Customs detects just 7% of illegal tobacco

Just seven per cent of the tobacco smuggled into Britain each year is detected by Customs, a Commons committee said yesterday. The Customs and Excise department has been unable to stem huge increases in illicit shipments costing the Government £2.5bn a year in lost taxes, said the Public Accounts Committee.

It criticised the department's failure to solve the problem and demanded an increase in arrests and the recovery of lost VAT. "The department has yet to demonstrate that it is capable of reversing this trend," it said in a report on value-added tax.

Last week the Government announced an initiative to tackle tobacco smuggling through British ports.

The committee was also critical of the department's performance in tackling VAT crime by companies. Although the amount of VAT recovered had increased from £862m to £992m since 1991, plans to concentrate on "high-risk firms", thought most likely to offend, had failed. Instead of visiting 65 per cent of companies in "high-risk" or "exceptional-risk" categories, as planned, officials visited just 38 per cent.

But they visited three times as many "low-risk" traders as they had planned. From each the officials recovered an average of £2,362, although from each "high-risk" trader they recovered an average of £16,000.

The increase in VAT recovered over the past seven years might indicate increased productivity, the committee said, but it might also indicate that more businesses were breaking the rules.

David Davies, chairman of the committee, said: "The number of audits has reduced dramatically in the past seven years yet the yield has risen. This may well be a triumph for targeting but it might also indicate a general decline in standards of compliance."