Tax Gaps 2019-20

Lord Tunnicliffe Excerpts

Thursday 7th April 2022 Grand Committee

[Lord Tunnicliffe (Lab)]

My Lords, I congratulate my noble friend Lord Sikka on securing this short debate.

As has been said, the tax gap for 2019-20 is currently estimated at 5.2%. That is down 0.1% from the initial estimate but remains marginally higher than the gaps for both 2017-18 and 2018-19. We will not see further figures from HMRC until 23 June, and it is far too early to know what impact this year’s tax changes and other initiatives will have in future years. However, can the Minister comment on whether there is cause to believe that the gap will increase for 2020-21 and 2021-22?

As the HMRC report outlines, there are several reasons for tax not being paid. Some are perfectly innocent but, as the Government acknowledge:

“Legal interpretation, evasion, avoidance, and criminal attacks on the tax system also result in a tax”


gap. Can the Minister specify the balance between genuine errors and these other, more sinister causes?

The report states:

“It is impossible to collect every penny of tax that is owed.”


That may be true but, as we have heard on far too many occasions recently, it is not clear that the Government are doing enough in this area. Concerns over HMRC’s ability to identify and tackle tax evasion and avoidance have existed for many years. The department lacks capacity and expertise, and the well-documented gaps have not yet been sufficiently plugged. Media sources have disclosed various dodgy dealings, whether by firms or individuals, but the Government’s decision-making in the aftermath of such revelations has often failed to live up to their tough rhetoric.

The Chancellor chose to hike taxes on working people yesterday, despite a manifesto commitment not to. That follows his previous decisions not to build safeguards into his coronavirus support schemes, allowing fraudsters to get away with billions of pounds of public money. At the same time, benefits have been cut in real terms. The Chancellor could have eased the burden on the lowest paid but chose not to. These are not the only choices the Government have made. For years, the Treasury has funded expanded investigatory units at the Department for Work and Pensions, to identify mistakes or fraud in the social security system and ensure that moneys are recouped.

We do not disagree with stamping out benefit fraud—far from it. People should not abuse the system. However, the resources put into the DWP to tackle benefit fraud and errors far outweigh those given to HMRC to tackle tax evasion and avoidance—and to recoup money claimed fraudulently from the Treasury’s coronavirus schemes. The Minister will no doubt be aware of the work done by TaxWatch UK in December last year, which highlighted the significant disparity in the treatment of social security claimants and corporate fraudsters.

In December, the DWP was given £510 million of additional funding to tackle benefit fraud. This funding, covering a three-year period, was in addition to £103 million already allocated at the spending review. It expands what is already a significant anti-fraud operation at the department. Last March, the Chancellor announced the £100 million Taxpayer Protection Taskforce to recoup money wrongly claimed under coronavirus support schemes. An additional £55 million came in the Autumn Budget.

Why has tackling coronavirus fraud been given just a quarter of the budget given to the DWP, even though the amounts lost to coronavirus-related fraud are higher? The Minister will no doubt tell us that we need not worry, as the Chancellor corrected the disparity in the Spring Statement; £48.8 million was allocated over three years to the establishment of a new public sector fraud authority. But it is not clear how much will be recouped because of that investment. Can the Minister clarify? Some £161 million is being invested in HMRC compliance efforts over five years, but how many additional investigators does this amount to?

The 2021 Spring Budget predicted that, despite additional spending on compliance at the time, less would be collected year on year until 2023-24, due to HMRC focusing its efforts elsewhere. What difference will this new funding make? With some HMRC staff being reallocated to the new Covid fraud task force, are there enough people left to adequately deal with day-to-day tax investigations? If not, how quickly can additional staff be recruited and trained?

This top-up to HMRC’s budget is estimated to secure an additional £3 billion in tax over five years. That amount is not insignificant, but, equally, it is just £0.6 billion per year—or 0.1% of the 5.2% tax gap. These amounts and initiatives give the impression of a Government who are tinkering at the edges, rather than getting to grips with long-running problems. That is a political choice and it is simply not good enough.