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Pledges by the Conservatives and Labour to raise up to £6bn extra a year by cracking down on tax evasion and avoidance are a “tall order”, unless the focus is widened to include reducing errors, experts have said.
Experts warned that the tax gap, the difference between the amount HM Revenue & Customs estimates should be collected and what is paid, would be difficult to close and that previous governments had tried and failed.
“The tax gap has shifted by £3bn over 18 years. To think that you can reduce it by £5bn or £6bn per annum over the next five years, I think would be quite a tall order,” said Steven Pinhey, technical officer at the Association of Taxation Technicians.
The Conservatives this week announced a £2.4bn tax break for pensioners if it wins the general election in July, funded by a previously announced plan to raise £6bn annually through improving collection and tackling avoidance and evasion.
Meanwhile, Labour has said it will aim to raise an extra £5bn a year by 2029-30 by tackling tax dodging, to fund policies to cut NHS waiting lists and introduce free school breakfast clubs for all primary school pupils.
“Neither Labour or the Conservatives can raise £6bn from clamping down on tax avoidance because there probably isn’t £6bn of tax avoidance,” added Dan Neidle, founder of Tax Policy Associates.
According to HMRC data, the total gap was worth £32.6bn in 2005-6, with 7.5 per cent of tax going uncollected. By 2021-22, the most recent figures available, the figure had risen to £35.8bn, representing 4.8 per cent in uncollected tax.
Richard Wild, head of tax technical at the Chartered Institute of Taxation, said bringing in billions of pounds extra from evasion and avoidance compliance would be “very difficult”, particularly as HMRC estimated a tax gap of just £1.4bn for avoidance for the year.
About £11bn annually is lost to illegal activity, which he said had been a “very stubborn part of the tax gap for a very long time”. Wild added that large parts of the overall shortfall had nothing to do with evasion and avoidance, with about 45 per cent due to human error.
“It’s worrying that nearly half of the tax gap is because people are making mistakes,” he said, adding: “HMRC also need that investment in customer service to help people who want to comply to get it right.”
Simplifying the tax system while investing in customer service, digitisation and education were key to helping people pay the right tax, several experts said.
The Conservatives said their plan would also contribute £1bn for a national service fund, while a further £1.5bn would come from funding previously allocated to the “UK shared prosperity fund”, a post-Brexit regional aid scheme.
Helen Miller, head of tax at the Institute for Fiscal Studies think-tank, said political parties liked to promise crackdowns on tax dodging as this was seen as a “victimless” form of raising revenue.
The Conservative party said the plan to raise an extra £6bn a year from tax avoidance was “entirely consistent with our record”.
“Since 2010, the OBR have scored savings of £95bn from efforts to tackle the tax gap, averaging £6.7bn a year — meaning the tax gap is now lower than it was under Labour,” it added.
Labour did not immediately respond to a request for comment.
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