17:54

British officials have continued to turn a blind eye to a massive customs scam that has allowed criminal gangs to flood European markets with cheap clothes and shoes, the EU’s anti-fraud office has said.

Outlining its annual report , the European anti-fraud office, known by its French acronym Olaf, said that the “scarily” simple customs fraud was probably continuing on the same scale, although the problem had partly shifted from the UK to Hungary and Greece.

The commission announced in March it was starting legal action against the UK for €2.7bn (£2.4bn) it said had been lost to the EU budget.

While the issue is unrelated to Brexit, it helps explain why member states are so hostile to Theresa May’s preferred option for solving the Irish border conundrum, an unprecedented “customs partnership” that would see the UK taking charge of collecting EU customs revenues.

The EU investigators’ announcement that the fraud has continued is likely to deepen distrust. The initial investigation, uncovered a €1.98bn loss to the EU budget between 2013-16, as well as a €3.2bn loss in VAT revenues to France, Germany, Spain and Italy - the EU’s largest states that will have a crucial final say on post-Brexit customs arrangements.

Todaay Olaf said that fraud had continued in 2017, although the tonnage of undervalued clothes and shoes entering the UK had fallen by 15% on the previous year, with an increase in Hungary and Greece.

Ernesto Bianchi, a director of investigations at Olaf, said the simplicity of the fraud was “scary”, explaining that the fraudsters under-declared the value of of low-cost, everyday goods, such as t-shirts and jeans.

Olaf’s report concluded that fraudsters usually brought their goods in to Hamburg, but drove them in lorries to other EU ports where they thought they could get away with under-declaring the value.

The British government has said it does not recognise the figures and citied HMRC’s “excellent record in tackling fraud and rule-breaking of all kinds”.