Brown: Britain and France to act on VAT fraud

Customs officials have reached an agreement with their French counterparts to tackle "carousel" fraud that costs British taxpayers about £500m a year, the Chancellor, Gordon Brown, said yesterday.

The scam is operated by criminal gangs who import goods from the EU free of VAT and sell them with VAT added, without handing the duty to Revenue and Customs. In some cases, gangs move the goods in and out of the EU repeatedly pocketing the VAT - the "carousel" system.

Items most commonly used by the fraudsters, such as mobile phones and computer games, will now have VAT charged at the point of sale to the consumer to cut out the fraudster, Mr Brown said. He said at a "cautious" estimate it would save the Treasury £500m a year.

Appearing before the Commons Treasury Committee, the Chancellor also defended himself against claims that most of the promises of new money for education in his pre-Budget report were "spin". A Conservative member of the Committee, David Gauke, quoted an Institute of Fiscal Studies calculation that only £0.1bn of the £10bn promised for school buildings was new money, and all but £20 of the promised £200 per pupil had been announced before.

Mr Brown said: "The total cumulative announcements run into billions. Because by 2010-11 we are spending £10bn on education, £8bn on schools, it is right to say that this is the biggest ever capital investment programme."

The Chancellor also denied reports that he had overruled Treasury officials in deciding to double air passenger duty from February, rather than April. The Tory MP Brooks Newmark complained that the increase would hit families who had already bought tickets, but Mr Brown said that the three month delay would give airlines time to adjust.