Tobacco companies 'fuelling the black market'

In collaboration with the Press Association

British tobacco manufacturers are fuelling the black market by deliberately over-supplying their products to European countries, MPs have warned.

UK manufacturers are supplying more tobacco to European countries than their markets need which is then finding its way back into the UK market without tax being paid, contributing to a loss of £1.9 billion a year, the Public Accounts Committee said.

The Committee said that Britain's tax office, HM Revenue and Customs (HMRC), "needs to identify and seek to correct any shortcomings in the legislation to put a stop to the abuse of exports by tobacco manufacturers".

In 2011 some counties supply exceeded demand by 240 per cent, the Committee added.

Under current legislation, tobacco firms have a legal obligation not to aid smuggling, but HMRC has not fined any UK tobacco manufacturer for over-supplying products and has issued only one letter of warning.

Committee chair Margaret Hodge MP said: "The HMRC has also failed to challenge properly those UK tobacco manufacturers who turn a blind eye to the avoidance of UK tax by supplying more of their products to European countries than the legitimate market in those countries could possibly require.

"The tobacco then finds its way back into the UK market without tax being paid."

Nine per cent of cigarettes and 38 per cent of hand-rolling tobacco sold in the UK is estimated to be sold on the black market.

But, Ms Hodge said: "Despite the seriousness of tobacco fraud, in 2012/13 there were only 265 prosecutions for tobacco smuggling and, in the last year, prosecutions for organised crime actually fell from 62 to 51."

She added: "Tobacco smuggling is not a victimless crime.

"Each year it constitutes a theft of revenue to the tune of some £1.9 billion, 20 per cent of the total sum collected through tax.

"It undermines drives to cut smoking and is also linked to the activities of organised crime."

The Committee acknowledged that HMRC had made ground tackling tobacco smuggling; the expansion of HMRC's network of overseas intelligence officers has been particularly successful, preventing £226 million of lost tax in the last two years for an initial investment of £4.6 million, it added.

An HMRC spokesman said: "The Government is reinvesting nearly £1 billion in HMRC to continue the fight tackling evasion, fraud and avoidance."

Kate Alley, Cancer Research UK's tobacco policy manager, said: "While the HMRC has successfully reduced the illicit tobacco trade, this report highlights the difficulties in tackling the criminal activity behind the problem. It also highlights the need for HMRC and the Border Force to take a tougher stance on tobacco smuggling, and collaborate to prosecute those involved in the black market trade.

"A decade after the Public Accounts Committee addressed tobacco executives, stating they were either 'crooks or stupid' for their failure to implement supply chain controls, it seems the same tactics are being employed."

Copyright Press Association 2013