Illegal activities - recent and planned developments Hugh Skipper

What I’ll cover Recent and planned developments to: Drugs Prostitution Alcohol and tobacco smuggling Tax evasion Most of these to meet Eurostat requirements

Drugs, background Introduced in 2014 Blue Book Eurostat requirement Comparability across member states ONS approach now Eurostat approved Demand based methodology User numbers, rather than seizures 6 drug types Full data for 2003 used as base Projected by user numbers, prices, purity Adds £4.9bn to GDP 2013 (0.3%)

Drugs, further developments In Blue Book 2015, corrections to Dollar conversion Volume measure methodology Academic review – now near final Broadly clean bill of health Stressed difficulty of accurate measurement Recommendations: Partial adjustment for purity – reduce volatility Better measure of usage – work with Crime Survey Will follow these up But need to prioritise

Prostitution, background Introduced Blue Book 2014 Eurostat requirement Now Eurostat approved Supply based methodology Number of prostitutes Data for 2004 escalated Using male 16+ population Consumer price index Adds £5.9bn to GDP 2013 (0.3%)

Prostitution, further developments No methods changes in 2015 For 2016 Blue Book, working weeks assumption 52 weeks to 40, in line with Netherlands Eurostat keen for this Academic review – now near final More critical than drugs review 52 weeks assumption, 25 clients per week assumption But improvements less straightforward than for drugs Will follow this up Again, need to prioritise

Alcohol and tobacco smuggling Methodology introduced Volumes from HMRC Prices from a range of sources Assumed proportions for different outlets Adds £1.3bn to GDP in 2013 (0.1%) Small revisions in 2015 Blue Book Taking numbers consistently through the accounts Wider update of sources and methods planned Review assumed proportions Assess tax gaps data for wine smuggling In co-operation with HMRC

Tax evasion Blue Book 2015, major review of methodology Corporation and income tax evasion Previous model from 1998, used 1994 as a base Differences production v income measures escalated Small impact on balanced GDP New method developed with HMRC Now Eurostat approved Good example of co-operation Uses HMRC tax gaps data To estimate unrecorded income/production Bigger impact - upward revisions to GDP all years £5.4bn 2013 (0.3% GDP)

Tax evasion, future plans Refine new methods for corporation/income tax Build understanding of HMRC data Streamline production VAT fraud: explicit estimation for 2016 Blue Book To meet Eurostat requirement Methodology for 2016 approved internally Uses new income/corporation tax evasion estimates Revisions to GDP likely (subject to balancing) Continuing development planned In co-operation with HMRC E.g. confronting with HMRC VAT gaps

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