With permission, Mr. Deputy Speaker, I wish to make a statement on this week's Court of Appeal case, known as Stockade, arising from investigations into the Fort Patrick bonded warehouse in 1996–97. Stockade is linked to the London City Bond—LCB—cases, which were investigated by Customs and Excise from 1995 onwards. I wish to inform the House of the actions that the Government have taken to deal with this series of frauds when organised criminal gangs took advantage of weaknesses in the Excise regime.
I can confirm to the House that since 1997 we have tightened Excise controls and made fundamental changes to the management of Customs cases. I can report that the independent inquiry that the Attorney-General and I jointly established in November, which anticipates the implications of LCB for cases like Stockade, is already under way. In 1998, we tightened the regulation of Excise warehouses to tackle the specific loopholes that the criminals were using in the Stockade and LCB frauds, but fraudsters and smugglers constantly change their methods, so the law enforcement challenge is continuous. In 2000, we commissioned the independent Roques review to look at Excise losses and Customs' methods of control. We accepted 62 of the 65 recommendations, and have continued to tighten the duty suspension regime since.
For the first time ever, Customs has made comprehensive estimates of the revenue losses facing all the main indirect taxation regimes, and we now have detailed strategies with substantial new resources in place to tackle smuggling and indirect tax avoidance and fraud. Investigations in Excise cases are necessarily long and complex, reflecting the scale and sophistication of the criminal organisations involved, but the prosecutions that followed in the LCB-related cases have highlighted for Customs issues about the status of informants, the handling of documentation and disclosure of information to the courts. The Government have already put in place important changes to reduce the risk from such problems, which date from the 1990s, but of course in such complex criminal investigations there will always be some cases that fail.
In legislation, we passed the Regulation of Investigatory Powers Act 2000 to establish a surveillance commissioner and set common guidelines on the use of informants for all law enforcement agencies. Statutory codes of practice enforced under the Criminal Procedure and Investigations Act 1996 govern the process of disclosure in criminal investigations. Far-reaching changes have also been made within Customs. A new chairman was appointed from outside the organisation in January 2000, and new senior staff on law enforcement have been appointed. With new case controls, training programmes and professional standards, the management of Customs investigations is being thoroughly overhauled.
In addition, from April last year and following the recommendation of the Gower-Hammond report, which the Government commissioned, responsibility for prosecution decisions and accountability for Customs' prosecution function has been taken away from Customs and placed with the Attorney-General. Following the collapse of the London City Bond cases in the Court of Appeal two months ago, the Attorney-General and I jointly established the independent Butterfield review. Its terms of reference are to consider the circumstances that led to the termination of the LCB cases, examine the wider issues and advise on whether Customs' current criminal case handling meets statutory requirements and best professional practice. The review has unrestricted access to Customs staff, facilities and papers, and Mr. Justice Butterfield has been asked to report to us by June this year.
The Government are still dealing with the fallout from events that date from the mid-1990s. We have commissioned and acted on independent reports from Roques, Butler and Gower-Hammond. We have made important changes to the way in which Customs investigations and prosecutions are handled, and the independent inquiry to deal with the concerns from this week's case is already up and running. Wherever necessary, we will do more, and the Butterfield review will play an important part in any further reform. It will be of great interest to the House, and I can confirm that a summary of the report and its recommendations will be laid before Parliament.
I am grateful to the Minister for his statement and his courtesy in allowing me prior sight of it.
The statement is welcome, especially as we have been pressing for it. It stands in marked contrast to the Minister's written statement in November on the London City Bond case, to which he referred today. Why did the Government see fit to smuggle out a written statement then, but finally see fit to speak on the mess and confusion in Customs now? Is it because the Minister realises that there is now a massive dossier of damning indictments against the department? Can he confirm that the collapse of that action cost the taxpayer some £100 million in legal fees? Can he confirm press reports suggesting that up to £2 billion of revenue has now been lost in fraud following that failed sting operation, for which there is nothing to show? Did not the collapse of the LCB case cost the Customs solicitors office alone some £450,000?
It is a disgrace that the convictions of those involved have been overturned by the prosecutors' failure to tell the court of the entrapment techniques employed. Will the Minister admit that up to 100 other convictions are in doubt? What exactly are the implications for compensation from the public purse? It is indicative of the shambles under the Government that their own Attorney-General ordered a judicial inquiry into the national investigation service only for another case to collapse while that investigation was taking place. Is it not the case that the Government have been forced to raise the minimum indicative levels of smuggling fraud following a High Court ruling against the Minister's Customs guidance in the Hoverspeed case last summer?
