2 Progress in delivering the tobacco
15. The expansion of HMRC's network of overseas
intelligence officers under the 2010 Spending Review has yielded
a significant return on investment, preventing an estimated £226
million of lost tax for an initial investment of £4.6 million
a benefit to cost ratio of 49:1.
16. HMRC recognised that there was scope for
increasing the profile of enforcement action to increase the impact
on deterrence. It
had strengthened the enforcement and compliance aspects of its
strategy by introducing civil assessments and penalties. These
enable HMRC to impose financial sanctions, in addition to the
value of lost revenue on those caught smuggling tobacco, and to
increase the volume of criminal prosecutions which target smaller
HMRC noted that it had to weigh the higher cost of prosecuting
people, against the use of civil penalties and assessments in
deciding the best course of action to take in combating tobacco
17. Although prosecutions for small scale offences
involving tobacco increased from 105 in 2011-12 to 214 in 2012-13,
prosecutions for organised crime fell from 62 to 51 over the same
period, making a total of 265 prosecutions for tobacco fraud in
2012-13. The total
number of convictions for tobacco fraud has been static year-on-year.
HMRC had processed only 1% of potential cases for assessments
and penalties successfully in 2011-12, rising to 28% in 2012-13.
HMRC acknowledged the need to enhance its work to tackle tobacco
smuggling in the UK by rolling out campaigns supported by more
sophisticated intelligence and by working closely with the police
and with trading standards.
18. In addition to serving as a deterrent, prosecutions
can also reveal valuable intelligence about organised crime networks
which can then be used to improve the effectiveness of the other
strands of the strategy, for example, by informing the targeting
of overseas activities.
UK tobacco manufacturers have had a responsibility not to facilitate
smuggling since the introduction of supply chain legislation in
2006, which was designed to minimise the over-supply of tobacco
products to overseas markets. HMRC works with the
tobacco manufacturers and can impose sanctions on manufacturers
in cases where they fail to meet their obligations.
HMRC considered that this work had contributed to a 64% reduction
in the over-supply of cigarettes to high-risk countries between
2008 and 2012.
19. No UK tobacco manufacturers have been prosecuted
under supply-chain legislation and HMRC has issued only one letter
of warning. However,
HMRC told us that it still had concerns about the over-supply
of tobacco products, particularly of hand-rolling tobacco, to
high-risk markets overseas.
HMRC explained that one of the challenges it faces in applying
the legislation is that it only comes into effect if the manufacturers
do not co-operate.
20. Over the first two years of the 2010 Spending
Review, HMRC has secured a total return in terms of reduced revenue
losses of £328 million on an initial investment of £11
million; less than two-thirds of the expected benefit.
It told us that it currently expects to deliver around £900
million of the initial target of £1.4 billion, a return on
investment of around 30:1, which is considerably above the average
across HMRC of around 11:1.
21. HMRC uses a basket of measures to assess
the impact of its work to tackle tobacco smuggling.
At present, tax gap data used to monitor long-term trends is subject
to an 18-month time lag. However from autumn 2013, HMRC plans
to publish new data with a time-lag of six months.
The availability of more up-to-date and timely data on the tax
gap should enable HMRC to adapt more quickly to changing conditions.
However, there are significant inaccuracies in HMRC's estimates
of the impact of its criminal investigations.
23 Q 51; C&AG's report, Figure 8 Back
Qq 28-29 Back
Qq 27, 119 Back
Q 58 Back
Q 31; C&AG's report, Figure 13 Back
Q 33; C&AG's report, para 2.41 Back
Q 31 Back
Qq 27, 33 Back
Q 57 Back
33 32 Qq 63, 113 Back
Q 91 Back
Qq 43, 60, 92, 95-97 Back
Qq 63, 98; Ev 20\ Back
Q 85; C&AG's report, para 12 Back
Qq 81, 83, 86, 90 Back
Q 47 Back
Q 44 Back
Qq 38, 47-48 Back
C&AG's report, para 15 Back