I was asked this question today. Let me give a current estimate.
According to reports in The Times yesterday:
The VAT gap - the difference between how much should be collected and how much was - rose to 14.5 per cent last year, the first increase since 2002.
Now VAT fraud has increased because of carousel activity, but let's be clear, the rate was about 17% at the turn of the century, so the current figure is an improvement. This happens to be the only 'evasion estimate' HMRC publish. I think it's low. My own Tax Gap estimates are higher at up to 24% for corporation tax. I think that's likely. A top line error on VAT is likely to give rise to a bigger error on the bottom line, by definition. But let's live with 14.5%.
The pre-Budget Report suggests current year income (2006-07) should be £518 billion.
Take 14.5% of £518 billion and the resulting cost of evasion is not less than £75 billion. That's my current base line estimate. I expect that's conservative.
Add avoidance onto that (minimum£10 billion according to HMRC) and you can see why we concentrate on this issue. Combined that's more than the whole UK education budget - which seems to be Gordon Brown's focus for his premiership.
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Does this mean government is or is not counting what you’ve described as that Tax Gap? Looking at past research it seems they’re ignoring it – doesn’t make sense to me as that’s a decent set of findings.
Are they being silent on evasion in the wider sense?
Richard Murphy…
Start with the wrong question and you’ll never get the right answer. The question asked is this: How much does tax evasion cost the UK? Start at £75 billion Well, no. The correct answer is nothing. ‘The UK’ is all…
I don’t understand Dennis’ question What aren’t they counting? £75 billion or £10 billion? I think £75 billion is evasion and the government gives the low figure of £10 nillion for evasion.
As for Tim’s comment – it’s typical of a man who thinks those who work for government add no value to society. Just remeber that next time you need the NHS in a hurry Tim. I won’t reason with the unreasonable (using the term in its literal sense).
£75 billion not in the hands of Gordon and his army of pencil-pushers is 75 billion quid left free to be spent on more productive things. Your headline should read: “How much money do we manage to stop HMG from squandering? Start at £75 billion.”
And is this avoidance or evasion?
David
Next time you’re waiting ona trolley for treatment in the NHS ask yourself this question:
“How useful is this?”
A lot more usueful than most of your consumer psending, no doubt. You clearly think otherwise. I call that sad.
Almost everything of really significant value I’ve enjoyed in my life has either come free or been provided by the state. Most people would agree, if they thought about it.
The market is important. But let’s not presume it always delivers value.
Richard
I’d hardly use the NHS as my poster child for government efficiency. Anyway, because I a) purchase private health insurance and b) don’t live in the UK anymore, the notion of my waiting on a trolley for treatment (for any significant time) doesn’t arise. I get a superior level of healthcare, but on my terms. I can choose to purchase this care, or I can divert my spending into other areas (and the utility I derive from that is subjective and personal). I won’t deny that some public provision of services is necessary, but whether that includes, e.g. provision of healthcare beyond acute treatment and as a safety net is debatable. Does public spending in aggregate produce net benefit? Probably yes. What is the marginal cost and benefit of a reduction in the tax take? Do we necessarily believe that at the margin, a reduction in tax revenue has net negative social utility? Probably not.
I don’t live in state-provided housing, and never have. My secondary education was not provided by the state. The skills that I use in my current employment were not provided by the state. I do not use state-provided healthcare, as noted above. I rarely use public transport. I do not eat and drink at the state’s expense. I receive no state benefits (I’ve never been unemployed). I am unshakeable in my belief that 75 billion off the top of a half-trillion tax take is more likely to do good than harm. If we could lose that 75 billion by taking the less well-off out of taxation altogether, then great.
David
What a sad story, and how sad that you appear to lack empathy
And that you cannot imagine situations that most face in the UK where the state is absolutely fundamentally vital – as it has been to mine many times
You also miss the point. I don’t necessarily want £75 billion more government spending – I want those who don’t pay (but do benefit) to pay their share for the benefit they do get equally with those who do pay already by contributing as they should, so cutting the burden on all honest poeple
You seem to miss this point of honesty. Why is that?
Richard
Hang on – these figures are all over the place. VAT Gap – OK – got it. Tax Gap – got that. UK government estimates – got that. Where does the £75 bn come from?
Looking at the government’s own figures for CT/IT/VAT/Excise/NIC – total = £379bn. The way you’ve calculated evasion is to include every form of receipt government counts. So £75bn can’t be right. Even assuming the percentage you’re attributing is reasonable.
A top line figure on VAT (which the Times reported as being ‘up to’ £3bn) doesn’t automatically translate to bottom line tax loss elsewhere unless you assume that every penny of VAT evaded in the chain translates into revenue with pure profit and disappears as trading activity in the UK. HMRC went after the innocent victims of carousel fraud – who presumably pay their taxes.
But even then I’m not sure what’s being said. The CT and VAT gaps are just that. Differences. Is there any research anywhere that shows a proof these gaps represent abusive avoidance and/or evasion? Not as far as I know – it’s an assumption.
Dennis
So \’non-taxes\’ aren\\\’t evaded? That\’s a new one.
And top line distortion does not lead to bigger % bottom line distortion? That\\\’s another odd logic flaw by an accountant.
I showed my calculation of the £75 billion, explicitly. It\\\’s lower than many other estimates. I tend to be cautious. What more do you want?
As for the £3 billion – that\\\’s carouself fraud alone. Please get your facts right.
And does it matter if the \\\’difference\\\’s is avoidance or evasion (the difference between which you admitted you could not define yesterday)? Either way it is an increased burden on ordinar taxpayers.
Please either contribute constructiuvely Dennis, or please do not bother. This contribution was not constructive, well reasoned, or factual.
If you want to defend the status quo, abuse of the tax system and those who does so please say so. Many are concluding you nit-picking does in fact hide that agenda. If you want to say I\\\’m wrong, prove how and why. But if you just want to pretend to be be smart, there are other places for you to do that. This is not it. And my readers are telling me so.
In the meantime, muse on this. Sometimes it is better to have an indication of the scale of a problem than no idea at all. That is what this was, a cautious one at that, but fully reasoned and with the extrapolation being reasonable. And sometimes it is neither worth refining a point, or defining it beforedeciding action is needed. You mentioned slavery on your blog today. If Wilberforce had waited to define slavery or count the slaves we would still have slavery.
Prevarication kills progress. Is that what you want?
Richard
Wilberforce knew about slavery and had no difficulty in defining it as he had spent plenty of time in Africa. In reality, he didn’t have to get into definition because it has recently been shown that the pivotal events of the time centred around a rise in public awareness of the conditions under which slaves were transported and lived. There was a public uproar and that was enough to get the measures through. Also at the time, there was very little by which we would today call ‘scientific method’ so I doubt it occurred to him to think in those terms.
We live in different times requiring different approaches. It is no longer enough to simply declare something to be true or false. (Sometimes I think life would be easier if it was.)