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7 Feb 2006 : Column 1122W—continued

Special Reserve

Dr. Cable: To ask the Chancellor of the Exchequer when each payment (a) into and (b) out of the special reserve was made in each year since 2000; what each payment was for; and if he will make a statement. [48740]

Mr. Des Browne: Allocations to the special reserve are announced and recorded in Budgets and pre-Budget reports. The 2002 pre-Budget report made a special contingency allocation of £1 billion, increased to £3 billion in Budget 2003. In the 2003 pre-Budget report the Government announced that the remaining £2 billion of this special reserve would be carried forward to 2003–04. A further £500 million was set aside for the financial year 2003–04 and a further £820 million for 2004–05 as a prudent allowance for continuing spending on Iraq, Afghanistan and our other international commitments. In Budget 2005, a further £340 million was added to the special reserve for 2004–05 and £400 million for the special reserve in 2005–06. The 2005 pre-Budget report allocated a further £580 million to the special reserve in 2005–06. Costs and provision will continue to be reviewed at Budgets and pre-Budget reports.

The reserves, including the special reserve, are managed together as a mechanism for future budgetary planning, rather than to account for past expenditure. Past expenditure is accounted for through outturn information provided in Departmental accounts, which do not discriminate between spending provided for in Departmental spending review settlements and spending provided for from the reserves.

Spirits

Mr. Carmichael: To ask the Chancellor of the Exchequer (1) what assessment the Government have made of the merits of introducing a sunset clause for the new spirit labelling scheme; [48595]

(2) what the estimated total costs are of implementing the Government's proposed spirit label stamp scheme; and for what reasons these costs have not been set out in the regulatory impact assessment. [48642]

John Healey: Spirits fraud continues to be a significant problem, and the Duty Stamps scheme is central to the Government's strategy for tackling it. Duty stamps remain a proportionate response to the problem. Since the original regulatory impact assessment was published in April 2004, industry compliance costs have been reduced from £23 million set-up costs and £54 million per annum ongoing costs to £6 million set-up costs and £4 million per annum ongoing costs. These revised costs were published in an update to the original regulatory impact assessment, which was laid before the House on 9 January 2006
 
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alongside the Duty Stamps (Amendment of paragraph 1 (3) of Schedule 2A to the Alcoholic Liquor Duties Act 1979) Order 2006. The Government have allocated £36 million over a three-year period to HM Revenue and Customs to implement its enhanced alcohol strategy, which includes the duty stamps scheme. These costs were included in the explanatory memorandum which was also laid alongside the order.

With the cooperation of the UK spirits industry, the duty stamps scheme remains on course to be implemented in full during 2006–07. The scheme will, in due course, be the subject of a post-implementation review and a review of the regulatory impact assessment.

Mr. Carmichael: To ask the Chancellor of the Exchequer if he will list the spirit fraud seizures and detections during the last 12 months which involved revenue evasions in excess of £1 million. [48596]

John Healey: HMRC made no confirmed spirits fraud detections involving revenue in excess of £1 million during the past 12 months. Individual freight seizures of illicit spirits are unlikely ever to exceed £150,000 in revenue value, as a 40' container or trailer will normally hold a maximum of 14,000 litres (1,500 cases) of product.

Mr. Carmichael: To ask the Chancellor of the Exchequer what share of the UK spirit market will be exempt from the spirit label stamp scheme because it falls below the 30 per cent. alcohol by volume threshold. [48633]

John Healey: About 14 per cent. according to figures provided by the spirits industry, during consultations on the duty stamps scheme.

Mr. Carmichael: To ask the Chancellor of the Exchequer how many entities outside the UK have registered for spirit label stamps; what estimate he has made of the number of stamps which HM Revenue and Customs will distribute to non-UK entities; what steps the Government are taking to ensure the credentials of those applying for stamps abroad; and whether HM Revenue and Customs will police the application and use of stamps overseas. [48634]

John Healey: HM Revenue and Customs have so far received 37 applications for registration for duty stamps from businesses outside the UK. All applications are closely scrutinised to ensure that applicants are eligible to be registered for the scheme. For businesses outside the UK, based in the European Union only approved excise warehousekeepers, whose details are confirmed by the other member states' authorities can apply for registration. For businesses outside the European Union, only those in very specific trade categories are eligible to register.

Registered businesses can make commercial choices as to whether to incorporate the duty stamp into bottle labels or to affix freestanding stamps distributed by HM

Revenue and Customs' contractor. For imported spirits, the stamps can be applied outside the UK or in the UK once imported. The number of freestanding stamps distributed to non-UK entities is dependent on these commercial choices and is not possible to estimate at this stage.
 
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For registered businesses based outside the European Union, HM Revenue and Customs will exercise control over goods as they enter and within the UK and can seek targeted assistance from the authorities of other countries under long-standing agreements between World Customs Organisation members. For businesses based in other member states of the EU, existing arrangements for mutual assistance between fiscal authorities will be used.

