The tax gap from evasion is, give or take the odd billion or so, £70 billion at present. The total tax gap is about £120 billion.
Benefit fraud and official error combined cost £3.1 billion last year.
But apparently benefit cheating is times more important than tax abuse. How do I know? Because of this exchange of parliamentary questions and answers from Hansard:
Katy Clark: To ask the Chancellor of the Exchequer how much HM Revenue and Customs has spent on advertising for the purposes of preventing tax evasion in each of the last three years. [3776]
Mr Gauke: HM Revenue and Customs spent £633,284 (excluding VAT) on advertising for the purposes of preventing tax evasion last year. There was no expenditure in the previous two years.
And:
Katy Clark: To ask the Secretary of State for Work and Pensions how much his Department budgeted for advertising tackling benefit fraud in each of the last three financial years. [1035]
Chris Grayling: The information is in the table:
Budgeted expenditure for advertising tackling benefit fraud
2007-08 £6.5 million
2008-09 £6.0 million
Note: Includes media costs, PR, production and research costs. It excludes VAT.
We are currently reviewing all advertising expenditure and requests for further funding will be submitted to HM Treasury for approval.
So over three years tackling tax evasion was worth just £633,000 but benefit fraud was worth £17.5 million.
So apparently, prima facie benefit fraud is 27.6 times more important than tax evasion over this period.
But weight the spend by the size of the problem and the ratio is even more spectacular. Then benefit fraud is 624 times more important than tax evasion.
Which is indicative of a spectacular error of judgement.
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Benefit fraud is illegal. Tax evasion is legal.
If you advertise against tax evasion, it will probably encourage it. Corporations have a no conscience and often assume a duty to maximise profit.
The Govt could simply list those caught in tax evasion. Naming and shaming would probably work more than playing cat & mouse with the fine detail of tax law.
Rich, powerful people make to much money/hr to make even the most egregious benefits fraud profitable. It’s not worth the effort. There are people you can pay to do the tax fraud for you. Very little time commitment involved. Of course the poor plebes don’t pay enough tax to be able to justify the expense for the payoff.
Not, I think, a very robust conclusion to come to. It’s the total cost of enforcement that surely matters here. Firstly you have to take into account the total costs of enforcement, not just advertising. That includes investigators, tax inspectors, audits and so on. Secondly, if the population groups of evaders and potential benefit frauds are different, then advertising may not be the best place to put your investment in some cases. The effectiveness and reach of advertising may be different (in fact advertising is a stupid name for it in the first place – it’s basically public awareness communication underlain with a threatening message).
Also, it’s quite probable that tackling one rather than the other will be proportionately more expensive if more people are involved with smaller amounts in each case versus fewer people with larger amounts. It won’t even be the same in each class. For example, tracking down lots of individuals involved in the black economy doing cash-in-hand jobs is going to be very expensive, whilst performing a special investigation on a wealthy individual might yield a lot more.
Measuring the relative importance placed on something with a measure based on just one aspect of expenditure (and almost certainly nothing like the most important or relevant one in both cases) is just ridiculous and almost willfully misleading.
I suppose the other measure you would need to look at is the expected impact of the advertising. Much of the benefit fraud advertising encourages people to shop those they know to be making fraudulent claims; a positive response to this would be much more likely than someone being in a position to shop someone for tax evasion. That said, it’s doubtful this difference in traction can account for such a massive disparity.
@David Gould
Tax Evasion isn’t legal, you are thinking of tax avoidance.
Tax avoidance simply means arranging your financial affairs to reduce the amount you have to pay within the law. There is even some government encouragement for some of this, or else we would not have ISAs or make pension contributions tax deductable.
Of course there are schemes which are marginal on which side of legality they fall, but they are generally only available to the very rich or large corporations.
@David Gould
Tax avoidance is legal; tax evasion is illegal.
http://en.wikipedia.org/wiki/Tax_avoidance_and_tax_evasion
Surely a more significant measure would be the relative amounts spent on investigating benefit fraud and tax evasion? Are there any figures for that?
The point Richard makes is that, given the enormous disparity between the cost to the country of benefit fraud (and note the figure given is for fraud and error combined) and tax evasion it seems strange that the resources allocated to publicising the former are so much greater than those allocated for the latter. I don’t think it is the case that publicising tax evasion via advertising is less appropriate than doing the same thing for benefit fraud on the assumption that tax evasion is carried out by people who are less likely to be shopped. From my own experience, loads of small businesses do the old trick of “pay me cash and avoid VAT”, and there’s precious little attempt by the government to make this as socially unacceptable as benefit fraud.
