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"It is a condition of reimbursement of UK duty under the drawback provisions that the claimant must be able to demonstrate that the goods to which a drawback claim relates have been exported from the UK and that duty has been paid or secured to the satisfaction of the fiscal authority in the member state of destination."-[Official Report, 29 January 2010; Vol. 504, c. 1144W.]
The FWD has proposed a registration of wholesalers to ensure that only legitimate traders are able to supply alcohol. As wholesalers are the only unregulated part of the alcohol supply chain, I would be grateful if the Minister would give us her thoughts on what action the Government intend to take to adopt that measure.
I accept that the issue is not just one for the UK and that European co-ordination is needed. Given the scale of the fraud and its resemblance to missing trader intra-Community fraud, it is important that EU-level
co-ordination be secured. I understand that a new EU excise movement and control system is due to be introduced. It would be helpful if the Minister would give us an assessment of the impact that it will have and of when it will be introduced in the UK. More generally, is the UK working closely with EU counterparts to tackle the issue and share intelligence?
This is an important issue, Mr. Amess. If you go into an off-licence in your constituency, it is highly likely, according to the FWD, that you will find that 40 per cent. of beer sold through such outlets is illicit and that duty has not been paid. The resolution of the problem is important to the public finances and to public health, so I look forward to the Minister's response to this serious issue.
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): I congratulate the hon. Member for Rochdale (Paul Rowen) on securing this debate. Alcohol fraud is a serious issue that affects public revenue but also, of course, the livelihoods of honest businesses. I listened with interest to his speech and to the intervention.
The alcohol industry is very important to the UK. It supports the employment of many thousands of people and makes a significant contribution to Government revenue; for example, it provided more than £8 billion in alcohol duties to the Exchequer in 2008-09.
The Government take all fraud seriously, and we are committed to tackling alcohol fraud. We recognise the threat to revenues and to legitimate businesses that are trying to compete with fraudsters who evade payment of tax, and the wider threat to society from the organised criminal gangs who perpetrate the fraud. That is why the Chancellor announced at Budget 2009 that Her Majesty's Revenue and Customs, together with the UK Border Agency, is renewing its strategy to address fraud involving beer, wine and spirits.
Reports that the illicit trading of alcohol is impacting the livelihood of large and small businesses in the wholesale and retail sectors are of great concern. I am pleased to say that the comprehensive programme of work to develop a renewed strategy to tackle alcohol fraud is progressing well. The strategy has at its core the need to work in partnership with legitimate businesses in the alcohol industry, and I am glad that my officials continue to work constructively with UK producers and retailers of alcohol through the relevant trade associations to develop measures to tackle the fraud. The Government are keen that all legal measures to tackle alcohol fraud be considered fully, and we welcome the industry's input to this ongoing process.
It may be helpful if I briefly say something about the nature of the threat before I go on to outline what the Government are doing to tackle it. Beer is the largest sector in consumption terms in the UK. Spirits remain significant with relatively static consumption, and wine consumption has increased by almost 50 per cent. in recent years. All three products are subject to fraud; there is limited evidence that cider is being targeted by fraudsters.
The majority of illicit beer, wine and spirits is sold through licensed premises, with an on-off trade split of approximately 60:40 by value. The illicit market manifests itself mainly in the off-trade. Fraudsters infiltrate supply chains, so some retailers are unaware that their stock is
illicit, but others will be aware that they are sourcing product at a below duty-paid price, and are taking a significant risk.
Alcohol fraud has evolved since the introduction of the single market in 1993. Initially, the fraud was carried out with alcoholic drinks being smuggled into the UK in relatively small quantities, typically in private vehicles or vans. However, the organised criminals behind the fraud are now operating a more systematic attack to exploit the EU-wide excise holding and movement system which allows goods to circulate duty unpaid until released for consumption in the home market. That predominantly involves large commercial consignments of goods in excise warehouses moving between the near continent and the UK under false documentation. Goods are diverted and released in the UK market without duty being paid.
