Customs officers were accused on Thursday of failing to tackle a massive increase in alcohol duty fraud which cost the taxpayer £620m in lost revenue.
Two official reports said HM Customs and Excise should have done more to stem the tide of fraud involving wine, beer and spirits intended for export, but sold on the British market, evading duty which eventually cost the Government millions.
An investigation by independent accountant John Roques criticised the department's National Investigation Service for undermanning and said its work was hindered by weaknesses in management.
A second report by the National Audit Office said officials spent four years drawing up a strategy to deal with the rise in fraud, which grew after the single European Market was introduced in 1993.
Lost duty totalled £668m between 1993 and 2000, the investigation found. Only £48m was ever recovered, leaving a net loss to the taxpayer of £620m.
Consignments of drinks were transferred from the bonded warehouses where they were being stored and were sold illegally in Britain, instead of being shipped overseas.
Customs investigators were aware of the trade, but for four years they adopted a strategy of "letting the loads run" under observation in the hope of gathering sufficient evidence to support prosecutions. That was necessary to secure convictions, but allowed "unrecoverable losses" to build up.
Mr Roques' report, which focussed on events between 1994 and 1998, criticised falling staffing levels over the last decade.
It said: "Tax rates in Excise and VAT have increased substantially during the last decade but the headcount in the department was reduced. In my view more people, not less, are inevitably necessary to enforce collections in a high tax rate regime."
The report was commissioned by the Treasury last year after the scale of the fraud became known.
A Customs spokesman said 62 of the report's 65 recommendations had been accepted and many had already been implemented.
Sir John Bourn, head of the NAO, yesterday said: "In this case Customs failed over a number of years to get to grips with a major breakdown in their control systems which led to an unacceptable loss of revenue. They should, from the outset, have put in place a strategy to manage the risks.
"The actions taken or now planned should lead to tighter controls against fraud, improved management of investigations, and a better strategic approach to countering fraud."
David Davis, Conservative chairman of the powerful Commons Public Accounts Committee, said Customs and Excise had "scant regard for the interests of the taxpayer when they failed to act on clear warnings about the risk of fraud".
He said MPs had asked for assurances about the potential level of fraud in 1994, but were told there was no evidence that problems had materialised. He said: "Unfortunately this assurance counted for very little. The NAO report makes clear that Customs' management information systems were too poor to pick up the losses.Reuse content