The claim:
“By the end of the parliament, this package will bring in an extra £7 billion in tax.”
Danny Alexander, Chief Secretary to the Treasury, Speech to the Liberal Democrat conference, 19 September 2010
The background:
Clamping down on tax avoidance and evasion was key to making the Lib Dem sums in their manifesto add up. Despite the scorn poured on the plans by various Conservatives, the policy made its way into the coalition agreement document.
So it is perhaps no surprise that Chief Secretary to the Treasury Danny Alexander used his speech to the Lib Dem conference today to detail how they will go about it.
At a time when we are facing deep cuts, it is not acceptable that some people don’t pay their fair share, he said. We will raise an extra £7bn over the next parliament from these plans which will cost £900m over four years, he pledged. But how realistic is the commitment?
The analysis:
The plans announced today the Treasury believes will raise up to £7bn a year by 2014/15 (note the “up to” qualification).
To put this £7bn target in context, HMRC released data showing that the tax gap between what they should have received into the government coffers and what they actually got was around £42bn in 2008/09. It’s a figure that Richard Murphy, the director of Tax Research UK, thinks is “ludicrously understated”.
The calculation of £7bn is based on HM Revenue & Customs estimate from their previous experience of tax avoidance and evasion measures, but various phone calls could not yield more details at the time of writing. The Lib Dems do insist that these numbers still have to go through the Office for Budgetary Responsibility before a final figure is settled on for how much they will earn through these measures.
Carl Emmerson from the Institute for Fiscal Studies points out that it wouldn’t have been uncommon for Labour budgets to include £1bn-£2bn a year in tax avoidance measures, but warns there is “necessarily going to be some uncertainty” when calculating the amount a new initiative will yield.
“Are you running to stand still?” he says, referring to the productivity of the tax avoidance industry in adapting to such changes.
But there is a bigger question over what today’s numbers hide. The HMRC has already cut 30,000 since it came into existence five years ago, and it is not exempt from the 25 to 40 per cent cuts that each department has to come up with for the comprehensive spending review.
The coalition insists that any cuts will not affect the HMRC’s ability to perform its current tax collection functions and that the £900m announced today for this clampdown will be ringfenced, but not everyone is convinced.
A senior Liberal Democrat told Channel 4 News FactCheck the tax avoidance announcement had been “rushed out” by the Treasury and had not been properly thought through. He said that cuts elsewhere in HMRC would end up cancelling out the extra money. “They say the £900m is going to be ringfenced but at the same time they are still cutting down HMRC generally.”
And, while Richard Murphy welcomed collecting an extra £7bn, he warns that the plans “put a bit of extra resource into high profile prosecutions” but the cuts will affect the “plain, straightforward investigations” which could look instead at the 45 per cent of self employed taxpayers and partnerships in 2006/07 who under-declared their tax liability in their tax returns.
The verdict:
So there are still questions for the coalition to answer on their policy to clamp down on tax avoidance and evasion. Without further evidence the £7bn does seem a little vague. The tax avoidance industry could just adapt. And the extra money could be cancelled out by cuts in the region of 25 per cent that the HMRC still faces in the the spending review.