Can the Minister confirm a written answer of
Does today's statement that an independent inquiry is already under way into this week's events mean that the Minister has consulted the Attorney-General about extending the existing Butterfield inquiry? Is that not needed in the interests of taxpayers and public services on which revenues rely? How far-reaching will Lord Butterfield's inquiry be? Does his remit include investigation of the appropriateness of powers of prosecution? Will there be a further oral statement on the Floor of the House when the inquiry reports?
Ultimately, despite the Minister's weasel words about the mid-1990s, the real truth is that the decision to prosecute was made under the present Government. The decision to spend millions of pounds of taxpayers' money on the case and the decision not to disclose participating informants were taken under them. The collapse of potentially successful major sting action was caused by decisions taken under them. Instead of tax fraudsters, taxpayers have been stung by the Government's action. Is that not why, in a vain attempt to cover their embarrassment, all the members of the Treasury Front Bench, excluding the Chief Secretary, have had to turn out for the statement, outnumbering their own Back Benchers?
The Economic Secretary must now turn his statement into action to reassure Parliament and the public that his guidance to Customs officers and his control over the department is tenable. Was not the Chancellor's aim in paragraph B56 on page 200 of the pre-Budget report, as recorded in a Customs and Excise press release on protecting indirect tax revenues on
"reduce the proportion of VAT which goes uncollected and produce more than £2 billion per year in additional VAT revenues by 2005–06"?
Is that strategy for Customs not seriously in doubt given the departmental chaos under the present chancellorship, and does that not blow another hole in the Chancellor's already downgraded forecasts for public revenue, public borrowing and the public deficit?
Is it not plain that since the Government came to office in 1997, Customs and Excise, Britain's oldest revenue-raising body, with a proud history of dedicated professionalism, has been reduced to a chaotic mess? It faces judicial inquiry and police investigation. Its actions have been ruled illegal by the High Court and it is losing more of the theoretical yield of VAT through avoidance and fraud than when Labour came to office. Is the latest loss of taxpayers' money not another damning example of Customs in chaos?
Order. Before the Minister responds, perhaps I may say to the House that it contravenes the sub judice rule for hon. Members to refer to any case individually in any detail.
Mr. O'Brien started by accusing me of smuggling out the statement to Parliament when the Attorney-General and I launched the Butterfield review in November, in immediate response to the collapse of the LCB case. We acted immediately; we informed Parliament immediately; we did so under the procedures established by the House for written statements. Let me remind the hon. Gentleman that the problems with which we are dealing now date to the mid-1990s—frauds that were going on at that time, and investigations that were started and largely conducted then.
The hon. Gentleman accuses Customs in the broadest terms off the back of one case. [Interruption.] "Customs in chaos" was the phrase that he used. He needs to understand that modern criminal trials are as much about the process of the trial as about the guilt of the defendants. It is entirely wrong to condemn the entire Customs service as he did. In none of the cases that has been halted so far is there any evidence of wider criminal conspiracy or corruption within Customs. The Roques report that we commissioned in 2000 looked into the matter and reached the same conclusion. Butler examined it and said the same.
Perhaps the hon. Gentleman should take some advice from his right hon. and learned Friend Mr. Howard, who is not on the Front Bench. He well understood, back in 1995 when he was Home Secretary, the problems of condemning an entire service off the back of single cases. He stated, in response to my hon. Friend Mr. Mullin:
"I do not think that it is at all appropriate to infer from particular cases, however serious, generalised allegations about a propensity on the part of the police to behave in the way that the hon. Gentleman has imputed to them."—[Hansard, 16 May 1995; Vol. 260, c. 170.]
I suggest that the hon. Member for Eddisbury do his own research, instead of using The Daily Telegraph leader writers to do it for him. Their reports this week of £2 billion duty loss are entirely inaccurate. The hon. Gentleman asked for the figures. The duty loss in the LCB case was £340 million. The duty loss in the Stockade case was £89 million. [Interruption.] It certainly is not all right, but I remind the hon. Gentleman that the fraud was perpetrated in the mid-1990s. It was going on under the previous Government.
The hon. Gentleman also asked me for detailed figures arising from the potential LCB-related cases and the fallout from them. Eight cases have collapsed so far. We are currently reviewing 20 further cases to judge the safety of the convictions. Thirty-two convictions have been overturned so far and no evidence has been offered against a further 15. Potentially, 93 convictions are susceptible if all the cases that we are currently reviewing are found to be unsafe.
