David Gauke doesn’t get the tax gap

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David Gauke is not a big fan of mine. That’s a shame as he’s Exchequer secretary to the Treasury  and we’ve never met. But for all his efforts at setting out his differences with what I have to say  he also seems remarkably good at heeding my advice.

There’s little doubt that the work I’ve done on the tax gap for the TUC and PCS has propelled the issue up the political agenda. Gauke, as he’s said before and did again this week, isn’t convinced. But then HMRC published its business plan and made its number one priority saying in its business plan:

HM Revenue & Customs’ vision is:

- to close the tax gap;

- to make our customers feel that the tax system is simple for them and even-handed; and

- to be seen as a highly professional and efficient organisation.

Oh dear David: somebody wasn’t paying attention to what you said about me getting all my numbers wrong. They went and accepted the issue as the most important you’ve got anyway.

And then yesterday Gauke gave a speech to the Deloitte Tax Director’s Academy. It wasn’t an auspicious location given Deloitte’s role in preparing a report which showed an enormous lack of professional objectivity for the Foot Report last year (a task which conflicts of interest alone should have precluded them from given they operate in all major tax havens / secrecy jurisdictions). But let’s ignore that and note what Gauke said. Take thjis as an example:

agreeing the ‘right amount of tax at the right time’ is a key aspect of HMRC’s work

I couldn’t agree more. But then I say, often, that tax compliance is:

Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.

Do you note the similarity? It’s not a regular HMRC phrase — but it certainly is here. Oh no, not again, surely David — that you’ve gone and agreed with me?

Well, no, not entirely. Because he also said:

It does no-one any good to exaggerate the scale of the tax gap, or generate confusion about its nature.  Despite what some individuals may think, we can’t magic away our debts by collecting supposedly unpaid amounts of tax that, in reality, don’t even exist

I’ve seen some external tax gap estimates of up to £120 billion — three times HMRC’s own figure — based on rather far-fetched assumptions.

These are particularly egregious in the area of corporate avoidance.

First, people’s rhetoric seeks to gloss over the relative proportion of the tax gap that is attributable to large business.

Second, their own estimates have looked at the statutory rate of Corporation Tax, and the effective rate, and classed the difference as avoidance.  They’ve chosen to ignore the fact that much of the difference can be explained by double taxation relief, capital allowances, R&D tax credits, and other legitimate reliefs.

So yes, while we can’t afford to ignore the issues of evasion, fraud, or avoidance for that matter, our strategy for addressing these issues will be grounded in reality, not hearsay or creative accounting.  Let us ensure that this is an informed debate, based on the facts.

Now he’s trying to argue. But he has a problem, because his facts are wrong. I’ve explained why, at length, before, but let me summarise the argument:

a) I use his data on unpaid tax, he can’t disagree.

b) On evasion I use his ratios on VAT loss — which the World Bank also find give a remarkably accurate estimate of the size of the shadow economy. But he argues that tax returns give a better guide. This ignores the fact that the most serious tax evaders don’t submit tax returns precisely because they’re in the shadow economy! It’s so obvious HMRC data is wrong it’s absurd for him to argue otherwise but in case of doubt note this: total tax avoidance on income tax, national insurance and CGT is just £1.4 billion they said in 2008 — 09 and then in the budget Osborne said it exceeded £1 billion on CGT alone.

c) Sure we disagree on the amount of corporate tax avoidance. I say it’s £12.5 billion, using HMRC data it may be £6 to £7 billion. So we have a £5 billion gap in £120 billion. That’s it.

And then note on corporate tax rates — which he criticises me for using as the basis for assessing the tax gap — he says in his latest speech:

This will be the lowest rate of any major Western economy, one of the most competitive rates in the G20, and the lowest rate this country has ever seen.

So headline rates, and differences in them, are important after all, he says. Sounds like he’s just go confused again.

The simple fact is this: the tax gap narrative makes sense because it is sense, it is researched, it is based on fact, it is logically coherent and to argue that it’s better to cut than collect £120 billion (or just a part of it — because I’ve always acknowledged that’s the best that’s possible) is just plain offensive to those who will be losing their jobs, benefits, pensions, education and much more.

I’ve said it before, and I’ll repeat it: the choice the ConDems have made is to leave the money with the cheats. I want it in the pockets of pensioners, the young, the poor, and thsoe forced out of work by this government. It’s a simple choice. And he’s made the wrong one.