I see from Hansard that David Gauke, the Financial Secretary to the Treasury, was discussing the tax gap in Parliament on Tuesday. Amongst the claims he made were that:
Since 2010, the percentage tax gap has stayed lower than at any point under the previous Labour Government, saving the country £4 billion.
And
In the last Parliament, HMRC's yield rose from £17 billion to £26 billion a year, and, as I have said, the tax gap as a percentage has been lower in every year under us than it was in any year under the Labour Government.
I have to say that in this aspect of parliamentary answers percentages are the evasive politician's favourite tool, so I think that claim can be dismissed. What remains baffling is David Gauke's apparent inability to see just how wrong his data might be.
The government claims that the tax gap is £34 billion.
And then it claims that HMRC recover £26 billion a year.
Or to put it another way, £60 billion of tax abuse is attempted and 40% is recovered.
Is there anyone who thinks that remotely likely?
I don't, and for good reason. UK GDP is near enough £1.7 trillion. The lowest plausible estimate of our shadow economy is 9.7% on a declining trend, which I think unlikely. Since almost all the shadow economy is ignored in GDP data that suggests real national income is in excess of £1,850 billion (I have allowed for a small part of the shadow economy being recorded). The income not recorded is, then, about £180 billion on which tax would be due at the overall national average rate of about 38%, or £69 billion.
That excludes evasion not in the shadow economy, like that on CGT and inheritance tax as well as, of course, the non-declaration of overseas income which would not be reflected in UK GDP. Those factors alone bring the data up to my estimate in the mid £80 billions. And on top of that there is tax avoidance at £19 billion, which is not in the shadow economy, and tax not paid of maybe £16 billion a year if HMRC write offs before action is taken are included in the account, or coming on for £120 billion in all.
A recovery of £26 billion out of more than £100 billion I could possibly accept - except to say it could be so much better. But that rate of recovery out of anything less is absurd right now - as is HMRC's tax gap estimate.
Isn't it time David Gauke faced facts?
Several questions I'd ask in parliament follow on. They are:
1) When will HMRC's tax gap estimates be subject to independent economic audit to check their economic credibility?
2) When will HMRC's claim of tax recovered be subject to independent scrutiny to ensure that they are credible for the benefit of Parliament and the public at large?
3) Will the Minister concede that a review of HMRC as now demanded by a number of leading figures in the tax profession and cicil society is now overdue and when will he agree to undertake it with a panel of independent experts including from unions and civil society being included in the task?
4) Isn't it time that we had an Office for Tax Responsibility, reporting to the Public Accounts Committee, to ensure that independent review of HMRC is undertaken on behalf of parliament so that this most critical department of government is held to account by this House in the way that would be appropriate?
I think David Gauke should be on notice with answers ready.
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I have a healthy skepticism of anything, statement, summary or report that the “truth denialists” in Government release for public consumption.
There was a time when senior politicians were simply economical with the truth, but now…..
With regard to (1), didn’t the IMF review the HMRC estimate in 2013, and indeed broadly endorse it?
They reviewed within HMRC’s framework
They did not say whether there were better alternatives
You don’t think HMRC would have asked that, do you?
My point is the IMF reviewing HMRC’s methods with regard to the tax gap is a “reasonable economic audit” in my opinion.
And they seemed broadly happy with their methods in the executive summary although they did recommend some improvements.
Their quote below seems to show they were happy with the HMRC methods?
“In general the models and methodologies used by HMRC to estimate the tax gap are sound and consistent with the general approaches used by other countries”
As they are actually saying – as I have already noted – HMRC’s approach is consistent with HMRC’s approach
Some comfort
Or, properly read, a pure management consulting opinion to make the client happy – which was the intention, which you seem to lack the curiosity to discern
Now, shall we have a proper audit
“…a pure management consulting opinion to make the client happy”
If you claim that the point of the IMF report was the above, what was the point of the review of your figures?
To advance knowledge
The IMF report is available to read here:
http://www.imf.org/external/pubs/ft/scr/2013/cr13314.pdf
It concluded
“In general, the models and methodologies used by HMRC to estimate the tax gap
across taxes are sound and consistent with the general approaches used by other
countries….
Both approaches are applied consistently with good international practices–in fact,
HMRC has been leading the application of some of these methodologies.”
The IMF report did go on to suggest some improvements.
Overall though, the IMF report was very positive, as any unbiased reader of the report would conclude.
Richard. Has your estimate received any peer review as encouraging as the one the IMF gave to HMRC’s methodology? I would be interested to read such a review. Perhaps you can provide a link?