Three significant elements contribute to the scale of the current fraud. The first is the supply of UK-produced and, to a lesser extent, imported alcoholic drinks to the near continent in duty suspension, in excess of legitimate demand. This is similar to the situation seen in recent years with tobacco fraud. It serves to position goods so that they can be returned to the UK untaxed, thereby exploiting weaknesses in the EU movement system. For example, HMRC clearance figures show that some 600 million litres of beer was exported to the near continent last year, yet the legitimate demand for UK beer is considered to be in the range of 20 million to 150 million litres per annum. That is a key source of goods for organised criminals.
Secondly, there is facilitation of the fraud by UK and EU-based alcohol traders, including large buyers of duty suspended goods, and registered excise warehouse keepers, and a multitude of UK and EU transporters are involved. Without the complicity of alcohol traders and hauliers, the current fraud could not exist.
Thirdly, there is a strong demand for illicit, cheap alcohol from some in the UK wholesale and retail sectors. It allows them to compete with others in an aggressive sector and with large multiple retailers, as the hon. Gentleman pointed out. To be successful, we need to tackle all those elements to make it more difficult for fraudsters to access illicit alcohol, to operate and to supply demand at the wholesale or retail end of the market.
Estimating the scale of the fraud is far from a precise science. It involves analysis of consumer surveys such as the expenditure and food survey and HMRC clearances data. Estimates of illicit alcohol market share are currently published only for spirits, most recently in the pre-Budget report, and are expressed as a range. The mid-point is 5 per cent. and the upper estimate is 9 per cent.
We do not yet have robust estimates for beer or wine, but HMRC's latest internal estimate for beer suggests that the illicit market share is in a range with a mid-point of 9 per cent., which is equivalent to £550 million in excise duty and VAT, and an upper estimate of 12 per cent., which is equivalent to £710 million. Work is ongoing to develop the methodology used, and HMRC is currently testing data assumptions with relevant trade associations, so the estimate for the illicit beer market share may be subject to revision. We do not yet have equivalent estimates for wine or cider.
It is in the mutual interests of both the Government and the industry to tackle alcohol fraud robustly. The Government launched their initial alcohol fraud strategy, which was aimed at tackling sales of illicit spirits, in 2005. At that time, spirits fraud was the major threat due to spirits being a high-value, low-volume product relative to other alcohol commodities. Among other initiatives, we introduced a duty stamp scheme for spirits. The absence of a duty stamp, which is a clear indication that duty has not been paid, enabled HMRC and honest businesses for the first time to identify illicit products.
The spirits strategy has been quite successful in reducing the scale of the fraud. For 2003-04, the mid-point estimate for the illicit market share was 8 per cent., which is equivalent to £300 million, and as I just mentioned, the latest published figures for 2007-09 show that this has been reduced to 5 per cent., which is equivalent to £150 million.
Complementing the spirits fraud strategy, we have been tackling fraud in categories of drink with some success. For instance, in the nine months to the end of December 2009, HMRC and the UK Border Agency seized more than 4 million litres of illicit beer and wine. However, we are aware that fraud in beer and wine is becoming a growing problem, with the legitimate wholesale and retail trade particularly finding it difficult to compete with the illicit market, and we are aware that much more needs to be done. That is why in Budget 2009 the Chancellor announced that we were renewing our strategy to tackle alcohol fraud to involve types of alcohol.
We are committed to tightening the law where appropriate and tackling criminals hard, but we look to the industry to support and work with us. There are three major strands to our approach: changing the law to make life tougher for criminals and easier for honest businesses to compete; working with honest businesses to secure legitimate supply chains and make it harder for criminals to source alcohol; and strengthening our operational response to alcohol fraud as part of a centrally co-ordinated effort to detect, disrupt and dismantle organised criminal networks and supply chains. HMRC is making good progress on all three strands of this strategy.
