Jolyon Maugham has returned to the issue of the tax gap, and Jeremy Corbyn's championing of the issue. In doing so he says three things:
1) Jeremy Corbyn says the tax gap is £120 billion
2) In that case it is reasonable for the Times and others to surmise that he thinks that sum is recoverable
3) He cannot find me ever stating that only £20 billion is actually recoverable.
I actually think the last claim is key. As Jolyon puts it:
Richard and I are friends. But he is a prolific commentator and I do not manage to read all that he writes. So although I have no recollection of any previous work of his calculating a return of £20bn for an investment of £1bn it is possible that I have missed it. I invite Richard to direct me to those calculations. It would be a pity for the country if the Labour Party was invited to choose its leader and commit to a search for that fabled City on the basis of a finger in the air.
We are indeed friends. And I do write a lot. But in this case the analysis really wasn't hard to find. I wrote a report on the tax gap which resulted in the £120 billion estimate. Search it for the term £20 billion and there it is on page 70, in a conclusion to several pages of discussion on the potential yield from extra investment in HMRC:
In combination these investments will require more spending than the £300 million ARC think is necessary at present, which they think will deliver extra revenue in excess of £8 billion a year with a yield of £26 for every £1 invested. It is, of course, unlikely that the noted rate of return could be maintained on all additional investment; that would be unrealistic. But, even taking this into account it is likely that if instead of imposing cuts on HMRC an additional £1 billion over and above that indicated to be appropriate by ARC was to be spent, bringing total annual spending to about £5 billion, then the potential total yield to HMRC from tackling both tax evasion and tax avoidance would increase significantly and might easily exceed £20 billion per annum, including the sum already estimated by ARC. In that case the rate of return on the additional £1 billion proposed would still be about £12 for every £1 invested. It is hard to believe that almost any organisation, anywhere, would refuse to consider such a yield. It is also worth noting that costs on this basis would be still be somewhat lower for HMRC as a whole than they were, after inflation is taken into account, when it was first created.
Note I reference a report from ARC - the union representing the top 2,500 or so staff at HMRC - in making my estimate. They provided detailed working on how extra investment in their staff grade could yield £8 billion of tax. I don't believe they are the only productive members of HMRC: I am sure ARC don't either. I wisely assumed the yield on investment declines with lower grade staff and as the quantum increases.
The point is the estimates are published, reasoning has been provided, it's actually by HMRC staff in large part (remember PCS published my report and did not do so lightly) and candidly I think it fair if, as I am quite sure, my tax gap estimate provides a vastly better logic on the size of the tax gap than HMRC have delivered.
So let me add three further things. First, despite what Jolyon says I do believe a) the tax gap is £120 billion and b) £20 billion is collectable.
Second, I do not agree with Jolyon when he says:
But sensibly estimating a theoretical yield from some theoretical extra investment? That's a bit tough for me. But the fact that, as I pointed out here, the Tax Gap has remained stable in absolute terms (fallen in percentage terms) despite the cut in staff numbers does not suggest that there are huge net yields in store from raising investment.
This is I guess why Jolyon is a tax QC and I had a career as a practicing and commercial accountant before focussing on political economy: estimating theoretical yields on theoretical extra investment is what people do out there every day Jolyon, it is the basic building block of business decision making. Of course such estimates are always subject to margins of error, and no one should deny that (the £20 billion yield may, after all, be too low given the range of measures I have suggested to tackle the tax gap, most of which I doubt Jolyon has also read) but because (and this is my third point) HMRC have changed the tax gap methodology to show it is declining (which is a matter of fact) and uses such a narrow view of things like debt and avoidance that large issues are simply excluded from their tax gap estimate (as the NAO has admitted) does not mean that there is no yield out there to be had. There is, and Jeremy Corbyn is right to say so.
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Richard, you don’t refer to Jolyon’s first point – that Corbyn’s campaign materials suggest £120bn is collectable, and so either they are being misleading or they don’t understand the position. Neither is very edifying.
They are saying this is a problem to be tackled
What is wrong with that?
But I agree, it would have been good to say the extent to which it could be tackled
I did not write the document, or see it before it was published
You should have reviewed it. The section on tax justice is terrible. Apparently doing something disclosed and agreed with hmrc is “dishonest” you might not like the transfer pricing rules but change the law
Sorry, I have no idea what you are talking about
It’s from the corbyn paper you linked to. Final paragraphs of the tax justice section
Also you should look at the daily telegraph. They are using the 20 bn number to undermine him
It says:
But whatever tax laws we pass, we won’t get a progressive tax system in reality unless
we can enforce it and collect the tax we are owed.
