The government risks ­creating a duty fraudsters’ paradise if it scales back HM Revenue & Customs, the FWD has warned.

The body fears next week’s Comprehensive Spending Review could see HMRC staffing levels cut, hitting its ability to tackle duty fraud, which costs the Treasury £1bn a year in lost VAT and duty.

FWD chief executive James Bielby has written to Exchequer secretary David Gauke ahead of the review on Wednesday. He claimed cuts to HMRC would threaten the livelihoods of honest wholesalers, who have seen sales of some beers slump 40% in the past two years as a result of illegal competition.

“From our discussions with the department and anecdotal reports from wholesalers, it is evident that HMRC investigation officers are already stretched to full capacity,” Bielby wrote.

“Any reduction in funding or staffing in this area is likely to be counter-productive since it will have a significant, and negative, impact on the ability of the department to combat fraud and collect significant sums of money for the UK Exchequer. This illicit trade is undercutting prices and having a severe impact on the economic viability of legitimate traders whose businesses are being threatened with closure from the fraud.”

HMRC staff numbers had fallen from 110,000 to 70,000 in the past five years, he said. A further 5,500 jobs were already set to go and next year’s hike in VAT of 2.5 percentage points would be another incentive for duty fraudsters.

Pressure from the FWD has prompted HMRC to step up its war against alcohol duty fraud over the past year by setting up regional team to root out fraudsters. Any inroads made by the HMRC in recent months could be undone by cuts in resources, warned Bielby.

“We are not convinced that the issue of alcohol duty fraud is as high up HMRC’s worry list as we would like and any cuts in their staffing won’t help,” he said. “It could lead to more places for them to hide.”

Read more
Beer doesn’t need duty stamps, claim brewers (25 September 2010)
FWD leads duty stamp calls despite brewer opposition (30 July 2010)