The UK has lost at least £28.5bn of tax revenue to the black market in spirits, beer, cigarettes, hand rolling tobacco and diesel between 2005-06 and 2009-10, according to a research report from the TaxPayers’ Alliance (TPA), a British pressure group.
In the years studied, £12.2bn was lost to the illicit trade in cigarettes, £6.4bn was lost in diesel, £4.5bn was lost in hand rolling tobacco, £3.2bn was lost in beer, and £2.3bn was lost in spirits.
Based on information in the HM Revenue and Customs (HMRC) annual Measuring Tax Gaps report, this lost tax revenue could have funded a 1p cut in the basic rate of income tax, a reduction in VAT back to the 17.5 per cent rate, or paid entirely for raising the tax threshold to £10,000. Not only would all of these have helped millions of ordinary families, but any amount of money back in the pockets of ordinary people can help stimulate demand necessary for growth.
The illicit trade in cigarettes, beer, and spirits makes up 16, 14 and 11 per cent of their respective markets, while half of all hand rolling tobacco is black market, according to the report.
Matthew Sinclair, director of the TaxPayers’ Alliance, said:
Duties on fuel, cigarettes and alcohol hit those on low and middle incomes hardest. High taxes also create fat profits for criminals. With new tax hikes, and proposals for a minimum price on alcohol, the Chancellor runs the risk of making that black market even more profitable. The revenue lost to the illicit trade could fund a small but welcome tax cut for millions of families, but instead it’s lining the pockets of those selling dodgy diesel, tobacco and booze. The Government need to give struggling taxpayers a better deal and squeeze the smugglers.
Since the HMRC's 2008 report, the revenue loss to the illicit market in spirits and cigarettes was revised up by £440m and £1bn respectively. However losses to the illicit market for hand rolling tobacco were revised up by £140m.