Select Committee on Public Accounts Minutes of Evidence

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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