HM Revenue and Customs 'missing cigarette smuggling targets'

Angus Crawford visits a giant X-ray machine designed to combat smugglers

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HM Revenue and Customs has failed to meet any of its targets on reducing the smuggling of illicit tobacco into the UK, a Whitehall watchdog has said.

The National Audit Office said HMRC's latest strategy, launched in 2011, had so far prevented losses of £328m - less than two-thirds of the total projected.

And its target of saving £1.4bn over four years now appeared "unachievable".

HMRC said it was committed to tackling tobacco smuggling and had invested an extra £25m from 2010 to 2015.

'Disappointing'

HMRC has estimated that in 2010-11 alone, duty was not paid on 9% of cigarettes and 38% of hand-rolling tobacco smoked in the UK at a cost of £1.9bn in lost revenue.

At the Lithuanian border

Many of the smuggled cigarettes are made in Belarus, then smuggled into the EU via the Lithuanian border.

An articulated lorry with Russian number plates was driven into the huge X-ray machine. On a monitor nearby a customs officer picked over the multicoloured image of the skeleton of the vehicle.

This is the very edge of the EU, the frontier between Lithuania and Belarus, and customs officers pick apart any car that raises suspicions.

It's a thousand miles from Britain, but it's our first line of defence against cigarette smugglers.

We're shown a smart-looking minibus which was pulled over that morning. Officers pulled out the seats and under the carpets found two secret panels cut into the floor. Hidden were 60,000 cigarettes. The vehicle was seized, its occupants fined.

Later we're taken to a Soviet-era warehouse and shown some of the tobacco seized by the authorities. It is piled from floor to ceiling.

Last year they confiscated more than 230m illicit cigarettes. They admit they only intercept about 10% - the rest are smuggled on into the rest of Europe and many end up on the streets of Britain.

A packet bought for the equivalent of 20p in Belarus can sell for £4 on the streets of Britain.

The report acknowledged HMRC had achieved some success in building up its intelligence network overseas, resulting in the seizure of an estimated 1.27bn cigarettes and 56 tonnes of tobacco overseas in 2012-13.

But it said key initiatives to curb smuggling had been delayed or cancelled - in part due to legal concerns - while HMRC lacked a "good understanding" of the volume of prosecutions and other legal sanctions needed to provide an effective deterrent.

NAO head Amyas Morse said tobacco smuggling was a "significant threat to tax revenues" and it had consequences for public health by making cheaper illicit tobacco more accessible.

"HMRC's renewed strategy for tackling tobacco smuggling sets out the right measures but, two years on, the department's performance on the ground is disappointing," he said.

"It has not capitalised on extra reinvestment funding available under the 2010 spending review settlement.

"And it still cannot properly assess how effective its strategy is in tackling tobacco smuggling and the trade in illicit tobacco products in the UK."

Despite legislation in 2006 aimed at cracking down on tobacco manufacturers facilitating smuggling, the NAO said the supply of some hand-rolling tobacco brands to certain countries was still estimated to exceed legitimate demand by 240%.

'Criminal gangs'

Margaret Hodge, chairwoman of the Commons Public Accounts Committee, said HMRC had "not got a grip" on smuggling and was "falling short".

"HMRC has been too weak to fully enforce the law in this area and needs to be tougher to stop products being available to smuggle," she said.

A spokesman for HMRC insisted the department was committed to tackling tobacco smuggling.

Secret filming of BBC team buying smuggled cigarettes in Kent

"The additional investment we received in 2010 has ensured that HMRC is able to do more to tackle tobacco smuggling than ever before," he said.

"The illicit cigarette market has continued to decline and through our work with Border Force, in the last two years nearly 3.6bn illicit cigarettes and 1,050 tonnes of rolling tobacco have been seized.

"This has resulted in 431 prosecutions and over 1,600 assessments and penalties issued with a value of nearly £24m.

"We continue to work across government, to further improve our intelligence and ensure the organised criminal gangs behind this crime are brought to justice."

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