Examination of Witnesses (Questions 180-199)
MR RICHARD BROADBENT AND MR MIKE WELLS
MONDAY 25 FEBRUARY 2002
180. That happens with any job.
(Mr Broadbent) No.
181. I am not saying you should go to the Labour Exchange and employ another 100 people. Obviously training is involved but if 300 are doing it there is no reason why 600 people could not be doing it.
(Mr Broadbent) To locate and take down laundering plants requires quite a complex mix of analytic skills, intelligence skills, investigation skills and legal skills. You cannot just create them, you have to have the capabilities, you have to invest in those capabilities. I do accept the general point you are making and it is implicit earlier that as we develop these genuinely outcome based strategies to tackle fraud, which has not been done anywhere else in the world as far as I am aware, those strategies will clearly have resourcing implications and the Government will have to look at the implications in its spending review.
182. It seems to me that it is cost effective to do that. You also gave the impression earlier on that, surprise, surprise, fraud is actually taking place. You said you did not know there was a problem. I was astounded when you gave that impression. Wherever you have taxes you have people wanting to avoid those taxes. Presumably it is happening all the time. So how were you so surprised that this was taking place?
(Mr Broadbent) I am sorry if I gave the impression I was surprised. I do not remember the context of that remark, but I agree with you, that fraud, increasingly in the modern world, is endemic, it is a commercial activity. The world we live in supplies the human and financial capital to exploit economic opportunities and that is what fraud is.
183. How long have you known this sort of fraud was taking place?
(Mr Broadbent) Which? The hydrocarbon oils fraud?
(Mr Broadbent) Hydrocarbon oils fraud in the mainland, the increasing trend, probably only became apparent in the year 2000. Before that levels of fraud were relatively low at one to 1.5 per cent; that is the level of fraud. If you have a tax regime which is 98.5 per cent compliant, which is what is implied by one to 1.5 per cent, that is not a bad level of compliance. I do not say it is acceptable, I do not say it is good, but the level of fraud on the mainland only really began to show an upward trend in 1999-2000 and we came to it reasonably quickly.
185. Which fraud are you talking about then?
(Mr Broadbent) I am talking about diesel fraud in the mainland. There is not much petrol fraud in the mainland and the Northern Ireland situation is very difficult.
186. Which particular diesel fraud?
(Mr Broadbent) The £450 million of misuse of diesel in Figure 2.
187. Red diesel has been in since 1946 has it not?
(Mr Broadbent) Yes, that is right.
188. There was no fraud in 1946.
(Mr Broadbent) We believe from the work we have done that the levels of fraud were probably one to 1.5 per cent, so a compliant regime. I know it is wrong to go back to earlier questions, but if I were allowed to go back I would simply point to the fact that the level of fraud did not start increasing at the point duty rates started increasing, it started increasing much later than that. The causes of fraud are quite complex.
189. I always get the impression that you are one step behind all the time, that the criminal is always one step in front of you. When you were last here in front of us for spirits and the warehouses and then the one before that was cigarettes or something like that, I got the impression that you were chasing your tail. They seem to be cleverer than you.
(Mr Broadbent) Customs and Excise, if I were to characterise it, is essentially a risk management organisation. Everything we do is to do with the management of risks and those risks, unlike many other organisations which manage risks, are real-time risks. If you do not collect the tax on a drink or a cigarette or oil at the time it goes, you miss it. It means therefore that a lot of the nature of our conversation is about things which have happened because that is the nature of our job. We are trying to manage real-time risk.
190. Would you not accept that you should anticipate this is going to happen, that people are going to fiddle the taxpayer all the time and you should be one step ahead of them rather than they being one step ahead of you.
(Mr Broadbent) We should try to anticipate changes but it is unreasonable to believe that we are always going to anticipate changes, indeed it is quite likely, because it is also the nature of any commercial organisations, never mind a public sector one, that the world changes very rapidly around you. It is not always easy to say what is going to happen next. What I would say is that I would measure our success in anticipating problems by looking at the compliance levels of our regimes. As we increasingly publish these outcome based numbers you will be able to do that. I should like to believe that we see levels of compliance increasing and if we do and we can maintain them, that will say something about the extent to which we are anticipating as well as dealing with problems.
191. Let us look at some of the conclusions and recommendations in paragraphs 19 and 20. We see you are considering taking certain measures. How long have you been considering taking these measures?
(Mr Broadbent) In the PBR in the autumn the Government published an outline of some of these measures. We have been consulting since then, since November last year.
192. It always amazes me. I look at some of these suggestions and it did not need a great genius to work some of them out. It does not need a great genius to say put them in. How long do you continue to consult whilst we are being defrauded?
(Mr Broadbent) The closing date for consultation was 15 February, so it has just closed. Interestingly, although, as you say, it might look an obvious thing to do to move a control point down a level, the consultation process has met with a largely unenthusiastic response.
(Mr Broadbent) From everybody who responded to the consultation: primarily the distributors themselves.
194. The criminals did not respond then.
(Mr Broadbent) Criminals very rarely respond openly to consultation exercises. I have to recognise that there are issues. Every time we impose a new control, we impose a cost. Every time we increase our sanctions, like the debate in Dover, we are told that we are in danger of being over heavy-handed. I recognise the balance.
195. How can you be over heavy-handed when the taxpayer is being defrauded of billions of pounds, not just on the hydrocarbon oils but tobacco and alcohol and who knows what else? Billions of pounds are being lost to the Treasury, billions of pounds which could be used for worthwhile things, health, education. How can you be heavy-handed? I would not have thought whatever you did was heavy-handed.
(Mr Broadbent) We are consulting on heavier penalties and I have talked this afternoon about the fact that I should like to have heavier penalties, but we have to recognise, for example, that the Commission are currently taking infraction proceedings against us for our vehicle seizure policy at Dover. There are constraints on our ability and we are constantly taken to court. We have a lot of court cases running from people who are trying to test the assessments and the measures we are taking.
196. I was trying to work out where it was. It was during the so-called fuel protests, in September 2000, if I remember rightly. I can remember a farmer friend of mine saying that a certain way of dispersing the protestors was to get the police to check the tanks in their Land Rovers and in their Volvos. He said that if the police made one or two little checks there would be no fuel protestors at all because they would all be gone; you would not see them for the smell of exhaust fumes. A farmer friend told me that. The inference there is quite obvious, is it not?
(Mr Broadbent) I could not possibly comment.
197. I think you should comment. This is the whole point. Some people are actually fiddling and they have been fiddling since 1946.
(Mr Broadbent) What I will say about the time of the fuel crisis is that in response to urgent need we did issue a derogation which allowed people to use red diesel in their tanks for the period of the crisis, so they could have claimed that it was legitimate red diesel at that particular time.
198. On the roads?
(Mr Broadbent) We gave them a derogation because the filling stations had run out of fuel. We allowed people to use red diesel for their vehicles, which may account for some of the blip in these figures. We do think we actually did lose some diesel as a result.
199. All the times I have seen you questioned, today and twice before, I got an impression of a lack of urgency about the Customs and Excise. You are pretty quick to stop little Jo coming through with a bottle of whisky he should not have, but when it comes to getting these people who are defrauding the taxpayer out of literally millions of pounds there seems to be a lack of urgency about it all.
(Mr Broadbent) I am tempted to invite my colleague to answer that question.
(Mr Wells) We get attacked if we are too robust. Earlier you suggested that fraud in the red diesel sector had been going on since 1946. In your last remark you suggested we were a little heavy-handed with the average individual coming through with an extra bottle or carton. There is a balance to be struck in all parts of this, but we have not been complacent or slow in this area.