Today's news of the arrest in Bermuda of the Dutch banker, John Deuss, will be welcomed with relief by the Treasury. Investigators suspect Deuss's bank, based in Curacao in the Dutch Antilles, is implicated in the VAT or 'carousel' fraud that has escalated to the point where it will cost the Exchquer up to £10 billion this year alone.
At a time of belt-tightening across government, this is a pretty substantial sum, enough to build two dozen new hospitals. Deuss's arrest, and the raids which preceded it in London, South Wales and the Netherlands, is certainly a coup for the authorities. British Revenue and Customs reckon that due to their disruption of the fraudsters' networks, illegal trading of this kind had dropped to £1.6bn, down from £4bn in the previous months.
HMRC cites the arrests, its doubling of the number of staff working on carousel fraud to 1,000, and its likely gaining of permission from the EU to introduce new VAT rules for certain products, as evidence that it is getting on top of the problem. But HMRC has already cut 7,000 staff in light of the 2004 Gershon review on government efficiency, and aims to cut spending by 20% over five years.
The suspicion is that the current high profile of VAT fraud may have prompted the government to leave gaps elsewhere. Added to the fact that carousel fraudsters are already moving into products not affected by the new VAT rules, and government as a whole could have a major, long-term problem on its hands, with big implications for public spending and British trade.
