Tax Gaps 2019-20

Lord Davies of Brixton Excerpts

Thursday 7th April 2022 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I thank the noble Lord, Lord Sikka, for raising this important issue and providing us with an opportunity to discuss the report from the Inland Revenue. I strongly support everything he mentioned in his questions to the Minister. I also thank the noble Lord, Lord Leigh of Hurley, who has snaffled one or two of my best lines.

What was clear from what was quoted of how the gap is defined is its uncertain nature and the uncertain way the figures are derived. The conclusion in the report itself is that it is not the absolute numbers that are of real significance but the way in which they move, which suggests we should focus on the trend, and I am sure that is correct.

These figures are derived using a variety of methods, and it has to be said that some are more convincing than others. My first question is: to what extent is it a priority for HMRC to refine? What work is it doing to refine the derivation of the figures? We know that it is hard-pressed, particularly with the impact of the virus, but it would still inform the House if we could be told how much work is being done to improve the figures. Ultimately, it is like trying to prove a negative and we are never going to get it absolutely right or have absolute certainty about the figures.

A particular point of concern on which I would value the Minister’s comments is that there is a subjective element to what is being produced here. The report refers to what “should” be collected. Should is a subjective word; it is open to interpretation and depends on the Revenue’s own view as to what should be collected. There is a question of interpretation involved. Were it to adopt a more lenient form of interpretation, the tax gap would decline. The converse is also true: if it had a more aggressive definition, the tax gap would increase. There is always going to be an element of uncertainty, but I would still urge the Minister to demonstrate that this is really more than just a PR exercise and that we are working towards to getting some sort of real figure.

Let us accept then that it is a form of performance indicator. If it is a measure of corporate effectiveness, how good is HMRC at collecting the money that it is due? It has to be said that the record is not all that impressive. There is lots of detail in the report, but if we simply look at the graph on page 5, we see that there has been a decline over the past 10 years or so, while the latest figures show a slight increase. I dare say that the figures for the following year will be unusual, to say the least, because of the impact of the pandemic, but given the extent of uncertainty about them, the figures have to all intents and purposes stayed the same. I may be asking too much, but I seek some commitment that the Government want to see the figure declining over time and not staying stable.

Other people have looked at this. The National Audit Office drew attention to it in July 2020 and praised the fact that the gap had been successfully reduced—two years ago, it appears there was a reduction; the more recent increase was not available there—and said it was good value for money. However, it also said that, where there had been success, the way it had been achieved had not been applied more broadly. This comes back to it being an issue of not just measurement but what lessons are being learned. Are the right lessons being applied?

The Commons Treasury Committee had a go at this as well. It asked for a strategic plan for reducing the tax gap. It puzzled me that the Government did not adopt the proposal. It would appear that they did not want to give the game away by telling the people who were creating the tax gap what steps would be taken to close it. I do not know what precise plan the Commons committee had in mind, but I would have thought that some strategic approach to reducing the tax gap would still be welcome.

Finally—this is more of a question—there was at some stage a supposition that making tax digital would help the situation, and that, were all the figures collected digitally and filled in online by everyone, the opportunity for the tax gap would be reduced, but that does not appear to have been the experience. Perhaps the Minister could enlighten us on that.

In my remaining two seconds, I will have a go at the suggestion made by Ministers, on occasion, that the tax gap is one of the smallest in the world. I come back to VAT. Claims based on international comparisons of the tax gap are almost impossible, in general, but they are possible for VAT—the European Union did it—and there our record was not particularly good. Attention was drawn to the fact that we were seventh in terms of the proportion and that many other countries are much more successful. Does the Treasury regard this issue as a priority? In this area, the most recent figures—this is going back a few years—show that we were not doing very well. What steps are being taken to improve the situation?