Labour’s shadow chancellor Rachel Reeves has announced plans to raise over £5 billion a year to partly fund the party’s pledges for the NHS and breakfast clubs.

But where is the £5bn coming from?

FactCheck takes a look.

What has Labour pledged?

Labour has announced a new pledge to raise £5.1 billion per year by the end of its first five years in office if it wins the next election.

It’s based on a plan to slash the tax gap. That’s the difference between the amount of money HM Revenue & Customs (HMRC) is owed and the amount it actually receives.

The amount owed is, in theory, the money HMRC would receive if all individuals, businesses and companies complied with all tax rules – but not everyone does.

The tax gap reflects the amount missing after HMRC’s compliance work – which involves staff making sure the right tax has been paid by individuals and businesses.

Where does the money come from?

Labour says it would invest up to £555m a year in a range of measures, including boosting the number of compliance officers at HMRC by “up to 5,000”.

So how does this extra spending translate to £5bn more for the government?

Labour points to comments by the CEO of HMRC, Jim Harra. He told MPs in November 2022 that for every extra £1 the organisation spends on compliance, it can expect to bring in an extra £9.

Labour said this means “we will need to invest £555m per year in additional HMRC

resources to achieve £5bn in revenue by the end of the parliament”, representing a “12 per cent increase on the planned £4.7bn current budget HMRC has been set in 2024/25”.

Do the sums add up?

But Helen Miller, deputy director of the Institute for Fiscal Studies, told FactCheck: “There is currently no official baseline for HMRC budgets in the next parliament, so it’s not possible to say whether Labour’s proposed investment in HMRC is additional to what would have happened anyway.”

She said that although “additional investment in HMRC would likely raise revenues” as “there are signs of underinvestment” in the organisation, “there is uncertainty around exactly how much could be raised for each additional £1 of investment in HMRC”.

“In practice, a Labour government may find that their proposed £555 million of investment into HMRC does not yield the additional £5 billion they are targeting by the end of the next parliament,” Ms Miller added.

The Labour party did not comment on the record.

(Image credit: Andy Rain/EPA-EFE/Shutterstock)