@David Gould
You are wrong. Tax evasion is illegal. You can legally avoid tax but you can’t evade it.
@Richard
I agree. A lot of evasion by big companies is quite deliberate and treads the line between avoidance/evasion (legal/illegal) as closely as possible. It’s a game played between the tax lawyers of big companies and HMIRS and no amount of advertising is going to stop it.
The government does however employ a whole hoard of tax inspectors who’s full time job is to reclaim tax that these guys should have really paid.
@sickoftaxdodgers
It’s agreed that tax evasion is a larger amount than benefit fraud, but the point is that measureing advertising alone which, buy any measure, is a tiny proportion of the budgets of the agencies involved in enforcing the rules as a proxy for measuring the importance given to the two areas is wholly misleading. You need to look at the total amount of money spent enforcement, not this relatively piddling amount. For instance, the budget for HMCR operation is around £4bn per year. Now how much of that might be viewed as enforcement, and how much on administration, I don’t know, but it is going to dwarf any advertising spend, and is advertising even going to be effective?
Similarly their will be those in the benefit authorities charged with following up on fraud, and I’d suspect that will be a very significant amount of money.
So a blanket statement that the government views benefit fraud as being 624 times as important as tax evasion is clearly untenable. It’s just looking at one element which, by any measure, is a tiny fraction of the budgets of the relevant departments. I’m all for using evidence, but this is just so far from the real position that it cannot be let pass. There is no conceivable way that the government is spending 624 times as much on dealing with benefit fraud than tex evasion. If only 10% of the HMCR budget was spent on enforcement activities (investigations, statistical analysis, inspection, audits etc.) that would amount to £400m per year. Multiply that by 624 and we would have to be spending £250bn per year on chasing benefit fraud which is clearly a nonsense.
oops – apologies for all the grammatical and spelling errors…
@Steve Jones and more generally to those who have commented
First, let me be clear – the headline is of course attention seeking. It’s worked – thousands of people have read this blog entry as a result
Second – more worryingly – Katy Clark raised this issue I am sure, and I raise it as well, precisely because the difference in spending is indicative of the attitude of HM Revenue & Customs to these two issues
For example – benefit debt is chased when £200 is owing – tax debt sometimes not until £10,000 is owing
HMRC can advertise on benefit fraud – but is frightened to do so on tax fraud because of the reaction of the right wing business lobby – although all in HMRC know the problem is massive — and vastly bigger than benefit fraud
So of course the ratio I quote is totemic and in itself meaningless – but the underlying point is far from irrelevant
Tax evasion costs £70 billion a year – enough to close the government’s deficit – and little or nothing is being done about it#
Benefit fraud is a mere rounding error in the government’s accounts and yet is targeted
There is underlying this fact a very, very wrong headed approach to policy that is costing us all dear
that is my point
And I stick by it
@Steve Jones
I think it’s more an indicator of the typical approach of the British gov towards enforcement of ‘social values’ i.e hypocritical and distorted.
We seem to be at a point where “keep the wealthy happy and the poor scared” is an acceptable adage in all areas of society.
The calculated assault on real social values over the last 35 years or so has become so entrenched that we can’t even remember that it hasn’t always been like this.
Whoops, sorry I said tax evasion was legal. I checked and the Indy made the same mistake. 🙄
Still, it’s often a grey area, cases of the latter I suspect being included in the PCS’ figures.
I also suspect the benefit fraud figure is grossly understated. £102bn a year, and only ~3% claiming illegally? People getting income on the side, people exaggerating their disabilities, lying about who they’re living with etc. I suspect it’s more like £30bn.
Likewise, corporations have practically unlimited money to buy the ‘best’ accountants to find loopholes in the plaster you covered the last one with.
If you have any great ideas to get around this, submit them via your MP to the Treasury. Or you can just email them to me – I have a couple of fairly good contacts within the Govt.
@Richard Murphy
Of course I was aware that the headline was for effect, but it’s a tactic beloved of politicians, polemicists, journalist and various pundits which I’m not wholly fond of as my training was in the rather more dispassionate subject of physics. But never mind.
The figure of £70bn is, of course, a contested one. HMRC’s estimates are somewhat different, and also (speaking as a working class kid born in 1955) evasion is something that happens at the bottom end of the income scale as well as the top. The cash economy, evading cigarette, VAT, alcohol duty and so on were not unknown from where I came.
