The government must immediately tackle the growth of beer duty fraud and treat wine as a separate issue, or legitimate wholesalers and retailers will be forced out of business by illegal beer distributors, the Federation of Wholesale Distributors (FWD) has warned.

The FWD has welcomed results of the Public Account Committee’s inquiry into HMRC’s alcohol strategy, which seeks to prevent a £1.2bn annual tax loss to duty fraudsters. The Committee notes that the drive to tackle alcohol duty evasion is being seriously hampered by a lack of information, particularly on the scale of the fraudulent trade in wine. While this data is needed to form a cohesive strategy, FWD believes that delaying action on beer fraud will cost the Treasury millions in lost duty, and FWD member wholesalers millions more in business lost to criminals.

FWD chief executive James Bielby said: “Our members have submitted figures, both to the PAC and the concurrent HMRC consultation, which reveal the huge impact of illicit beer on their profitability. In the first five months of this year, members’ sales fell by 12%, at a time when consumers are buying more from their local shops. There is a clear need for prompt action to prevent this enormous growth in illicit supply.

“The beer and wine supply chains are very different and should be considered separately. The eight beer brands which account for most of the £500m-a-year duty loss are brewed in the UK, by a handful of large suppliers. With wine, only 1% is produced domestically, and the number of producers worldwide is vast. The case for action on beer is proven and the measures to prevent fraud are being explored. Six years ago fiscal marks were introduced on spirits, a measure which has helped prevent duty fraud, and we have urged HMRC to push forward with similar controls on beer, along with supply chain legislation and a registration scheme for wholesalers.”

The Committee criticised the lack of prosecutions for alcohol fraud which it said would act as a deterrent to fraudsters. Mr Bielby said: “Criminals are trading non-duty-paid beer with little fear of being caught. However, pursuing them through the courts is a long, expensive and resource-heavy process, and we believe that measures to prevent the fraud before it occurs – such as fiscal marks – represent an effective alternative to prosecution.”

The Committee questioned brewers’ claims that fiscal marks would cost “a penny a pint” and recognised that beer suppliers already manufacturer, store and distribute a multitude of bottle and can variants for different routes to market and promotions. FWD welcomes its call for further investigation of the true cost of compliance and believes the current HMRC consultation will reveal this when its findings are announced later in the year.