The hon. Gentleman raised the point about sensitive cases. The Attorney-General, Customs Ministers and every law enforcement Minister will review sensitive cases. Listing and monitoring them is part of the effective management of the investigation and prosecution procedures—precisely the processes that were not in place in the mid-1990s, which led to many of the problems with which we are now dealing, following the collapse of the cases.
Finally, I confirm—the hon. Gentleman seems to be in some doubt, even though I made it clear in my statement—that Butterfield will consider the issues at stake in the Stockade case. We set him the deadline of June to report jointly to the Attorney-General and me. A summary of the report and its recommendations will be laid before the House.
Hon. Members on both Front Benches have reason to be embarrassed about the matter, which dates back to 1995. The Minister's statement was complacent in its reference, for example, to the fact that in complex criminal investigations there will always be some cases that fail. This is not simply a failure of a complex investigation because of the complexities of the case. We all understand that that will happen from time to time. This goes to the heart of the operation and the way in which Customs and Excise embarked on it.
It is ludicrous of the Minister to say that generalised criticisms of Customs and Excise should not be derived from the case, given that those in charge of the department have been changed, the departments' procedures have been changed, and substantive powers have been removed from the department as a result of these cases.
When, as in the present case, Customs and Excise commit to lawbreaking as part of an operation, as a means of trapping suspects, who gives authority for the law to be broken? Does it reach Ministers' desks? In the London City Bond case, the matter commenced in 1994 under the previous Administration, and continued until 1998 under the present Administration. Was ministerial authority sought for the operation, and if it was, who gave it? Was the then Minister made aware of the contingent liabilities through loss of revenue, which in fact occurred on a massive scale?
There have been a number of inquiries into the matter. Has the Minister ensured that the reports are all in the House of Commons Library so that they can be examined? Why will the Butterfield report not be published in full?
Most important of all, since it is the aspect of greatest concern to the taxpayer, is the question of costs. What is the Minister's estimate of the full potential cost if the Government drop the other cases now subject to appeal? At what stage were Ministers consulted on the liabilities when the decisions were taken to continue with those cases, long after—it seems—the Government were aware of the potential for failure of those cases? Is it not time to separate entirely the investigation and prosecution procedures? The Minister noted that some steps have been taken, but there has not yet been a total separation.
Much bigger costs arise from the loss of revenue. Can the Minister explain the apparent discrepancy between the figures provided by Customs and Excise—in the National Audit Office report, the National Investigation Service put the figure at £579 million in total—and by Ms Jan Wanstall, a senior Customs and Excise official, who was one of those who brought the failings of the case to the attention of the Government and others? Her evidence to the court stated that the losses to the Revenue from that fraud were £1.25 billion—a figure that no one disputed. In her testimony in court, she alleged that that was a matter of the right politics. Will the Minister please explain the difference between those figures?
The hon. Gentleman criticises the record of the Opposition and of the Government. I suppose he does so because he has no record of his own in government on which to comment. He accuses me of complacency in the matter. I utterly reject that, after everything that we have done to set up the Butterfield review and to make sure that it gets to the bottom of the lessons that are there to be learned in the LCB-related cases.
More importantly, of course it is right that we try to learn the lessons of what went wrong in the LCB cases, but what interests me more, and what I want to know as the Customs Minister responsible, is whether the steps taken by Customs in respect of investigation and prosecution are good enough. Do they meet the statutory requirements that we now have in place, which were not in place in 1995? Do they meet the best professional standards that are now in place and which may not have been in place in the mid-1990s? In particular, can we improve on what is currently being done?
On the hon. Gentleman's next point, no entrapment was involved in the cases. Using informants while allowing fraud to run, as it were, is an accepted, established and common part of law investigation and enforcement, but a question arises about the balance between allowing a fraud to run in order to pursue the investigation and nail those involved, and the scale of the loss of revenue to the Exchequer. It is the judgments that were made in 1995 and 1996 that were perhaps at fault in that regard. In the court cases that have folded at the moment, none of the techniques used in investigation has been questioned or criticised. It is the disclosure about those techniques that has led to the legal problems and therefore the unsafety of the prosecutions.
On the regime to oversee those issues, regulations are in place on the use of informants and statutory systems are in place on standards of disclosure. Of course, I was not involved in the decisions. It is wrong of the hon. Gentleman to suggest that a Customs Minister should be involved in operational decisions. Indeed, his doing so betrays a failure to understand the nature of law enforcement and the difficulty of such decisions.
