House of Commons - Public Accounts - Twenty-Eighth Report

Select Committee on Public Accounts Twenty-Eighth Report

1 The incidence of Vehicle Excise Duty (VED) evasion

1. During 2002-03 the Driver and Vehicle Licensing Agency (DVLA) collected some £4.6 billion of Vehicle Excise Duty (VED).[2] The Agency's vehicle database holds records for almost 31 million vehicles.[3] The Agency does not use this information to estimate the rate of VED evasion because at any one time an unknown proportion of the vehicle records held are inactive or out of date.[4]

2. To establish estimates of the level of VED evasion, the Agency commissions periodic roadside surveys.[5] The results of the latest survey in June 2002 indicated that evasion has increased to 4.5% of the total revenue that should be collected; equating to some 1.75 million untaxed vehicles. This equates to 5.8% of the total number of vehicles registered on the Agency's database[6] (which also includes details of exempt vehicles—such as ambulances—and vehicles which, at the time of the roadside survey, were passing through the motor trade or held under Statutory Off-Road Notifications). The increase in revenue evasion is despite increased enforcement activity and the introduction of new anti-evasion measures such as the use of automatic number plate reading equipment.[7] Figure 1 shows the estimates of VED evasion from the roadside surveys undertaken since 1994.

Figure 1: Estimates of Vehicle Excise Duty evasion from recent roadside surveys: 1994-2002

Source: Analysis of C&AG's Report, para 34

3. An evasion level of 4.5% equates to a gross loss of VED revenue of £193 million for the financial year 2002-03.[8] The Agency claimed that its enforcement activities reduced the actual net revenue lost to some £83 million as a result of the £69 million they collected in fees, penalties and backdated VED; and £41 million of what the Agency terms 'induced' relicensing.[9] The Agency explained that 'induced' relicensing was an estimate derived by statisticians from monitoring of the levels of licensing before and after specific anti-evasion campaigns. This information is then used to calculate a financial value for the deterrent effect of the publicity generated by high profile enforcement activities such as wheel clamping.[10]

4. The Agency does not have a full picture of the reasons behind the increasing evasion levels; nor does it have a clear understanding of the factors that motivate motorists to evade VED.[11] The Agency needs to understand the factors better in order to focus its anti-evasion measures. It is awaiting the outcome of two pieces of research looking at the links between the evasion of VED and drivers who do not have motor insurance.[12]

5. The Agency has introduced several initiatives over recent years to increase the integrity of its database and provide more robust information for its anti-evasion efforts. The first of these was Statutory Off-Road Notifications (SORN),[13] which requires vehicle keepers to declare to the Agency that their vehicle is being taken off road, and will not be used on public highways during the period of the declaration, and is therefore not liable for VED.[14] The introduction of Continuous Registration, under which the registered keeper of a vehicle as recorded on the Agency's database remains liable for paying VED unless and until the Agency is informed of a change of keeper and issues an acknowledgement is an important step forward.[15] The introduction of continuous registration will be supported by the issue of a new style Vehicle Registration Document (or 'log-book') to vehicle keepers where the Agency is satisfied that it holds the correct details.[16] As a result of these measures the Agency expects to be able to identify more easily the 'inactive' population on its vehicle database. It can then focus on these records to improve the integrity of the information held.[17]

6. The Agency was also unable to explain the reasons for the regional differences in evasion rates identified by the roadside survey in 2002.[18] The levels of evasion in London, the East of England and Northern Ireland were particularly high.[19] On the basis of vehicle class, motorcycles had by far the highest observed levels of evasion, at some 23%.[20] The Agency is focussing on the problem areas and pointed to its increased anti-evasion campaigns in London and its co-operative arrangement with Transport for London.[21]

7. The Agency's enforcement activities, except for wheel clamping, are largely ineffective against individuals who use 'cloned' vehicle registration marks. This weakness will be addressed by new measures introduced under the Vehicle Crime Act 2001. This legislation places requirements on all suppliers and manufacturers of number plates; to be registered with the Agency, to maintain accurate records of all number plates supplied, and to be satisfied that the purchaser does indeed have the right to display the relevant number plate.[22]

8. The Agency's performance target for dealing with evasion has changed recently from a cost recovery measure (£2.90 to be recovered for every £1 spent on enforcement in 2000-01) to an activity measure (simply the total number of enforcement cases completed). The Agency explained that this change had been driven by:

giving a greater emphasis on tackling high numbers of evaders, rather than focussing on a primarily financial target; and
the increasing variety of anti-evasion measures, making it more difficult to achieve a single cost : recovery ratio target.[23]

9. The Agency has the challenging targets of reducing evasion from its current 4.5% to 2.5%, and to halve the inactive register by 2007.[24]

2 C&AG's Report, para 8 Back

3 Qq 32-33; DVLA Annual Report 2002-03, p10 Back

4 Q 34 Back

5 C&AG's Report, para 32 Back

6 ibid, para 34, Figure 8 Back

7 ibid, para 42; Qq 7-8 Back

8 C&AG's Report, para 38 Back

9 ibid, para 41 Back

10 ibid, para 40; Qq 13-15 Back

11 Qq 7, 25 Back

12 Qq 7, 68; Ev 17 Back