Tax Research UK

I’ve written a new report under the above title on behalf of PCS – the union that represents more than 80% of HM Revenue & Customs’ staff.

As the executive summary says:

The UK has been in recession, and may well be in recession again soon. Through no fault of its own, the income of our government has collapsed whilst its obligations have increased. A gap between government income and expenditure of up to £175 billion a year has emerged as a result. This though is not a spending crisis: this is an income crisis.

This report argues that the scale of that income crisis is being increased as a result of policies being pursued by HMRC. Those policies were created before the onset of recession. They have two aims. The first is to cut over time the number of staff engaged by HMRC by 25,000 – 17,000 have already left. The second policy is to close many of the local tax offices from which HMRC used to undertake its work in local communities. Over 200 offices have either closed already, are about to close, or are under threat of closure. It is fair to say that all offices are under scrutiny. When the programme is complete some people in the UK will live more than 50 miles from their nearest tax office, making it impossible for many of them to turn to this natural source of help and advice when seeking to fulfil their obligation to pay tax. In addition, HMRC are about to press ahead with the closure or severe reduction of its drop-in enquiry centre facility, which has previously provided a local and immediate tax advice service for both members of the public and tax professionals.

As this report also notes, too many people do not pay the tax due by them in the UK. HMRC have estimated the ‘tax gap’ in the UK – the difference between the tax they think is owed and the tax they actually assess – to be about £40 billion a year. We argue that this dramatically underestimates the total tax gap, particularly with regard to tax evasion.

To data previously published by the TUC which estimated total UK tax avoidance at £25 billion we now add an estimate of £70 billion for tax evaded within the UK. We can provide detailed and precise workings for this sum and also outline why the estimates of this sum produced by HMRC and the National Fraud Authority inevitably understate this figure.

When the total outstanding debts now owing to HMRC are added to these two sums, which when last estimated was £28 billion, we suggest the total tax gap in the UK is now likely to exceed £120 billion.

It is very obvious that the UK cannot afford this tax gap. It is equally obvious that if investment were made in additional resources for HMRC then this tax gap could and would be substantially reduced.

In arguing this we make the following points:

Recommendation 1: The basis for estimating tax avoidance should be revised to use a definition widely recognised in society and which correctly reflects areas of continuing policy concern as well as those abuses making use solely of artificial arrangements.

Recommendation 2: HM Revenue & Customs should be required to prepare estimates of evasion of direct taxes on a “top down” basis, as they do for indirect taxes.

Recommendation 3: H M Revenue & Customs should recognise that their existing bottom up methodology for calculating the tax gap for direct taxes will inevitably seriously under-estimate the size of that estimate.

Recommendation 4: HM Revenue & Customs should recommence publication of the many statistics on taxation produced by the former Inland Revenue which have ceased to be available since its demise, the lack of which make objective appraisal of the performance of the tax system hard to achieve.

Recommendation 5: HM Revenue & Customs should engage more staff to tackle tax avoidance and tax evasion.

Recommendation 6: HM Revenue & Customs must on occasion select cases for investigation without consideration of potential tax yield, and make clear that this happens to protect revenues from those on lower levels of earnings.

Recommendation 7: More staff should be engaged to scrutinise tax repayments before they take place.

Recommendation 8: More staff should be engaged to recover tax debt owing, and limits on sums to be pursued for collection should be lowered considerably.

Recommendation 9: The local office closure programme being pursued by HM Revenue & Customs should not just be stopped, it should be reversed. Tax must be seen to be collected in the community.

It is our firm believe that adopting these policies would highlight the true extent of the UK Tax Gap, provide the data needed to appraise progress in tackling it, and be cost effective methods of achieving that goal for al the reasons this report outlines.

I’ll be featuring more of what I say in this report over the next day or so.

The key issue is a simple one though: why, at a time when we need every penny of tax revenue we can get are HM Revenue & Customs doing everything possible to increase inefficiency in the tax system.

