VAT and fuel duty fraud is costing the UK an estimated £13bn a year, according to the latest report from the Public Accounts Select Committee.
Publishing the committee's annual analysis of the HM Revenue and Customs (HMRC) department, its chairman, Edward Leigh MP, said yesterday that while some improvements had been made over the past year "a mountain of money" was still being squandered.
Losses from VAT fraud totalled £11.9bn in the 2003-04 tax year, according to the report, almost 20 per cent of the £63.6bn which the Government collected in VAT for the year. Fraud relating to fuel duties cost the Exchequer some £850m.
The report revealed that although fraud had been reducing in the period up to the end of 2003, the latest figures show that losses have been increasing since.
Although HMRC has created a new regulatory scheme - the Registered Dealers in Controlled Oils (RDCO) - to control the supply of rebates relating to oil, the committee said the scheme had been slow to get off the ground.
Mr Leigh said: "The registered dealers scheme for hydrocarbon oils was established successfully, but the department seriously underestimated the number of traders dealing in rebated oils. Traders have been slow to adopt electronic returns and a target should be set for them to do so. Intelligence and enforcement activity varies from region to region and few fraudulent traders have so far been brought to justice. Who can believe that potential crooks are really being effectively deterred?"
Although the committee acknowledged that some progress had been made to tackle VAT fraud, it said it was not enough.
"The department has made good progress in cutting VAT losses as a proportion of the total amount collectable in theory, but losses each year amount to an estimated £11.9bn," continued Mr Leigh.
"The department has so far been unable to determine how much of the extra revenue brought in is down to enforcement activity and how much is simply the result of economic growth. It is also unable to compare individual traders' compliance performance with other traders within the same sector or industry.
"Continued progress will be heavily dependent on the new HM Revenue and Customs doing a far better job of intelligence-gathering and analysis."
Responding to the report, HMRC said: "We are pleased that the committee recognises that progress has been made in cutting VAT losses. HMRC is committed to tackling oils and VAT fraud and has in place a co-ordinated programme of activity to support those who wish to comply while identifying and tackling the non-compliant.
"The figures published in yesterday's pre-Budget report show that the oils strategy has had a significant impact and that oils fraud is falling. We will continue to monitor all aspects of our strategy to maximise our effectiveness at tackling people who seek to abuse the system at the expense of the vast majority who pay their fair share."