The UK needs a new authority and police force dedicated to fighting fraud - in particular internet fraud - as criminals continue to elude detection, said Lord Goldsmith, the Attorney General.

With internet fraud accounting for eight per cent of all fraud in the UK and costing the UK billions of pounds every year, in his final fraud review report, Lord Goldsmith has proposed the formation of a National Fraud Strategic Authority and a lead police force to tackle the problem.

Internet fraud continues to concern Brits, detering some from using online services. The 2002/2003 British Crime Survey analysed technology crime and found that three quarters of respondents were worried about using a credit card online.

The report found that because internet fraud can sometimes slip through current policing procedures and is difficult to report, it is costing users and businesses dearly.

"Externalities are costs or benefits from activities which affect behaviour but are not fully reflected in prices.

"The reluctance of some people to use the internet for financial transactions because of fear of fraud even though they would save money on the transaction by doing so is an example of an externality," it said.

The report also pointed out that fraud is not a victimless crime. Lord Goldsmith said work by the Home Office suggests that fraud may be second only to Class A drug trafficking as a source of harm from crime.

But it is often confusing for victims to know who to report the fraud to, particularly if it crosses geographical or sectoral boundaries, which only benefits the criminal.

Lord Goldsmith said several other countries, most notably the US, have adopted more co-coordinated approaches to detecting and preventing internet fraud.

He pointed to the good work done by the Internet Crime Complaints Centre (IC3W ), a partnership between the US Federal Bureau of Investigation and the National White Collar Crime Centre.

"It is specifically designed to accept reports of people who have been defrauded over the internet, a problem which is particularly difficult to solve with geographical reporting arrangements," said Goldsmith's report.

"IC3W provides an analytical function and informs FBI work, and is linked to the National Cyber-Forensics & Training Alliance which tackles internet and high-tech crime. "

David Woods, an associate and litigation expert with law firm Pinsent Masons, said the internet provides new opportunities for fraud to be committed and it is now a significant problem for both businesses and individuals.

"The current system has made it difficult to co-ordinate efforts among the various law enforcement agencies to effectively tackle fraud, and it is a welcome development to see a renewed focus on seeking to deal with this problem. "

But Lord Goldsmith said that consumers and businesses also have a role to play in preventing fraud, by taking elementary precautions and through exercising "sensible scepticism about offers that were obviously too good to be true".