The regulatory framework is being strengthened, within what is allowable under the EU directive governing the holding and movement of excise goods, to reduce opportunities for error and fraud. For example, in June 2009 we changed legislation to withdraw the facility to draw back duty paid for goods warehoused for export, which was being systematically abused to steal revenue by people making false claims for repayment of duty. This had an immediate and substantial impact on the amount of alcohol drawback being claimed and paid. Further measures outlined in Budget 2009, including the reform of excise financial securities, have been consulted on in 2009-10 and options for regulatory change are currently being considered.
A number of further regulatory changes have also been proposed in the course of dialogue between trade associations and HMRC. I would particularly like to mention the Federation of Wholesale Distributors, which, as the hon. Member for Rochdale rightly said, I have not yet had the opportunity to meet. But I am trying to meet as many stakeholders as possible. The FWD made
some radical suggestions for further tightening up the duty drawback regime to prevent displacement of fraud into the remaining system, and on taking a much harder line on the seizure of goods and assessment for lost taxes where goods are being traded close to or below their full duty paid price. These proposals are being actively explored by officials to see if they are within the boundary of the law.
Mr. Clifton-Brown: I appreciate that, for security reasons, the Minister may not want to give too much detail, but I understand that the enforcement unit within HMRC is still small. Will she say whether the Government have granted HMRC more resources so that it can employ more people to chase this illicit trade?
Sarah McCarthy-Fry: We take our responsibilities towards illicit trade seriously. We are looking at a three-pronged approach in this regard. We are establishing targets to ensure that HMRC and UKBA are carrying out the activities that are necessary for the alcohol strategy to be successful. So we are concentrating on that side of it.
We have also invested in the UK implementation of an EU-wide excise movement and control system to be introduced from April 2010. This will help combat fraud by capturing data of all excise movements between warehouses in the EU electronically in real time, allowing tax authorities to interrogate and target high-risk movements. That system also requires the validation of the legitimacy and content of movements by both exporting and importing warehouses before the movement begins. The new system will therefore provide much greater transparency about what goods are moving between which warehouses, to allow easier and more effective controls between the EU and the UK.
We recognise that the success of the strategy to tackle alcohol fraud will in large part depend on reducing the ability of fraudsters to access duty unpaid alcohol to fuel their illicit supply chains. The volume of alcohol available for fraud in the UK is something that, to an extent, is within the control of producers and their immediate customers and we will need to work in partnership with industry to reduce that.
Paul Rowen: I have listened carefully to the proposals that the Minister is working on. When she meets members of the FWD and distributors, will she explore the registration scheme with them, because from the evidence that they have presented to me the wholesale part of the chain is now the only bit that is not regulated and is therefore the weak link in the chain? If that could be regulated we could, with all the other controls that she is talking about, close down on some of these fraudsters.
Sarah McCarthy-Fry: I am always happy to consider any proposals that will help us tackle this matter in the most cost-effective way. If there are weaknesses in the system, I am more than happy to consider the evidence.
I am also encouraged that large brewers and the wholesale sector have reached agreement to work with officials from HMRC on developing practical measures to restrict the availability of alcohol to fraudsters at source. These parties produce or control more than 80 per cent. of the alcohol sold in the off-trade. I understand that work is at an early stage, but with the
commitment of these key players within the industry there is great potential to reduce the supply of alcohol to the illicit market. This is key to tackling the fraud. I look forward to the sectors of the legitimate industry being fully co-operative on this issue.
Building a stronger, more flexible operational response to alcohol fraud is the last line of defence against organised criminal attack. We aim to deliver co-ordinated, targeted, high-impact interventions in respect of the key players in the fraud. This new approach will aim to attack illicit supply chains end to end, targeting the largest players propagating the fraud through to the middlemen who facilitate the fraud hiding behind the facade of operating legitimate businesses. That approach will involve HMRC and UKBA working with partner agencies to deploy the full range of enforcement tools and powers to make a lasting impact, including hard-hitting sanctions against fraudulent businesses and individuals, such as assets confiscations, winding-up orders and prosecutions, as well as removing licences and approvals from others facilitating the fraud through dishonest trading. The hon. Member for Rochdale asked me about the levels of prosecutions. I do not have the figures to hand, but I think I have demonstrated that prosecution is but one tool in the armoury, because we have other means to impose sanctions on such people.