There are always those that push at the borders of spirit and legality which is where the current tax avoidance/mitigation argument comes in. Quite large numbers get allocated into what one might call these morality gaps (the opposite one to tax avoidance arises for those that choose life styles to optimise their state income). Of course the great majority don’t inhabit either of these morally hazardous areas, but exist they do. Human nature being what it is, there will always be some that exploit such things. Personally I would prefer that systems are designed to minimise the scope for such things and that, as far as possible, revenue and benefit systems did not generate perverse incentives or rely on subjective moral criteria for the details of application. When a law is passed, the spirit in which it is intended often varies a lot between the MPs involved.
There is one distortion in the tax system that nobody much seems to deal with, and that is the use of inflation above return rates (knowingly or otherwise) by governments to devalue the real value of the National Debt and increase tax revenue. Personal taxation is usually based on gross income, not income net of inflation, (even a standard rate tax payer will find it difficult to match inflation net of tax and a high rate payer will have no chance). It’s not obvious that that a tax on a nominal, rather than real, values increases is at all fair.
That hidden tax take, in devaluing the real value of savings (and gilts held by investment schemes) has to be factored into any tax gap. I should add that a recent Guardian editorial espoused the use of inflation to do exactly this to reduce National Debt levels.
If loopholes are to be closed (such as why are capital gains treated differently from income, or why should “earned” income attract NI when investment does not), then that issue of taxing real versus illusory returns needs to be tackled.
[…] wrote what I thought was a pretty routine blog the other day, It was called “Benefit fraud is 624 times more serious than tax evasion”. And it has gone like wildfire around Twitter it seems, becoming in the process the best read […]
[…] wrote what I thought was a pretty routine blog the other day, It was called “Benefit fraud is 624 times more serious than tax evasion”. And it has gone like wildfire around Twitter it seems, becoming in the process the best read […]
Nobody, unless they have been zapped, has made the important point – and in attempting to avoid deletion myself I will make it without personal opinion – that there is a subtle difference in the status of these two tranches of money which are being deprived to the government. Like it or not there is a perception, and I think not only among the elite but also among the lower income working groups, that tax fraud is “their” rightfully earned money which is being taken away from them and if they can mitigate their liability (cash payment to a plumber for instance) then good for them in a “jack the lad” kind of way. Benefit fraud on the other hand is seen as one of the reasons why they are having to pay such high taxes in the first place and there is a much greater stigma attached to it as in stealing. For the advocates of redistribution the challenge is to equalise the stigma of the former with the latter although there are probably better fields on which to fight the battle from a PR point of view as many will jump to the conclusion that you are sympathising with the benefit fraudsters.
@woolley
You may be right
But tax evaders are wrong
Income comes with a property right attached to it – the property right of government that needs to be paid
There is not right to property without tax being paid
Government grants property rights by law
It determines the duty to tax by law
They are part of the same property rights system
The libertarian argument is simply untenable unless you assume the abolition of property rights
I don’t think anyone wants to go there
@woolley
You do, of course, go to the heart of the difference in perception that many people have. I think those that would prioritise the chasing of the tax avoiders (it appears not just to be evaders that are the aim here) need to be aware of these aspects. It could also easily be argued that taxes are higher than they need to be because some are not paying their fair share. However, the suspicion that many have is that, like all interest groups, there are some just seeking to maximise the share of GDP taken and spent by the state. I think those suspicions are not wholly without some basis in that those who do pay their taxes are unlikely to benefit from the chasing the tax avoiders. Personally I would much rather that people came clean and would declare how much of GDP (over the economic cycle to use a much devalued term) that the state should be responsible for spending in normal circumstances. At least then we would have some idea of what the aim is – tax policy could then be about just ways of raising and spending it. Revenue maximising alone is not, to my mind, and more of a valid objective than expenditure minimisation.
@ David Gould – you say you ‘suspect the benefit fraud figure is grossly understated. £102bn a year, and only ~3% claiming illegally, people getting income on the side, people exaggerating their disabilities, lying about who they’re living with etc. I suspect it’s more like £30bn.’ This is just wild guessing and I suspect over-exaggeration on your part. Neither can you talk about the amount defrauded without mentioning the million of pounds in benefits that go unclaimed every year.
@Steve Jones
I suspect – because no one in the OECD or places like Jersey or the Isle of Man manages it – that we can’t do with less than 40% government spending as a proportion of GDP and In suspect it will go over 50% with an ageing population
And I really have no problem with that if that is what people want
And I think that is what you’ll find as cuts bite in