A detailed analysis last year produced by Richard Murphy suggests that the
government is missing out on nearly £120 billion in tax revenues, per year.
That’s enough to double the NHS budget; enough to give every man, woman and child
in this country £2,000.
The £120bn figure is made up from:
– about £20bn in tax debt, uncollected by HMRC which continues to suffer budget
and staffing cuts (only partially reversed in the last Budget)
– another £20bn in tax avoidance
– and a further £80bn in tax evasion.
This is money taken from us all. And we can address this.
Addressing it is not saying we will solve it
You address crime. It does not mean it stops
Only a fantasist would suggest that is what Corbyn said
I wasnt referring to that bit. It was the Starbucks paragraph which had the dishonesty reference
I actually think claim (2) is rather more important for most people than claim (3), which is basically a private argument between you and JM that is of no consequence to anybody else. And as JM says:
“The (Corbyn) Manifesto makes no mention — at all — of the fact that only (£20bn)of that £120bn is collectable. But it does talk of El Dorado yielding “enough to give every man, woman and child in the country £2,000.” You can make your own mind up about whether the Manifesto did intend to suggest that £120bn could be raised.”
Quite. Which answers your complaint about the Times editorial.
But if it had suggested that it would, for example, have claimed to have solved the deficit
It didn’t
It’s a fantasy to think it claimed any such thing
It did point out the scale of the problem
“But if it had suggested that it would, for example, have claimed to have solved the deficit”
Why would it have claimed that? Your typical Corbyn supporter is not remotely interested in solving the deficit – if any extra money could be found (say, through closing the Tax Gap) it is far more likely that they would spend it on public services/welfare/pet projects. As the Manifesto itself said, “(£120bn is) enough to double the NHS budget”.
If this is the level of comment you aspire too please don’t waste my time
Although it’s important to highlight the distributional issues caused by the severe underfunding of HMRC (and the unnecessary complexity of the tax code!) we have to remember that it doesn’t necessarily have any direct impact on the total tax take.
The tax take and its distribution ought to be separated clearly in our minds There is a link of course, but it is more tangential than direct.
Tax, overall, is a brake on activity. You extract it to offset the injections the government is making in its spending and investment programmes.
Much as it may stick in the craw, those who retain money via tax avoidance and evasion will spend some of it.
However If government takes more out than it is putting in first (because it has this daft idea that closing budgets is important) it will just generate the mother of all paradox of thrift events in the private economy.
Spending money to beef up HMRC and then throwing it all away as the tax auto-stabilisers kick in to prevent a recession is a poor strategy that would quickly undermine the investment in HMRC.
Accepted
But I do not think that way
I argue how we extract money from the economy matters a great deal
How we extract does indeed matter. The redistribution of the flows obviously has a huge effect and can change the composition of the savings desires of the economy. Precisely my point about the distribution
But this obsession with the accounting residual amongst government types needs to stop before it all ends in tears.
Once you’ve influenced the distribution of the flows with tax policy, the tax take is what it is.
To some degree agreed
But the tax gap is important re social justice and the creation of level playing fields
In so far as the aim is not to take money away from people who will spend (or invest) it, then it is better to crack down on the evasion and avoidance of multinationals (who are flush with cash they don’t want to invest), not on small businesses and ebay traders.
However, in so far as the aim is fairness and creating a level playing field for business, then small businesses shouldn’t be given a free pass.
Neil, I’m not an economist but I’m a little lost. If unpaid tax goes off shore e.g. into a tax haven isn’t that lost and as the Govt has been injecting money over recent years shouldn’t HMRC go after tax ‘owed’. If the unpaid revenue stayed in the UK I could see that might be better, if socially and economically unjust.
I do think think it would be a good idea for Jeremy Corbyn to say how much of the tax gap he thinks can be closed (i.e. presumably £20bn, if he’s relying on Richard’s research).
£20bn out of £120bn seems very low. It means there is £100bn, or five sixths of the total, that the rich ought to be paying according to the spirit, if not the letter, of the law, but choose not to pay. I understand you’re being conservative in your estimate and it could be a bit higher, but why can’t a much larger sum be raised?
If you were given complete control over government policy are you saying that there is nothing you could come up with that would get it up to at least 50%? The rich can do what they want and no democratic government can do anything about it?
If I had do plate control? It’s a thought that has never occurred to me
First I would improve my data. That is possible. Then I would model what goes writing. Then I would work out what to do. Much of that depends on changing taxes as well as resources.
That does not mean I am writing now but insiders can do things differently