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

PCS are holding an event tomorrow putting forward a tax justice alternative to public sector cuts.

This event is open to organisations, politicians, trade unionists interested in moving forward the debate for a fair and progressive tax system.

Speakers include Mark Serwotka, Frances O’Grady assistant general secretary of the TUC, Richard Murphy of the Tax Justice Network and John Hilary director of War on Want.

The meeting is in Committee Room 11 of the House of Commons Wednesday 10 March 3pm-4.30pm.

I’m happy to support PCS in their call for reform in the way we approach the management of our tax system.

Richard Murphy HMRC, TUC

The reality of cuts has to be faced.

The fact that there are alternatives has to be understood.

Richard Murphy Economics, Green New Deal, TUC

Loved by the good | ToUChstone blog: A public policy blog from the TUC.

Nigel Stanley has, as I have before, waded into the debate on financial transaction taxes and the anti-union diatribe being pursued about it by Giles Wilkes on the Lib Dem (and seriously pro-free market) Freethinking Economist blog.

As Nigel says, much of the criticism of what we have had to say has been aimed at straw men - things we have not said.

As he also says, those who seek to make this a union bashing issue (as Giles seems wont to do, unfortunately) also miss the point, the TUC plays but a small part in this.

And those who seek to say it’s a one trick pony are also wrong. Nigel says:

Given our work on tax avoidance and evasion at the TUC,  I don’t think anyone would accuse us of going soft on tax dodging. Our work – and that of groups like Christian Aid and Tax Justice - has helped put this on the policy map.

Quite so.

I think Nigel correctly concludes, peeling off many layes of the oinion when doing so:

The RHT is therefore an indirect tax that firstly targets the institutions that did most to cause the crash and who have made super-profits, and secondly, is a progressive indirect tax that is hard to evade. It can make a significant, though only partial, contribution to finding the funds we need to avoid cuts, meet the Milennium Development Goals and tackle climate change.

That is how it should be judged, and while I have rarely been involved in a campaign where I didn’t squirm a little at some of the arguments of allies, that is what I happily endorse.

Giles has argued very well that  now is not the time to make spending cuts as that will risk recovery, but I suspect that when it comes to dealing with the structural deficit – he is mainly a cutter, while we are mainly progressive taxers.

I have a strong suspiscion that is true.

And Nigel’s words are wise.

Disclosure: I’ve known Nigel for many years. I have never knowingly met Giles Wilkes. I advise the TUC, including on financial transaction taxes.

Richard Murphy TUC, Transaction Taxes

I admire the ingenuity of TUC colleagues who have written on the TUC Touchstone blog:

Here at ToUChstone, we’re big fans of Jonathan Mann, a very talented US singer/songwriter, whose innovative solution to recession-imposed unemployment was to start writing a new song every (yes, every) day, making money from commissions, downloads, ringtones, anything (a kind of “weddings, parties, bar mitzvahs anything 2.0″).

As he’s already aced the popular ‘liberal economist biographies’ genre, with “Hey, Paul Krugman“, and “Come on Nouriel“, we asked him if he’d be interested in giving his own take on our current pet issue of financial transaction taxes. About 12 hours later, this is it:  Song/day number 419, The Robin Hood Tax:

OK. it’s simplistic – who cares? Detail is for others: the reality is that this tax will change behaviour in the City and around the world for the benefit of us all. And as a means of campaigning this is fantastic.

Richard Murphy TUC, Transaction Taxes

The FT Adviser notes:

A tax on financial transactions would raise £100bn a year globally, according to a report by a coalition backing a crackdown on banking activities.

The report, entitled Taxing Banks, proposes a global 0.005 per cent tax on currency exchanges and derivatives.

The report, authored by the Trades Union Congress, Christian Aid, Tax Justice Network, Tax Research UK and the Task Force on Financial Integrity and Economic Development, claimed a tax on foreign currency exchanges – similar to a Tobin tax – could be collected through the continuous linked settlement bank or the real time gross settlement mechanisms, which are run for all major currencies by the main central banks.

Setting the tax at 0.005 per cent would not cause any difficulties for the financial markets but would raise an estimated £21bn a year worldwide, according to the report.

The report argued a 0.005 per cent global tax on derivatives trades, which are estimated to be worth $3,150 trillion (£2,013 trillion) a year, could be introduced quickly and raise around £76bn a year.

The document also examines the worldwide extension of a 0.5 per cent tax on share transactions, which already operates in the UK, Hong Kong, Singapore, Ireland and India.

It estimates this could eventually raise up to £150bn a year, although the report notes additional research is needed on the behavioural effects of a worldwide stamp duty and its impact on other taxes.

