HM Revenue and Customs (HMRC) has failed to meet key targets for clamping down on the UK’s illicit tobacco trade in 2012/13, a new report by the National Audit Office (NAO) has revealed.

Despite a promising start, HMRC was now also unlikely to achieve its goal, announced in the 2010 Spending Review, of preventing more than £1.4bn in revenue being lost to the illicit trade over the four-year review period.

As part of the review, HMRC was allocated an additional £25m with which to launch five new initiatives to tackle tobacco fraud by organised criminal gangs. However, NAO claims that three of them have been delayed or cancelled, including one designed to tackle the over-supply of genuine tobacco overseas.  

Better collaborative working was also sorely needed, the report said, after warning that HMRC’s approach to deterring and disrupting the illicit market within the UK was “still not yet effectively integrated”.

HMRC also needed to gain a better understanding of the role that enforcement action could play in deterring lower level criminal activity, and the number of civil sanctions issued against businesses and individuals that failed to comply with the law.

Reported assessments and civil penalties for businesses and individuals that failed to comply with the law were also substantially below target in both 2011-12 and 2012-13.

The under-performance could be attributed to recruitment delays, training requirements and legal considerations, NAO added.

“HMRC’s renewed strategy for tackling tobacco smuggling sets out the right measures but, two years on, the department’s performance on the ground is disappointing,” NAO head Amyas Morse said.

“It has not capitalised on extra reinvestment funding available under the 2010 spending review settlement. And it still cannot properly assess how effective its strategy is in tackling tobacco smuggling and the trade in illicit tobacco products in the UK.”

Slamming the failings, the Association of Convenience Stores (ACS) called for stronger enforcement, greater resources and for ministers to “stop treating the illegal tobacco trade as simply a duty avoidance issue”.

“It is a multi-billion pound trade, run by dangerous criminal gangs, that is flooding our most deprived communities with unregulated tobacco products undermining any progress the government seeks to make in reducing smoking-related health harms,” ACS chief executive James Lowman said. “When HMRC misses its targets tens of thousands of legitimate retailers will suffer as they are undercut by unregulated unscrupulous criminals.”

The illicit tobacco trade cost the legitimate trade £1.8bn in lost revenue in 2010-11. HMRC estimates that 11% of all tobacco sales are not duty paid.