Co-operation between the industry and HM Revenue & Customs has brought “no tangible success” in combating alcohol duty fraud, according to the National Audit Office.

The NAO’s report found that HMRC’s revamped alcohol duty fraud strategy – now covering wine and beer as well as spirits – marked a major improvement on its previous plan. However, HMRC had not successfully clamped down on the diversion of duty-avoided alcohol to the UK.

HMRC estimates that the public coffers could miss out on as much as £1.2bn for the year 2009-10 – a significant rise from the estimated £850m in 2008-09.

It has not yet measured how much tax had been lost as a result of alcohol duty fraud since the new strategy began in April 2010. But a number of targets set by HMRC had been met, including the achievement of £433m of financial benefits against a target of £390m.

The number of civil sanctions employed rose in the first year of the new strategy, with alcohol seizures up by 61% to almost ten million litres.

But the NAO criticised the low level of criminal sanctions brought against fraudsters, pointing out that HMRC lacked an explicit goal of increasing the number and effectiveness of its criminal investigations and prosecutions.  In each of the four years to 2009-10, there were convictions in just six cases or fewer for suspected alcohol duties fraud.

Working with brewers, wholesalers and hauliers to restrict the supply of popular brands of canned beer fraudulently diverted from the Continent to the UK with duty unpaid – a key strand of the new strategy – had not let to any reduction in the supply of duty-suspended alcohol.

“The benefits of the department’s efforts to secure the supply chains by working with businesses are not yet demonstrable and the level of popular UK brands of canned beer supplied to the near continent in duty suspense remains unchanged,” the NAO found.

A consultation on proposals to introduce fiscals mark for beer, a tactic which helped to counter spirits duty fraud, will be held later this year.

“Taxpayers are losing out by up to £1.2bn a year through the large scale evasion of alcohol duty by organised criminals,” said Margaret Hodge, chair of the committee of public accounts.

“The problem is only getting worse and HMRC must do more to tackle the problem. It is difficult to stop criminal activity but HMRC has not done enough to deter it through actively pursuing criminal sanctions against fraudsters.”

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