that activity, you would have to include them in the equation as well.
Q36 Mr. Gerry Steinberg (City of Durham): So, let us include those in the equation. How many or how much resource do you put into getting the fraudsters who are defrauding you or us of £12 billion compared to the amount of resources that you put into, let us say, the other taxes - I do not know what they are - of £8 billion that are getting spent by yourself? How much money is actually spent?
Mr Eland: You have the 8,000 VAT assurance and collection staff and you have the investigators and so on who are dealing with this problem. It is a very different problem that we are dealing with here or a different set of problems if you are looking at the whole of the £12 billion VAT loss and so I do not think that is ---
Q37 Mr. Gerry Steinberg (City of Durham): Explain to me, if that is the case, why are you reducing the amount because it was 16%, if I read it properly, and now it is down to 13%? So, you have actually reduced your budget by 3% when fraud is increasing by 1% a year.
Mr Eland: For that particular activity we did switch some resource there into the tobacco area which is also an extremely serious problem, but we were able to substitute by using this wider VAT resource which enables us to continue to keep a handle on the different types of fraud that are occurring in that area. Just because somebody is labelled "intelligence", it does not mean that that is the only way we have of gathering information about these problems.
Q38 Mr. Gerry Steinberg (City of Durham): What is the 1% difference in terms of revenue that is being defrauded, as a matter of interest?
Mr Eland: I am sorry, the 1%?
Q39 Mr. Gerry Steinberg (City of Durham): My understanding is that the amount of VAT that has been defrauded has increased by 1% this year. How much is that equivalent of?
Mr Eland: The overall loss, it is not all down to fraud and it was last year as well. This year, we believe we have actually managed to bring it down by probably at least £1 billion and maybe more.
Mr Wells: Each 1% equates to around £1 billion.
Q40 Mr. Gerry Steinberg (City of Durham): So, there was £1 billion more fraud and you put less resources in to try and find out who was actually defrauding.
Mr Eland: No.
Q41 Mr. Gerry Steinberg (City of Durham): I think that is incredible. I have added up - and my maths is not very good - and my maths tells me that the revenue, or yourselves, collected something like £109 billion worth of revenue a year and I worked it out at something like £20 billion worth of fraud a year in the whole of the Customs brief; do those figures seem correct?
Mr Wells: The total losses of all type including avoidance, including error and fraud ---
Q42 Mr. Gerry Steinberg (City of Durham): I am not just talking about VAT.
Mr Wells: Across all of those would be of roughly the order that you said.
Twenty billion pounds?
Mr Wells: Yes.
Q44 Mr. Gerry Steinberg (City of Durham): I think that for a department that is, frankly, not collecting £20 billion, your attitude is very complacent. We would not be having this debate today if you had collected that £20 billion because the whole of the public sector would change in terms of finance. Think what you could do with £20 billion! Frankly, gentlemen, I think that really you will have to get your fingers out and tackle this and find out where some of that £20 billion is going.
Mr Eland: As I have said, we have succeeded in increasing VAT receipts this year by over £3 billion. If that is sustained over the next few years, then we will succeed in driving down and meeting our targets. I do reject the complacency charge. It is us who have tried to quantify this problem and size it. We have set up a strategy for how to deal with it and we are making good progress - as I say, £3 billion of receipts in this year - in tackling it, so I really do not accept that we are being complacent.
Q45 Mr. Gerry Steinberg (City of Durham): That was my point of view and the Chairman seemed to have the same sort of view and we had not collaborated before this meeting. Is it correct that you have, according to this report, about 1,800 investigators?
Mr Eland: Yes.
Q46 Mr. Gerry Steinberg (City of Durham): To cover the whole of your remit?
Mr Eland: Yes.
Q47 Mr. Gerry Steinberg (City of Durham): I worked out from the figures that have been given to me that there are 18 investigators looking into £12 billion worth of fraud.
Mr Eland: I am sorry, that is wrong. The £12 billion figure is all losses including the businessman making a mistake, people filling in ---
Q48 Mr. Gerry Steinberg (City of Durham): The businessman making a mistake! With respect, Mr Eland, the businessman making a mistake is still a loss of revenue to the Customs & Excise.
Mr Eland: It is.
Q49 Mr. Gerry Steinberg (City of Durham): And to you and I.
