The greater the fraud, the heavier the burden on law-abiding taxpayers and the public services that are funded from the taxes we pay

David Lidington Tory Treasury spokesman

The figure is roughly what the independent Institute for Fiscal Studies estimates is the increase in taxes needed at Gordon Brown's next Budget to meet the government's spending plans for the NHS.

The news prompted the chairman of the influential Commons Public Accounts Committee, Edward Leigh, to say he was "shocked" by the size of the losses.

A Treasury spokesman played down the NAO report insisting that the figures released on Wednesday were "not new".

"The government is determined to crack down on smuggling and fraud which is why in March 2000 the chancellor announced the biggest ever government investment in tackling smuggling and fraud," he said.

But Mr Leigh said: "The size of this sum is hard to comprehend.

"It is nearly �300 of revenue lost to the public coffers for each and every household in the UK."

'Very worrying'

NAO head Sir John Bourn said that Customs must take more steps to reduce the losses adding that indirect tax fraud was now "a major problem".

"The estimates of fraud suggest that there is more work to be done to ensure that the regulations and procedures are fully adequate to secure an effective check on the assessment, collection and proper allocation of revenue," he said.

The losses have apparently come to light because of a new monitoring strategy adopted by Customs as part of a wider bid to stem fraud.

The NAO has warned that the final lost revenue figure could be even higher than the current estimate as Customs have yet to complete an assessment of VAT fraud which accounts for 57% of indirect tax receipts.

Mr Leigh expressed shock

A Customs spokesman said: "For the first time we have a realistic assessment of the levels of fraud and this was recognised as a positive step by the report.

"It was the first full year last year of our tobacco strategy and we have met our target.

"The most important thing is, we have got the figures and we now know what we are dealing with and we can have strategies in place which relate to the actual risk."

Conservatives Treasury spokesman David Lidington said the losses were "very worrying".

"It is ironic that the government's estimates of Customs fraud is roughly what the Institute of Fiscal Studies say Gordon Brown will need to raise taxes to pay for his spending plans," he said.

"The greater the fraud, the heavier the burden on law-abiding taxpayers and the public services that are funded from the taxes we pay."