Today if you were to type the words ‘alcohol smuggling’ into most search engines you’re more likely to find tips on how best to smuggle bottles of spirits into music festivals than you are to find information about alcohol duty fraud.
Unfortunately the reality is that approximately 13% of the beer we drink is untaxed and in total untaxed alcohol alone costs the taxpayer over £1 billion per year. Organised criminal gangs smuggle, or divert, large volumes of untaxed alcohol and often make fake or inferior products.
The millions of pounds that line the pockets of these criminals should be funding public services. Part of my job as a Treasury minister is working closely with HMRC to ensure that government is doing as much as it can to protect a valued industry and tackle what is known as the ‘tax gap’, the difference between the amount of tax that should, in theory, be collected by HMRC, against what is actually collected.
The UK’s tax gap is one of the lowest in the world but there is a lot more we can do to reduce it further. In a volatile global economy we must continue to reduce our debts and tackling the tax gap will directly help in tackling the deficit.
HMRC staff are working hard to reduce the amount of fraud committed. During 2012 to 2013, Border Force helped HMRC seize 12.7 million litres of alcohol. To put that figure into context, that’s enough alcohol to fill an Olympic sized swimming pool five times over and double the amount of beer the entire city of Munich drinks in one of their famous Oktoberfests.
Since the launch of its ‘Tackling Alcohol Fraud’ strategy in 2010, HMRC has protected more than £3.6 billion in revenue through enforcement activity. However, the threat from organised criminals isn’t reducing and tax losses remain unacceptably high.
Illicit alcohol typically works its way into supply chains at the point of wholesale. Unfortunately, a minority of dishonest wholesalers let this happen. So in January this year we introduced the Alcohol Wholesaler Registration Scheme (AWRS.) This obligatory scheme requires alcohol wholesalers to demonstrate they are ‘fit and proper’ businesses to be included in the register.
The scheme will increase our ability to remove illicit alcohol from the market because wholesalers will have to be approved by HMRC. Eventually retailers will be required to make sure that the wholesalers they buy from are registered and will be able to check this online.
This is a bold step which will ultimately remove the excuse of ignorance for any business who might take the risk of dealing in illicit alcohol. The registration window is now set until 31 March this year and I urge any business which sells alcohol to another business to sign up before it closes. HMRC have worked hard alongside industry to design the AWRS to ensure hardworking businesses that follow the rules will no longer lose out to criminals.
In another move which has been welcomed by industry, government is also giving consumers of famous UK spirits such as Scotch whisky greater reassurance that what they buy is the genuine article. The Spirit Drinks Verification Scheme, introduced in 2014, will help us do that.
The scheme is designed to fight fakes and protect the authenticity of spirits produced in the UK by ensuring that all businesses involved in the production of these spirits - from fermenting and distilling through to bottling and labelling - meet strict requirements.
UK spirits are big business; Scotch whisky for example accounts for about 25% of the UK’s total food and drink exports. So we must continue to protect our unique exports from serious criminals wanting to take a piece of the market.
That’s why I am pleased there has been further action taken by HMRC to set up a joint alcohol anti-fraud taskforce, including Border Force, Trading Standards, and senior figures from the alcohol industry.
I am determined to see this government going further than ever before to close the tax gap and make life harder for alcohol fraudsters to operate. We have more progress to make, but to those businesses that are affected by alcohol duty fraud the industry now has more weapons available to protect your business and your profits.
Damian Hinds is Exchequer Secretary to the Treasury and MP for East Hampshire