Select Committee on Treasury Minutes of Evidence

Examination of Witness (Questions 80-86)



  80. You have been very frank with the Committee, and I entirely accept all the difficulties about targets, but it does seem to me to be reasonable to ask why there is no account of present levels of activity in these areas. For example, in the document which you have drawn the Committee's attention to that was published at the same time as the PBR, we do have an account of the efforts that are being made on so-called "missing trader fraud" which is just one element of VAT fraud.
  (John Healey) A very significant element, but it is one element.

  81. Yes, and that is 340 staff, and some account of the number of registrations that have been refused and the number of injunctions and their value, but we do not have any account at all of the efforts that are being made to tackle VAT fraud which is undermining legitimate business, supporting a lot of organised crime, and bringing millions of our fellow citizens into illegal activities?
  (John Healey) Customs will, in the regular way that they go about their business, be picking up elements of that. What I am interested in is getting a proper fix on (a) the scale, (b) the trends (c) the nature of the breadth of VAT fraud, and we have made that start with missing trader fraud. Then what I am interested in is looking at how we need Customs to change what they do, where perhaps other agencies can help what they do so that we can capture that in the way that we have done some of the other Excise fraud areas now, and that I have described as examples to the Committee so that we can put in place something that I think will measure up to an ambition of a comprehensive strategy, which we do not have at the moment. At that point, then it is clearly a matter both for Customs operationally to carry out, and a matter also for Treasury and Government to consider the resources that may be required to back it. I am sorry I am describing the process in general terms, but in many ways, I do not think I can be any clearer at this stage than that.

  82. Therefore, you do acknowledge that on the basis of what we know about missing trader fraud and the 340 people who have been put to work on it, maybe more down now, it is going to need a considerable increase in people on the ground tackling this, is it not?
  (John Healey) It is going to need significant increase of effort. More people on the ground may be part of that, but it is not necessarily the only, and certainly will not be sufficient to tackle the problem of VAT fraud comprehensively. But those are judgments that we will have to take when we are clearer and more confident about the scale and nature of the problem and work out the most effective ways of dealing with it.

  83. So it would be sensible to assume that by, say, Budget 2003, the analysis will have been done, and any extra resources that may be required to support the work programme that is produced by the analysis, it would be reasonable to expect that in the Budget?
  (John Healey) I have mentioned resources already, and we will consider the question of resources in the context of how we put in place a sufficiently comprehensive strategy to deal with the problem that we outline.

  84. Turning to another slightly different area, oils fraud. The Government has identified this as a substantial element of abuse here, and rather heroically committed itself to this being a major element in the reduction of tax evasion and tax avoidance. How much further forward are we on practical proposals to achieve that?
  (John Healey) I would say we are very significantly further forward, particularly following the process I did outline briefly to the Committee earlier on, where we published our analysis and proposals with the pre-Budget report. We consulted on them as part of the pre-Budget report process and confirmed in the Budget the sort of strategy that we would be putting in place, and, in particular, one that is targeting the rebated oils problem, which, you will appreciate, is a longstanding system, and responsible for the major part of UK mainland oils fraud. There will be a new Euro-based market introduced to the fuel, but the main focus of intervention for the strategy is the retail network, in other words, the points at which people who will misuse laundered rebated fuel and therefore abuse the system actually get hold of it. So there is a registration scheme for retailers that retail rebated fuel. They will need to register with Customs; they will need to inform Customs about the supplies that they make; and they will be required to take reasonable steps to satisfy themselves that those that are purchasing from them are doing so because they are legitimately entitled to use rebated fuel and will be using it in legitimate ways. Finally, there is a range of penalties which are not there at present if there are problems with that system. If we are able to close off the retail network for rebated fuels, that is the most significant part of the network in order to clamp down on it. It is significant in terms of UK mainland oils fraud, which is why we have, in a sense, nailed our colours to the mast with this and set targets for the reduction in the market share, if you like, of illicitly or fraudulently purchased diesel from 4 per cent to 2 per cent. But it is, perhaps, even more significant, potentially, in Northern Ireland, where I think many would argue that the oils fraud problem is that much greater than on the UK mainland.

  Chairman: Final question. We are near the end now. Mr James Plaskitt.

Mr Plaskitt

  85. I am just particularly interested to know what progress you think we are making in tackling illegal meat imports?
  (John Healey) With meat imports and the concerns there, Customs is not the lead agency. DEFRA, particularly since the concerns over Foot and Mouth, are responsible for the illegal import programme that tries to control the problems and the risks from imported meat. The main enforcement agencies are local authorities, port authorities, devolved administrations, and Customs play an active but supportive role to the measures to try and deal with imported meat. In a sense, I would suggest that we have still got some work and some way to go on this. There is, at the moment, a process being undertaken where we are trying to establish a very proper, full analysis of the risks here. This is being led by the Veterinary Laboratories Agency. That proper assessment of risk has got to be fundamental to establishing a future policy and a future strategy in this area. Border controls, which is essentially where Customs are most visible and play their part, have got a part to play in this, but they are not the complete solution, and, in many ways, with the fears and the risk of importing infected meat, unlike, for instance, drugs, where partial success is success, if you miss the one import of infected meat, then, however effective you are in intercepting anything else at border points, that leads to a failure of your strategy. Border controls: Customs operations have got a role to play and it is one that is of an enforcement agency that, at the moment, is not in the lead, and it plays a supportive and very strong role to back up the efforts of the other agencies.

  86. Right, but you have highlighted yourself in the answer just how important it is to ensure that we are doing the best we can to deal with the illegally imported meat, not only because of health issues, because we have to be very, very serious indeed, and I just want to be sure that we have not got one department, Customs and Excise, over here developing all sorts of techniques for finding out what is being brought into the country that should not be, and the skills and the processes being applied there are not being switched over to look at meat, because, in terms of the actual process that brings it in, it is not any different from the alcohol coming in or the tobacco coming in. It is still stuck in the back of a lorry, ostensibly bringing in something else. Given how important it is to deal with this, I am looking for the reassurance that the departments are working absolutely in harmony on this, and there is not a risk of, "This is our responsibility and that is theirs", and that we lose something by a lack of communication and joint working?
  (John Healey) Let me reassure you, Mr Plaskitt. Customs are not acting unilaterally on this and the other enforcement agencies who have more of a lead role are not acting without Customs. Furthermore, in terms of the prospects for future policy and operations, we have the Cabinet Office at the moment undertaking the coordination of a thoroughgoing review of our animal health controls, and Customs is making a very important contribution to that work, just as it is with the risk assessment exercise that the Veterinary Laboratories Agencies are leading on as well.

  Chairman: I think we must call a halt there, but can I, on behalf of the Committee, thank you very much indeed for appearing before us today. If you had not drawn our attention to the fact that you were only in your third week, we would not have know it.


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