And remember – it’s not just me or PCS who are saying this. So too are the Treasury Select Committee. And I’d just point out that it’s not just PCS who are affiliated to the Tax Justice Network, so too are the Revenue & Customs’ group of the First Division Association of senior civil servants.

The Treasury select committee said, for example this week:

[HMRC’s Chief Executive] further that there was “lots of evidence” to show that HMRC’s anti-avoidance strategy was working. This is though not reflected in the Annual Report which records that it is too early to give an assessment of HMRC’s efforts to increase tax and National Insurance contributions actually received relative to the amounts that should be received.

And to reflect what I wrote on the lack of data and transparency from HMRC they also wrote:

As we have also previously noted, there is a similar lack of transparency in HMRC’s Annual Report on tax avoidance. In all, the Annual Report records no milestones against three out of the four [key] performance indicators .

Two reports happening to be in agreement does not say we’re both right. But I’ll venture on this occasion that we are.

Richard Murphy HMRC, TUC, Tax avoidance, Tax evasion, Tax management

The Guardian notes:

Morale inside Revenue & Customs (HMRC) is so low that government plans to tackle aggressive tax avoidance are in jeopardy, according to a report today by an influential group of MPs.

The Treasury select committee describes the situation as "dire" and "deeply troubling" and calls on senior managers to put in place changes "to ameliorate the situation".

In a report focusing on the workings of all departments under chancellor Alistair Darling, the MPs also warned that Treasury staff faced burn-out due to the pressures of handling the financial crisis while pressing ahead with "efficiency programmes".

"It is important that departments do not take this commitment for granted and continue to monitor for signs of burn-out and over-stretch," it warned.

I know some of these people. I know these comments are true.

One reason is obvious:

Cuts have left the department with 78,695 employees compared to almost 100,000 in 2004-05.

There’s not an accountant anywhere who has not moaned about the reduced quality of service that has resulted, and the significant increase in cost to society that is the consequence.

And Tory MP Michael Fallon was right to say:

“We are particularly alarmed by the low of staff morale and engagement at HMRC, and its effect on performance. We are deeply troubled by the apparent absence of any plan to ameliorate the situation, and call on HMRC management to re-double their efforts here.”

He also cited concerns that HMRC attempts to close a £7bn tax gap were being undermined by poor staff relations and a lack of clear data. He said: "The absence of regular public reporting on milestones by HMRC is a major obstacle to both effective scrutiny and performance."

Again, he’s exactly right.

As a report I have written for PCS on these issues will be saying, shortly.

Richard Murphy HMRC, TUC, Tax management

Deloitte and PwC disappointed at FII dividend case cap - Accountancy Age.

The Age notes:

Richard Murphy Tax management

Treasury revises revenue from 50% rate - Accountancy Age.

The Age says:

The Treasury is expecting to take much less from the new 50% rate of income tax than it first estimated, according to Treasury minister Lord Myners.

Speaking in the House of Lords yesterday the financial services secretary said the rate would still be beneficial in terms revenues, but suggested the full extent to which tax payers would avoid the new rate had not been correctly gauged in advance.

Oh dear: shooting oneself in the foot time Lord Myners.

As the Compass report showed and as the TUC have argued (and I admit, I influenced both) there are two simple solutions to this conundrum.

One can either set minimum tax rates when gross income exceeds a certain level (e.g. 32% at £100,000 of gross income and no amount of allowances or reliefs can reduce tax paid below that - equivalent to the US alternative minimum tax) or better, perhaps, simply limit the value of relief given to those earning more than £100,000 a year.

The  average relief claim above the personal allowance for those earning £70,000 to £100,000 in the UK is about £5,000 a year. I see no reason why those on income in excess of £100,000 need to receive subsidy for their saving which is directly akin to additional state spending of more than that a year.

So, my suggestion is simple - limit the total value of releifs a year to £5,000 and the 50% tax rate will work very well.

And yes some people will go each year - so what? As many will come here.

