Examination of Witnesses (Questions 40-59)
Wednesday 31 March 2004
Mr Mike Eland, Mr Mike Wells, and Mr Richard Summersgill
Q40 Mr Steinberg: So, there was £1
billion more fraud and you put less resources in to try and find
out who was actually defrauding.
Mr Eland: No.
Q41 Mr Steinberg: I think that is incredible.
I have added up—and my maths is not very good—and
my maths tells me that the revenue, or yourselves, collected something
like £109 billion worth of revenue a year and I worked it
out at something like £20 billion worth of fraud a year in
the whole of the Customs brief; do those figures seem correct?
Mr Wells: The total losses of
all type including avoidance, including error and fraud—
Q42 Mr Steinberg: I am not just talking
about VAT.
Mr Wells: Across all of those
would be of roughly the order that you said.
Q43 Mr Steinberg: Twenty billion pounds?
Mr Wells: Yes.
Q44 Mr Steinberg: I think that for a
department that is, frankly, not collecting £20 billion,
your attitude is very complacent. We would not be having this
debate today if you had collected that £20 billion because
the whole of the public sector would change in terms of finance.
Think what you could do with £20 billion! Frankly, gentlemen,
I think that really you will have to get your fingers out and
tackle this and find out where some of that £20 billion is
going.
Mr Eland: As I have said, we have
succeeded in increasing VAT receipts this year by over £3
billion. If that is sustained over the next few years, then we
will succeed in driving down and meeting our targets. I do reject
the complacency charge. It is us who have tried to quantify this
problem and size it. We have set up a strategy for how to deal
with it and we are making good progress—as I say, £3
billion of receipts in this year—in tackling it, so I really
do not accept that we are being complacent.
Q45 Mr Steinberg: That was my point of
view and the Chairman seemed to have the same sort of view and
we had not collaborated before this meeting. Is it correct that
you have, according to this Report, about 1,800 investigators?
Mr Eland: Yes.
Q46 Mr Steinberg: To cover the whole
of your remit?
Mr Eland: Yes.
Q47 Mr Steinberg: I worked out from the
figures that have been given to me that there are 18 investigators
looking into £12 billion worth of fraud.
Mr Eland: I am sorry, that is
wrong. The £12 billion figure is all losses including the
businessman making a mistake, people filling in—
Q48 Mr Steinberg: The businessman making
a mistake! With respect, Mr Eland, the businessman making a mistake
is still a loss of revenue to the Customs & Excise.
Mr Eland: It is.
Q49 Mr Steinberg: And to you and I.
Mr Eland: But that does not then
lead to a criminal investigation—
Q50 Mr Steinberg: I never mentioned a
criminal investigation.
Mr Eland: —by those 1,800
people. What it does lead to is action by the 8,000 people we
have working on VAT assurance activity. So, you have to take the
whole resource if you are looking at the whole of the problem,
not just the criminal investigation resource.
Q51 Mr Steinberg: We have established
that we have 18 investigators looking into £11.9 billion
worth of fraud and you are not worried about that.[4]
Well, that is fair enough. People can make their own minds up
on that! I am always confused, I must admit, but I am even more
confused because, when I read the supplementary answer[5]that
you sent to the Committee probably this or last week when we asked
about the number of prosecutions that had been taking place over
the last five years, the information you gave us was that, in
2002-03, there was 1,845 cases and you had 1,625 convictions.
Presumably, that means in the whole of your remit.
Mr Eland: Yes, it does.
Mr Steinberg: Yes, the Report tells us
that there were 86 cases on VAT; is that right?
Chairman: I think you want to go to figure
12, page 19, which is what I referred to.
Q52 Mr Steinberg: I added up 69 and 17,
so my maths is not too bad after all! In fact, out of those 1,845
prosecutions, only 86 were on VAT fraud.
Mr Eland: Yes, that is right.
Mr Steinberg: And you say you are not
complacent! I can tell you 86 people who are defrauding VAT now!