The hon. Gentleman asked me a couple of other specific questions. To date, the legal cost in the LCB case is £7.4 million and in the Stockade case it is £760,000. He asked me about prosecution decisions and the handling of the cases—a matter that I explained in my statement. Perhaps he did not read the advance copy or listen carefully enough. From April last year, as the Gower-Hammond report, which we commissioned, recommended, we have separated from Customs responsibility for making decisions about prosecution and accounting for the conduct of the prosecutions function and given it to the Attorney-General. Thus it is properly placed in the hands of one of the Government's Law Officers.
May I congratulate the Government on the statement and on the steps that have been taken over some years to remedy the record of grossly inadequate direction and management in Customs and Excise, which stretched back way before 1997, when this Government took office?
What is being done to remedy the position whereby cigarettes are being exported duty free to Andorra and smuggled back to this country? Is that one of the cases that will be reviewed?
I accept my hon. Friend's criticism, as I know will Customs, about previous management problems. The strengthening of the board of commissioners, the appointment of a new chief executive on the law enforcement side and a raft of new staff have all helped to reinforce the capacity of Customs to deal with things in a better way.
On the serious problem of tobacco smuggling, my hon. Friend will be aware that the Public Accounts Committee recently conducted an inquiry and published a report. He will therefore know that Customs is working with each of the major UK tobacco manufacturers on detailed information about production, markets and exports. That will be encapsulated in what we call a memorandum of understanding, which represents a determination to disclose information and co-operate with Customs to stamp out widespread tobacco smuggling. He will be aware that one of the major companies, Imperial Tobacco, is now working more closely with Customs. We have not yet reached a point at which we feel that we can sign that memorandum of understanding, but I can tell him that the signs are at least encouraging.
I am a great admirer of the Economic Secretary, as he knows, but he really must answer directly the very pertinent inquiry posed to him by my hon. Friend Mr. O'Brien. What is the expected impact of the collapse of these cases on the Treasury forecast of an additional £2 billion in revenues by 2005–06 from anti-VAT fraud measures? That forecast was made by the Government at paragraph B56 of page 200 of the pre-Budget report only a few months ago.
The figures to which the hon. Gentleman refers are the projected revenue gains that we will achieve from the new anti-VAT fraud strategy that we have put in place—a result, in part, of the additional resources that we are putting into Customs. Those figures were audited, discussed and developed with the National Audit Office. As the publication to which he referred suggests, they take their part in the projection of public finances for the future.
These are very serious matters, as the Minister knows. Will he confirm that the Butterfield inquiry will take into account all the views of all the counsel involved in the cases that have collapsed? As one of the two shadow Law Officers in the House, I have had discussions with one of the counsel and I think that that would be very helpful.
Will the Minister assist in arranging for his noble Friend the Attorney-General to meet me and my hon. Friend Mr. Cash to discuss the implications of these collapsed cases? Will he concede today that whatever the date when the fraud started, all the relevant decisions that have led to the cases' collapse have been taken since this Government came to power? The decision to prosecute, all the decisions about how the evidence was to be presented and, most crucially and culpably, the decision not fully to disclose the role of prosecution witnesses to the defence have led to the collapse of the cases. Will he now confirm that he recognises that all those Customs and management decisions were fatally flawed and that that is what is costing huge amounts of taxpayers' money and will carry on costing more when compensation claims are taken into account for these and future collapsed cases arising from this shambles?
There will always be problems with individual cases, no matter how good the systems and the decisions that are taken, when the complexity of the criminal investigations and prosecutions is such as it was in the series of cases in question. The Butterfield inquiry is an independent inquiry conducted by an esteemed and highly regarded High Court judge. It is proper that it is independent, so the judge will make decisions about how he conducts it. On the basis of the enormous amounts of material relating to the cases that we have already forwarded to the judge, it is clear that he is taking extremely seriously the need to get to the bottom of exactly what went on in the LCB-related cases.
I shall pass on to the Attorney-General the hon. Gentleman's request for a discussion on some of these matters.
May I congratulate my hon. Friend on the efforts that he has made to get to grips with this problem? May I also encourage him not to take the soft-touch and let-them-off-the-hook attitude of Opposition Members when people commit such offences and there is reasonable evidence to prosecute?
My hon. Friend is absolutely right that a tough prosecutions policy is an important part of the armoury that any law enforcement agency, including Customs, has for dealing with organised, systematic and often international criminal fraud gangs.
I am grateful for having had advance sight of the statement. On the collapse of an earlier case, Mr. Justice Foley accused the national investigation service of Her Majesty's Customs of having a culture of recklessness—his words, not mine—and referred to a catalogue of illegalities. Will the Minister explain why Customs and Excise should not be brought into line with the police and stripped of control of its own prosecutions? Will he confirm whether any members of the national investigation service are currently suspended pending criminal investigations?