This co-ordinated and systematic work will begin in earnest in April 2010. I am pleased to report good progress by HMRC and UKBA in preparing for the new approach. The aim is to make it difficult for fraudsters to operate, thereby protecting legitimate businesses' ability to thrive. This is a significant and innovative shift in approach which we expect will deliver a much greater impact on fraud. I hope industry will support us.
We have a coherent package of measures to hit back hard against this fraud from several directions. Due to the need for detailed consultation with the alcohol industry to avoid any unintended effects of legislation on legitimate trade, and the scale of change for HMRC, the renewal of the alcohol strategy was announced as a programme of work for 2009-10. I am pleased that this programme of work is nearing completion and I expect to begin seeing the impact of its implementation from 1 April 2010.
Paddy Tipping (Sherwood) (Lab): I am delighted to have the opportunity to talk about what I think, and what the vast majority of people in this country think, is a vital topic. I recall that in my maiden speech back in May 1992 the first issue I addressed was the need to renew, regenerate and re-grow Sherwood forest. It is fitting that, in the twilight of my parliamentary years and in some of the last comments that I will make, I return to the subject of forestry.
It is important to recognise that during the 18 years between 1992 and now there have been major changes in thinking. At one time woodland cover was regarded as an additional extra, a luxury, the icing on the cake and something nice to have. But it has become clear in recent years that woodland policy is vital in delivering many of our mainstream policies. Let me give some examples, starting with the most pressing issue: climate change goals of mitigation and adaptation.
Woodland has a vital role to play, both here in the United Kingdom and internationally: it has real benefits for soil and water and can help with flood alleviation and is a source of and background for more wildlife. We underestimate the value of good quality woodland in providing an environment for economic development and, more particularly, tourism. I shall speak later about woodland providing timber, but there are also benefits for recreation and health-walking the woodlands brings physical and mental benefits. In their low carbon transition plan, the Government state the position well when they say that
"well-targeted woodland creation can also bring about other benefits, including a recreational resource, employment opportunities, flood alleviation, improvements in water quality, and helping to adapt our landscapes to climate change by linking habitats to support wildlife".
A number of reports that have been published recently recognise the value of woodland. A consensus is growing that woodland creation is a mainstream policy. The Read report, which was commissioned by the Forestry Commission and published just before Christmas-I understand that the Government will respond to it around Easter-states clearly that the Forestry Commission should try to produce 23,000 hectares of wood a year over 40 years. That would help to reduce carbon emissions in the UK by 10 per cent. The Government's low carbon transition plan, which was published in the summer, called for an additional 10,000 hectares a year for 15 years, and calculated that that would remove 50 million tonnes of carbon dioxide between now and 2050.
The UK's biodiversity action plan identifies a target of 83,555 hectares of new woodland by 2010, and a total of 164,000 hectares by 2030. That is important, because we start from a very low base. The UK is the fourth least wooded country in Europe. Only 8 per cent. of England is covered, with 5.8 per cent. of that being broadleaf. We have a notion of England being a green and pleasant land where people wander in the greenwood, but that is not the reality. The figures for tree creation and woodland planting have remained stable for a couple of decades. We are not making progress to achieve our aims.
I am particularly concerned about my area of the east midlands where only 5 per cent. of the region is covered by woodland. Closer to home in Nottinghamshire-the
home of the internationally famous Sherwood forest-just 8 per cent. of the cover is woodland. The east midlands forestry framework states:
"The Region has a relatively poor level of tree cover compared to England as a whole. Creation of new woodlands, particularly with native species, can stimulate the economy through tourism, business diversification and forestry employment."
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