Richard Murphy Tax management

The OECD is to set up a ‘task force’ to implement a coherent approach to tax and development issues, engaging developing countries and other key stakeholders including NGOs and business.

Membership is apparently to be of between 15 and 20 people.

The task force will convene in the next six weeks as an informal group representative of all stakeholders to develop clear and effective mechanisms for implementation and to avoid duplication. The informal task force will begin by mapping out existing international efforts relating to tax and development.

I welcome this. It’s a step in he right direction. But of course genuine openness in membership and a commitment to developing real change for the benefit of developing countries will be the true bench mark of progress. That’s one to be monitored.

Richard Murphy Development, OECD, Tax management

After more than 30 years the OECD held its first joint meeting of its development and tax committees yesterday. And as Jeffrey Owens, head of tax at the OECD has acknowledged this morning in discussions I’m attending, that was the result of civil society pressure.

Key things learned so far. They have said:

We have a common understanding of the central role taxation plays in development and poverty reduction:  a strong tax system is the heart of a country’s financial independence, its revenues are the lifeblood of the state.

This is a vital statement: this issue is much, much broader than a simple issue of corporate accountability, or information exchange, or simple technical assistance. This is about effective state building.

This is as important:

We also agree taxation is more than just about revenue mobilisation. The way in which revenues are collected and spent defines the symbiotic relationship between the state and its citizens, strengthening the former and making it more accountable to the latter.

A good start.

Richard Murphy Development, OECD, Tax management

A tax regime that works | Nizar Manek | Comment is free | guardian.co.uk .

Nizar Manek notes:

Just after the 1987 Wall St crash, Nigel Lawson, then chancellor,commented:

In principle there is little economic difference between income and capital gains, and many people effectively have the option of choosing, to a significant extent, which they receive. In so far as there is a difference, it is by no means clear why one should be taxed more heavily than the other.

As a result he argues rates should be aligned again.

And he’s right to do so.

Richard Murphy Tax management

Labour opens new front in battle with the City | Politics | The Guardian .

Two policies I’ve helped promote look like getting prominence in the PBR today. As tghe Guardian notes:

Alistair Darling will use tomorrow’s pre-budget report to impose a one-off tax on this year’s bonus round, but No 10 will further step up the squeeze on the Square Mile on Thursday with a 60-page report making the case for a so-called transactions tax on all City trading, and an insurance scheme to stop taxpayers being forced to foot the bill for any future banking crises.

The TUC has been the only body to call for a financial transaction tax in the UK alone. It’s been criticised for it, but the timing is undoubtedly right. I advise the TUC on tax.

And I have long argued for an additional tax on banks to pay for the effective insurance of their deposits.

I hope we get both.

Richard Murphy Pre-Budget Report, TUC, Tax management

The Observer asked five left of centre thinkers about what they wanted from the PBR. My contribution was:

RICHARD MURPHY

Founder, Tax Justice Network

There are six things to do if the government is to fill its fiscal hole: tackle tax avoidance by individuals by restricting the total tax relief those earning more than £100,000 a year can claim to £5,000 a year; tackle tax avoidance by companies with a general anti-avoidance principle so that any scheme mainly designed to save tax is ignored when calculating tax due; tackle international tax abuse by companies by introducing country-by-country reporting, which means they must show where they declare their profits and don’t pay tax; demand tax information exchange agreements from all tax havens and that they automatically supply information on all UK residents holding accounts there within five years; end the domicile rule, making all those who benefit from living in the UK pay tax on the same footing; introduce taxes on financial transactions.

The other asked were Neal Lawson of Compass, Brendan Barber of the TUC, Ann Pettifor of Advocacy International and the Green New Deal and Karel Williams, Director, Centre for Research on Socio Cultural Change, Manchester University. It’s my pleasure to be working with them all.

Richard Murphy Economics, Green New Deal, Tax management

For those interested, I am discussing the new Compass tax report on the Today programme, BC Radio 4 at 8.40 this morning.

Richard Murphy Economics, Tax management