Mr. Carmichael: To ask the Chancellor of the Exchequer (1) what recent assessment he has made of the scope for worldwide (a) theft and (b) counterfeiting of UK duty stamps once the spirit label stamp scheme is introduced; [48635]

(2) what steps he has taken to ensure that the spirit label stamp scheme will not be undermined by the use of stolen or fake stamps. [49271]

John Healey: HM Revenue and Customs assess that the risk from theft of duty stamps is low. Businesses using duty stamps are required to keep a record of stamps obtained and used and to report any theft of stamps to HM Revenue and Customs.

HM Revenue and Customs have utilised state of the art security print technology in the design of the freestanding duty stamp, which will make successful counterfeiting difficult and expensive.

So far as duty stamps incorporated within bottle labels are concerned, one of the factors that the Government took into account before deciding to permit label stamps was their potential effect on counterfeiting. As industry representatives pointed out when advocating label stamps, they make counterfeiting a less viable proposition than would have been the case with traditional strip stamps, since fraudsters would need to obtain not only the label stamps but also bottles of spirits without labels. Alternatively, fraudsters would have to incur the cost of removing any existing labels before being able to use counterfeit label stamps.

Mr. Carmichael: To ask the Chancellor of the Exchequer what recent assessment he has made of the reasons for the level of spirit fraud (a) seizure, (b) detection and (c) prosecution rates. [48636]

John Healey: Details of illicit spirits seized and prosecutions for spirits offences are contained in the HMRC annual report for 2004–05 published in December 2005.

Individual output measures relating to selected elements of HMRC's activity to tackle spirits fraud cannot be taken as a proxy measure of impact.

More important than such activity indicators are the figures published alongside the pre-budget report in December 2005 which show that the Government have succeeded in reducing the UK illicit spirits market from 9 per cent. in 2001–02 to 7 per cent. in 2003–04.

The Government announced an enhanced strategic approach to tackling alcohol fraud in its 2004 pre-budget report, setting HMRC the tough target of reducing spirits fraud by half by 2008.
 
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Mr. Carmichael: To ask the Chancellor of the Exchequer how his Department calculates spirit fraud VAT losses within total revenue loss estimates; and whether it is assumed that all illicit bottles pay no VAT as well as no excise duty. [48637]

John Healey: For the purposes of its revenue loss estimates, HMRC makes the cautious assumption that illicit bottles of spirits pay no UK VAT as well as no UK excise duty. An average rate of VAT loss in pounds per litre of spirits sold in the UK is derived from data provided by market research organisations. This rate is subsequently multiplied by the amount of the estimated illicit volume in order to obtain the total VAT loss.

The approaches used for measuring VAT losses are outlined in the HMCE report: Measuring Indirect Tax Losses—November 2002". This can be accessed through the following link: http://www.hm-treasury.gov.uk/media/389/E5/admeas02–297kb.pdf.

Mr. Carmichael: To ask the Chancellor of the Exchequer what evidence the Government have collected to support their estimates of the scale of spirit fraud. [48638]

John Healey: The methodology used to estimate the scale of spirits fraud was subject to an independent review by the Office for National Statistics, the details of which were published in July 2005. HMRC has made a number of refinements to its approach in response to the findings of the ONS review and these are reflected in the estimates published alongside the 2005 pre-Budget report. HMRC's operational activity and intelligence supports our understanding that spirits fraud continues to be a major threat.

Mr. Carmichael: To ask the Chancellor of the Exchequer what his most recent estimate is of the value of revenue losses caused by spirit fraud; and what the statistical lower bound estimate is for spirit fraud. [48639]

John Healey: The most recent estimates of the value of revenue losses caused by spirits fraud, and associated margins of error, are set out in Measuring Indirect Tax Losses"—2005 published alongside the pre-Budget report in December 2005.

Mr. Carmichael: To ask the Chancellor of the Exchequer what assessment his Department has made of the Office of National Statistics' review of spirits fraud published on 21 July 2005; and whether he has accepted its conclusions in respect of previous Government estimates of revenue evasion. [48640]

John Healey: The Department welcomes the report. Following detailed assessment of the report, the Department has adopted a number of refinements to the method for estimating the level of revenue losses attributable to spirits fraud. These are set out in Measuring Indirect Tax Losses"—2005, published alongside the 2005 pre-Budget report.

Mr. Carmichael: To ask the Chancellor of the Exchequer (1) what assessment he has made of the effect of introducing a spirit label stamp scheme on illegal spirit sales; [48641]

(2) what estimate he has made of the reduction in spirit fraud which will result from Government plans to introduce a label stamp scheme. [48643]

 
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John Healey: Duty stamps for spirits were announced at Budget 2004 as part of a package of measures for tackling the revenue lost through spirits excise duty fraud. The scheme complements and supports the other strands of the strategy such as Memoranda of Understanding with the spirits industry and enhanced operational activity. These measures were introduced to halve the level of spirits fraud by 2007–08.

The projected revenue benefit of the alcohol strategy as a whole is £85 million. However, it is not possible to estimate the revenue benefit of each individual strand of the strategy, as it is the combination of the whole package that determines the total effect.

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