I can give you their names!
Q53 Chairman: Right, go ahead!
Mr Eland: As I said to the Chairman,
what we are looking to do in the prosecutions area is to concentrate
the resource on the most difficult types of criminal fraud and
to use other sanctions to tackle other behaviour. So, again, you
will have to look at that whole picture.
Q54 Mr Steinberg: Mr Eland, the point
I am making is that there is a huge VAT fraud going on in this
country and there are very few prosecutions being taken to try
and recover that £12 billion and you have, in my view, a
very small proportion of the resources available to actually investigate
that and yet you say there is no complacency. I am sorry, I just
cannot accept that.
Mr Eland: I have tried to explain
the reasons why I do not totally accept the comparisons you are
making.
Mr Steinberg: You have, I appreciate
that.
Q55 Mrs Browning: On page 33, we see
that, following your one-off amnesty in 2003 when you encouraged
people who were not registered to register and you brought in
26 million as a result of that, thereafter you decided to get
tough.
Mr Eland: Yes.
Q56 Mrs Browning: Can you tell me how
you got tough and what the results of getting touch have been.
Mr Eland: We are following through
on that having given that sort of warning period, if you like,
with intensifying our effort in looking to identify people working
in the shadow economy and, in the four months between the end
of that incentive period, 1 October to 31 January, we got about
1,700 registrations in which compares very favourably with the
previous period. It is around an 87% increase and a 98% increase
in arrears, so we do feel that we are making some progress in
that area.
Q57 Mrs Browning: How much of that has
been Customs & Excise initiative alone or in collaboration,
say, with the Revenue? For example, if the Revenue opened up a
full inquiry on business, are you automatically keyed in to that
situation at the time they decide to hold an inquiry?
Mr Eland: Those figures which
I have just given you are specifically for Customs activity. In
addition to that, we have our joint shadow economy teams with
the Revenue and with the Department for Work and Pensions. I do
not know whether every inquiry is triggered to us but certainly
if they feel that there may be a VAT dimension, we would expect
to get involved in any of those joint team activities.
Q58 Mrs Browning: We read that you have
focused—and I am sure this is right—on the criminal
activities rather than those activities which would incur civil
penalties.
Mr Eland: Yes.
Q59 Mrs Browning: But your problem seems
to be in the area of civil cases where there is such a volume
that it is hard almost to catch up or to do things that act as
a disincentive other than the type of scheme that you have just
exercised in 2003. If I look on page 17 and I see the civil evasion
case there that is outlined in paragraph 2.19, it shows a very
small business situation back in October 2001, an investigation
where the value of the revenue evaded was just £32,000 of
which the civil penalty was £6,000 using a formula of some
20% of the total evaded as a penalty. It does seem to me that
if it is only going to be 20%, that is not much of an incentive
to deal with this huge volume of cases where a lot of your problem
seems to come from and I am interested to know why you set it
at 20%. If you look at that type of example, a business of that
size, is it because, if the penalty were higher, the person then
might go out of business and you might not get anything or do
you realistically think that 20% civil penalty is just and is
likely to discourage others? I personally would find it difficult
to think that 20% would actually discourage others.
Mr Eland: They have to also pay
all the arrears of tax with the 20% on top of that and I think
that can be quite a powerful disincentive. We have seen by and
large with the working of some of the other automatic-type penalties
we have in other parts of the system quite a significant improvement
in compliance since they came in. What it will not capture is
the sort of determined fraudster or determined minor fraudster
if you want to put it like that, and we would not necessarily
do that 20% mitigation if it were a second offence. We might consider
heavier action in those cases.
Mr Wells: This is an example of
the new approach where, in cases where the trader is actually
cooperating with the department—
4 Note by witness: There are considerably more
than 18 investigators looking into VAT fraud in addition to the
8000 staff undertaking VAT assurance activities. Back
5
Ev 14 Back
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