I am glad that the hon. Gentleman received a copy of the statement. The courts made no suggestion of systematic corruption or criminality by Customs in any of the cases that the statement covers. I have dealt with control of the prosecution several times already. From April last year, the responsibility for the prosecution and accountability are matters for the Attorney-General, not Customs. That is proper.
Although I am a great admirer of the work of rank and file Customs officers, who have a difficult job, will the Economic Secretary assure us that we shall have full disclosure of all the details of the corruption and ineptitude that characterised the Charrington and Haase-Bennett cases, especially the use of criminal informers? Hitherto, senior management of Customs and Excise has been marred by evasion and obfuscation about information that should be in the public domain. Will my hon. Friend guarantee that that will be replaced by a policy of openness and transparency?
I am certain that Customs and Excise has never previously published more information about its activities, estimates and analysis of the fraud and smuggling that confronts us. It has never published more about its work and the way in which it makes decisions.
My hon. Friend mentioned the use of informants in two cases. This afternoon, I am dealing with matters that are connected with the LCB case. The use of informants, and disclosure of information about that, is central to questions about the safety of the cases and the convictions. They will also be central to the Butterfield review and inquiry.
In January 2002, I posed seven written questions to the Chancellor on the activities of Customs and Excise on the London City Bond fraud trial. Indeed, one was mentioned earlier. Although the Chief Secretary's answers were opaque to say the least and no action ensued, they revealed a murky trail of Customs and Excise not informing Ministers about what was going on, hundreds of millions of lost pounds—owing to criminals being allowed to pursue fraud on the basis that it might lead to catching larger fry—and failed prosecutions.
The Economic Secretary said that we should not base conclusions on one trial. We are not doing that. How many investigations have taken place? I believe that the figure is almost 200. If so, how can he claim that he is about to launch his investigation? Why has not that happened previously? Why has the problem been allowed to continue for so long? Why has a full investigation by the Government not taken place to date?
The independent report that we commissioned from Roques in 2000 considered some of those questions and problems; the independent review that we commissioned from Butler also did that. The hon. Gentleman is right to draw attention to the scale of the revenue loss that was caused to the country when the frauds were perpetrated. I have already told hon. Members that in the LCB case alone, there was a loss of £340 million. The Roques report covered that period and calculated that the total Excise loss from fraudulent activities was almost £700 million. I remind the hon. Gentleman that that happened when the previous Government were in charge.
The hon. Member for Eddisbury asked me about revenue loss and I gave him the figures. I remind hon. Members that the problems that we are tackling and the cases that flow from them stem from the mid-1990s and the previous Government.
When I asked the chairman of Customs and Excise last year how many members of his organisation were subject to criminal prosecutions, before the Public Accounts Committee, he answered, "Seven", although he subsequently corrected that to 17 when I tabled a question to the Chancellor of the Exchequer. The Economic Secretary referred to several reports, including the Butterfield inquiry, the Butler report and Roques report, which I am holding. I have read it carefully. He knows that they contain nothing about heroin sting operations in Pakistan. Is not it suggestive that so many inquiries are taking place? Does the Economic Secretary agree that the time may have come for a thorough inquiry into all aspects of the management and operation of Customs and Excise, excluding nothing? It should include the quality of the legal advice available to Customs and Excise—that appears at least suspect—the use and management of sting operations, of bonded warehouses and the Queen's warehouses, of debt management and of heroin trafficking and the criminal involvement of Customs officers.
The Roques report contains nothing about heroin in Afghanistan because it was designed to review and deal principally with the problems in the Excise regime and the operation of bonded warehouses. The hon. Gentleman points out the wide range of Customs' responsibilities.
The Economic Secretary made it clear that Ministers did not authorise the means whereby Customs and Excise conducted the investigations. However, were Ministers kept informed? If so, who was informed? He did not clearly answer the questions that my hon. Friend Matthew Taylor asked, when he highlighted the discrepancy between the loss to the Revenue of £1.25 billion in the London City Bond case and the amount of £575 million to which NIS referred. That is a massive difference. What is the reason for it? Are police currently investigating any individual Customs officers in relation to fraud?
It simply is not for Ministers to authorise the use of specific techniques or methods of investigation. That is an operational matter. The settlement of responsibilities between Customs and the Minister responsible for Customs means that there is no reason for the relevant Minister to be briefed continuously about the detail of operational cases.
On the figures that the hon. Gentleman cites, I reported to hon. Members that, in the LCB case, £340 million was lost to the Revenue in Excise duty when the frauds were run.