Britain's failure to address widespread customs fraud perpetrated by Chinese gangs could put any post-Brexit trade deal with the European Union in jeopardy, MPs have warned.

According to Brussels, between 2013 and 2016 some £4.4bn (€5bn) in import duty and VAT revenues as cheap Chinese imports – mainly shoes and clothing – made its way into Europe via British ports due to loose – or, in some cases, non-existent – controls by HM Revenue & Customs (HMRC).

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The government has proposed a "highly streamlined customs arrangement" after the post-Brexit transitional period but the Commons European scrutiny committee warned duty loss could lead to a lack of trust from Brussels.

"Clearly, any such arrangement would require a high degree of trust in the functioning of the customs authorities on both sides," the committee said on Tuesday (30 January).

In November last year, the EU released a report showing losses from Britain were continuing to rise, despite the threat of legal action to recover £1.4bn from the UK.

"These losses to the EU budget are still on-going since this fraud has not been stopped to date," the report stated.

The bloc repeatedly told Britain the issue of customs fraud would have to be tackled swiftly, highlighting the reason behind the ever-increasing tally was HMRC's failure to address the problem when first alerted to it.

According to the committee, the government has continued to question the figures put forward by the EU.

However, in its report, the committee warned "the dispute could give rise to a considerable payment from the UK public purse to the EU budget to compensate for the duty loss".

The report also added the Treasury had argued that HMRC had taken "reasonable and appropriate steps to address suspected fraud".

In September last year, Britain's top tax body said a merged border force and tax checking operation would need 5,000 extra staff, costing £800m, after Brexit.

HMRC director general of customer strategy Jim Harra told MPs the country will have to tackle 130,000 new companies that import and export within the EU that do not currently come into contact with British customs.

Harra told the Treasury Select Committee a "crude extrapolation" was that customs would need between 3,000 to 5,000 extra staff to cope with additional demand when the UK leaves the EU in March 2019.

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