Mr Eland: But that does not then lead to a criminal investigation ---
Q50 Mr. Gerry Steinberg (City of Durham): I never mentioned a criminal investigation.
Mr Eland: --- by those 1,800 people. What it does lead to is action by the 8,000 people we have working on VAT assurance activity. So, you have to take the whole resource if you are looking at the whole of the problem, not just the criminal investigation resource.
Q51 Mr. Gerry Steinberg (City of Durham): We have established that we have 18 investigators looking into £11.9 billion worth of fraud and you are not worried about that. Well, that is fair enough. People can make their own minds up on that! I am always confused, I must admit, but I am even more confused because, when I read the supplementary answer that you sent to the Committee probably this or last week when we asked about the number of prosecutions that had been taking place over the last five years, the information you gave us was that, in 2002/03, there was 1,845 cases and you had 1,625 convictions. Presumably, that means in the whole of your remit.
Mr Eland: Yes, it does.
Mr. Gerry Steinberg (City of Durham): Yes, the report tells us that there were 86 cases on VAT; is that right?
Chairman: I think you want to go to figure 12, page 19, which is what I referred to.
Q52 Mr. Gerry Steinberg (City of Durham): I added up 69 and 17, so my maths is not too bad after all! In fact, out of those 1,845 prosecutions, only 86 were on VAT fraud.
Mr Eland: Yes, that is right.
Mr. Gerry Steinberg (City of Durham): And you say you are not complacent! I can tell you 86 people who are defrauding VAT now! I can give you their names!
Q53 Chairman: Right, go ahead!
Mr Eland: As I said to the Chairman, what we are looking to do in the prosecutions area is to concentrate the resource on the most difficult types of criminal fraud and to use other sanctions to tackle other behaviour. So, again, you will have to look at that whole picture.
Q54 Mr. Gerry Steinberg (City of Durham): Mr Eland, the point I am making is that there is a huge VAT fraud going on in this country and there are very few prosecutions being taken to try and recover that £12 billion and you have, in my view, a very small proportion of the resources available to actually investigate that and yet you say there is no complacency. I am sorry, I just cannot accept that.
Mr Eland: I have tried to explain the reasons why I do not totally accept the comparisons you are making.
Mr. Gerry Steinberg (City of Durham): You have, I appreciate that.
Q139 Chairman: I suspect that the people you were paying were charging a lot of money.
Mr Eland: Yes, they do.
Q140 Mr. Gerry Steinberg (City of Durham): Rightly so, I am all in favour of barristers getting well paid. I always like to have a little local issue that I raise. It seems to me this afternoon, listening to what you have been talking about, that thousands of crooks seem to be getting away with murder and yet I have an issue in my constituency where an innocent businessman has been hounded by Customs and Excise through no fault of his own. I will tell you a little background and then perhaps you would like to comment because I know normally you say, "Well, we cannot comment on individual cases", but perhaps you might on this one. It is a second hand car sales business called Snippersgate '88 Limited and they had written confirmation from Customs and Excise that if they imported second hand cars from an EU state they would not have to pay VAT but they would have to pay the VAT from the state that they were actually importing from. He imported from Southern Ireland and paid 21% VAT to the two companies that he was buying the cars from. When he then presented it in the UK he was told contradictory advice from Customs and Excise, that he owed the VAT in this country. So he paid 21% VAT in Ireland and now he is getting a bill for 17.5% in this country. He objected most vociferously, as you would expect him to do, and eventually, after about two years, the Irish Government said "Yes, we will pay back the VAT, but we will only pay it back through the suppliers" and one of the suppliers has gone bust. We are talking about tens of thousands of pounds here that he has paid and yet Customs and Excise are still chasing him for the VAT in this country. That does not seem very fair to me at all. What I have tried to do is to get yourselves and the Irish Inland Revenue or Customs and Excise, whatever you call them, to co-operate and you will not. That does not seem to be very fair to me. Thousands of crooks are getting away with murder in this country, not paying VAT, and here is a man who has been given advice by the Customs and Excise who is having to pay twice.
Mr Eland: I will not fob you off by saying that I cannot comment on an individual case, I will say that I will take it away and look at it and write to you saying what we can do. I will review that case for you.
Mr. Gerry Steinberg (City of Durham): These are very useful meetings. Very useful, I can assure you.
This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.