The report, submitted to the International Monetary Fund as part of its consultation on how the financial sector could pay for the costs of government support given to the banks, said the tax would be harder to avoid compared with an insurance levy.

Brendan Barber, general secretary of the TUC, said: "Everybody in the world is paying the price for the global recession the banks caused – through lost jobs and homes, less money in their pockets or having less food to feed their families.

"But rather than suggest ways to address the damage they have caused, the response of most financial institutions has been to say that no transaction tax – no matter how small – could ever work.

"Our report shows that taxes on financial transactions can be implemented quickly, unilaterally and raise substantial sums without causing any difficulties to the financial markets.

"Several countries, including the UK, already have these taxes and there is no reason why they cannot be extended across the world."

Paul Brannen, head of advocacy and influence for Christian Aid, said: "We support the idea of financial transactions taxes as one means of generating much-needed funds for the fight against poverty, HIV and climate change.

"Another vital reform is the introduction of country-by-country reporting, also covered in this report. It would help poor countries to collect more of the $160bn (£102bn) a year that they currently lose to tax dodging by companies trading internationally."

Richard Murphy Banking, Country-by-country, TUC, Transaction Taxes

30 years of ‘Market knows best’ have damaged fairness | ToUChstone blog: A public policy blog from the TUC.

Brendan Barber says on the TUC blog:

The final report of the National Equalities Panel (NEP), “An Anatomy of Economic Inequality in the UK” is out today – you can download the full thing or exec summary from the Government Equalities Office website. It’s an exceptional piece of work, describing in graphic detail just how unfair and unequal our society has become thanks to ‘market knows best’ policies.

The super-rich and powerful have a vested interest in closing down any debate about inequality by talking of the ‘politics of envy’ or ‘core vote strategies’. But inequality damages the economy and society for the vast majority of the population. Politicians of every party must now meet the challenge set by this devastating analysis.

Time and again the politics of envy are seen on this blog - delivered by the right.

They don’t realise we aren’t envious. We want equality because it makes everyone better off - rich and poor alike.

This is about building better societies - and that’s a long, long way from the politics of envy. It’s time for the right to realise this.

Richard Murphy Ethics, TUC

FT.com / UK / Economy & Trade - Tax system flaws cost UK £40bn a year .

Again, reasoned analysis from the FT this morning, this time on HMRC’s new report on the Tax Gap. The FT says:

Loopholes, evasion and other flaws in the tax system are costing the country about £40bn in revenue a year, according to an official estimate likely to inflame arguments over how to repair Britain’s biggest ever peacetime deficit.

HM Revenue & Customs’ first ever estimate of the overall “tax gap” reveals that 8 per cent of the expected tax due goes uncollected for a variety of reasons ranging from simple errors to criminal attacks.

The reactions are interesting:

Advisers expressed scepticism about the tax gap calculations, however. Francesca Lagerberg of Grant Thornton, a professional services firm, said the Revenue risked chasing after “mythical amounts”. Bill Dodwell of Deloitte, another professional services firm, said: “It really is finger in the air stuff.”

Mythical? Respectfully, these are responses of those in denial about the reality of the scale of tax loss in the UK, loss that their firms help create through tax avoidance - which Deloittes denies forms part of the tax gap, suggesting it is officially endorsed.

Thankfully alternative comment is available:

But Richard Murphy, a campaigner and TUC adviser, accused the Revenue of seriously underestimating the scale of the tax gap, which he believed was likely to total about £100bn. “People should be angry about it,” he said.

The TUC recently called for a fairer tax system that “made it harder for people to avoid or evade paying the proper amount of tax”, which it said was an alternative to making big cuts in services or making ordinary people pay more tax.

Quite so.

It’s a good job some of us care about the tax gap.

Richard Murphy TUC, Tax gap

Deloittes, in a cynical and politically motivated exploitation of central government funding, recently took opportunity of their commission to work on the Foot Review of British tax havens to argue that my calculation of the Tax Gap in the TUC publication The Missing Billions was wrong.

I suggested a figure of £25 billion for direct taxation. They said (page 78) the figure was £2 billion and may be was much lower.

It is curious to note in that light the following table summarising HMRC’s calculation of the tax gap, published today:

Odd to note that the figure for the direct tax gap is…£25 billion.

OK, there is £3.1 billion of evasion in there. I accept that was not in my calculation (and I’d add that it is wildly underestimated for reasons noted here) but also note that the corporation tax gap alone is way above that noted by Deloittes.

Which I think dismisses their work once and for all as exactly what it was – politically motivated misinformation. And this does also, I think, show The Missing Billions as being an accurate assessment - as I’ve always maintained.

Richard Murphy TUC, Tax avoidance