It has been reviewed
But not blind peer reviewed
And if you knew about peer review you would know it is not published
As for the IMF report – it is saying that HMRC is consistent with HMRC if you read it properly
Some comfort
The report says that HMRC use “good international practices”.
In other words it uses methodologies used internationally and by and large the IMF approves of the way HMRC arrives at its figures.
So it isn’t just HMRC using these methodologies. It’s everyone else. Except you.
Meanwhile you claim your figures have been reviewed but aren’t saying who by and aren’t publishing the review.
I am sure any unbiased reader can draw their own conclusions from that.
Actually – if you care to read it properly they say HMRC is setting international practice
So it says HMRC comply with their own standards
You really need to develop some practice in interpreting written statements
So you had it published in a journal ? Which one ? Or was it rejected ?
It was a report
Stop playing silly games
Only you look daft as a result
As a member of the tax profession, it is refreshing to read some straight forward honesty in your work Richard. You always provide the data to support your claims and where data is not available, you clearly state your findings as estimates and give a clear and concise explanation of how exactly the you arrived at your estimate.
From reading much of your work I have found that you do not simply try to win over the general public with “sound bites” of information that sound good, but don’t actually mean anything and too often fall apart upon further investigation. In my opinion, our politicians are too often deliberately misleading us on many things, including the size of our tax gap (for very good reasons), the ability of HMRC to carry out the role the general public already believe they do. But with a lack of clear accountability to parliament, sustained cuts to staffing levels and budgets, the closure of it’s offices in local communities and the new “business friendly” approach introduced to tax collection soon after it was first formed, HMRC are now il-equipped to carry out the role of sole tax collector.
Your work on the UK tax gap is not 100% accurate, but you have never claimed otherwise. From a professional point of view it is however credible and an excellent starting point on where we as a nation actually stand. It is “convenient” if not downright ridiculous for HMRC to exclude the shadow economy it is all too well aware of in it’s calculation of the UK tax gap, because to do so would make for very embarrassing reading. What I also like about your work is that not only on the UK tax gap is that you don’t just put out the “problems” but also offer reasonable and sustainable suggestions on how the situation should be addressed.
It is both commendable and admirable to see an individual from our profession put as much work as you do into campaigning for a better tax system and fairer society for all it’s inhabitants, rather than any form of self reward. You have inspired me and many others to join and support that campaign.
You are right: my tax gap estimate is bound to be wrong and I am happy to say so
It is an estimate of a shadow
Of course it is wrong, but it’s better than the HMRC version, of which the FT once said “they made it up”, and rightly so
Why am I not surprised the IMF endorsed HMRC’s work?
The answer is both employ the faulty neo-liberal approach – economics in relation to the IMF and the sub group of this, tax, with regard to HMRC.
This involves models constucted within contrived/restricted boundaries and selecting data that supports the model.
Surprise, surprise you get the answer you were looking for!
Sue,
It’s really not difficult, and neo-liberal apologists like you make it hard for me to sleep. I close my eyes and see the tears of wasted potential.
“In general the models and methodologies used by HMRC to estimate the tax gap are sound and consistent with the general approaches used by other countries”
This clearly says that HMRC are happy with HMRC’s procedures. Nothing more. The reference to “other countries” may be confusing you. Read it again.
“This clearly says that HMRC are happy with HMRC’s procedures. Nothing more. The reference to “other countries” may be confusing you.”
What? Which part of the words SOUND and CONSISTENT is Sue getting confused with? Perhaps you can expand.
If you hadn’t noticed they say HMRC has set the standard
And almost no one else uses it
The wording is polite for “you’re following your own rules”
Richard – how can it be considered “consistent” with the approach used by other countries if nobody else uses it?
How can it be considered “sound” if the IMF does not think that it arrives at a resonable outcome (or at least “should” arrive at a reasonable outcome if quality of data is good)?
Tell me who else is using it?
The IMF think other countries are by nature of their conclusion. So either you know better than them, or they are telling an outright lie.
Effecively you are telling me that I can’t trust anything the IMF says when they give an opinion in a summary. This is quite a claim?
I am not saying that
You made that up
I said that the IMF comment is a) management consultant speak b) should be read in that context c) is consistent with my comments
But you suggest not. That’s your choice. But you’ve now wasted enough of my time
Very well. I will leave you to continue to argue that black is white. As Sue said earlier, people can draw their own conclusions.
People are very welcome to make their own conclusions
I have never been afraid to put my head above the parapet
I am also familiar with being told I am wrong and then being right
But you are welcome to disagree with that too
But go and do it on Tim Worstall’s blog – I am sure you and Sue will be very welcome there