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HMRC is missing at least £40 billion in unpaid tax.
This figure – known as the ‘tax gap’ – was released by HMRC last week. The tax gap is the difference between the amount of tax owed and what the government collects. Missing this amount of tax is simply unacceptable at a time when the health service and public services are ‘on the brink of collapse’ from underfunding. Unpaid tax is growing The tax gap has increased in real terms to £40 billion from £36 billion in 2021-22. That’s an eye watering sum of money. It’s also an under-estimate as it doesn’t include money that wealthy companies shift offshore, as our friends at TaxWatch point out. To put £40 billion in context, it’s enough to cover government spending on the police, or nearly half the money spent on schools. “It is not just or right for billions of pounds of tax to be left uncollected,” my colleague Rachael said, as was reported by CityAM and the i newspaper. Why we’re missing £40 billion HMRC is under-resourced for the job at hand. They don’t have the staff to properly investigate and chase tax dodgers – or follow up on taxpayer mistakes. This isn’t our view, but that of the Parliament’s Public Accounts Committee. MPs slammed the government last year for underfunding HMRC – and insisted that more money must be invested into tax investigations. If we closed the tax gap With more resources and investment, HMRC could have the teeth to claw back more unpaid tax – and close the tax gap. If the tax gap were to be closed by just 10%, this could cover the cost of ending the two child benefit cap. Closing the tax gap by 20% could pay for around 63,000 nurses, 44,000 teachers, and 41,000 police officers. The collection of unpaid tax could be transformative for public services and the social security net in the UK. A global billionaires tax? Global support for taxing billionaires is growing. A report released this week is calling for a coordinated global minimum tax for billionaires. The work by leading tax economist Gabriel Zucman proposes a new global tax on billionaires and details how it could work. It was commissioned by the Brazilian presidency of the G20, a grouping of the world’s major economies. Zucman found a pattern – that billionaires pay lower effective tax rates than everyone else. This deprives governments of significant amounts of tax revenue and contributes to the concentration of wealth in the hands of a small minority. Zucman recommends a 2% minimum tax on the wealth of billionaires, in-line with our own proposals for UK-based billionaires. Supportive statements were made by government Ministers in Brazil, France, Spain, South Africa, Belgium, and Colombia when the idea for a global minimum wealth tax was first announced. We’ll be keeping our eye on developments and will update you as things progress.
The official gap between the amount of tax owed and what the government collects, has grown to nearly £40 billion, new HMRC figures show.
The official figures released by HMRC were also expected to provide an estimate of the annual offshore tax gap for individuals in Self Assessment. Chief Secretary to the Treasury, Nigel Huddlestone had provided a written answer to Margaret Hodge on this issue confirming the data would be released alongside the Tax Gap statistics on the 20th June 2024. This followed a previous delay whereby the offshore data was expected to be published in 2023. However no offshore tax gap data has been released today. Instead the 2024 Tax Gap release states: "This publication includes updates to established tax gap estimates only. The ‘Measuring tax gaps 2023 edition’ referenced a future development priority to quantify non-compliance associated with UK residents’ failure to declare offshore income. HMRC plan to publish this analysis after the election period." This comes as an investigation by The Bureau of Investigative Journalism found that HMRC hasn’t fined a single enabler of offshore tax evasion in five years, despite landmark powers introduced in 2017. Rachael Henry, Head of Advocacy and Policy at Tax Justice UK, said: “Giving HMRC the tools it needs to collect unpaid tax is essential. Whether it's the direct return on investment to the tax authority or being able to spend extra tax revenue on getting the UK healthy again. It is an open goal for the government and a winner for the country. Simply put, it is not just or right for billions of pounds of tax to be left uncollected. The NHS desperately needs extra funds and people are having to put unaffordable basics back on supermarket shelves far too often. The tax gap of £40bn is vital revenue to help clear waiting lists and guarantee people get the healthcare appointments and treatments they need.” If the Tax Gap were to be closed by just 10%, this could cover the cost of ending the two child benefit cap. Closing the Tax Gap by 20% could pay for around 60,000 nurses, 40,000 teachers, and 40,000 police officers. This illustrates how the collection of unpaid tax could be transformative for public services and the social security net in the UK. [ENDS] Notes to editors:
The parties revealed their manifestos this week. Taxes on the super-rich featured in many – showing growing support for our ideas.
The Greens promised a 1% wealth tax on those who own over £10 million of assets. It is very similar to the wealth tax we want to see introduced. This would help support a big round of investment in the NHS and public services. They are listening The Liberal Democrats have promised to tax income from wealth in a similar way to income from work – by reforming Capital Gains Tax (CGT). This is something we’ve long called for. It would put the taxation of income from selling shares, investment properties and other assets more in-line with income from work. It would make our tax system fairer. And mean people like Rishi Sunak – who paid the same rate of tax last year as a teacher – would pay more tax. Labour, meanwhile, doubled-down on their commitment to abolish non-dom status in their manifesto. It’s so encouraging to see many of our wealth tax policies picked up by these parties. We’re all over the media These manifesto announcements have sparked a media debate on wealth taxes. Rachael and I have had a busy week in TV and radio studios. On Tuesday our executive director Robert was on LBC with Tom Swarbrick making the case for raising capital gains tax. On Wednesday he was on TalkTV with Ian Collins arguing for higher taxes on the richest to fund better public services. And he spoke to Jim Diamond on LBC News later that day, discussing the Greens’ wealth tax proposal. Rachael spoke to Nick Ferrari on LBC last Friday and made the case for taxing the super rich more – and was on Shelagh Foggerty. We simply haven’t had this level of public debate over wealth taxes in an election period ever before. Our campaigning over the past five years has made this possible. It gives me hope that things can change. Thank you for all your help and support. We need to keep pushing Although our wealth tax message is front and centre in many of the smaller parties’ manifestos, it is less so for the larger parties. Labour does have some progressive tax policies – such as asking private schools to pay VAT and abolishing non-dom status – but they need to go much further. If Labour wins the election, they will face a reality check in government: the country is falling apart and desperately needs investment in the NHS, dentistry and local councils. The scale of planned investment in public services will need to dramatically increase. We will keep pushing them after the election to make taxes on wealth a priority. The Conservatives meanwhile, unfortunately, have their heads in the sand when it comes to tax. They are proposing tax cuts – at a time when our public services are falling apart. This is the stuff of dreamland – as I said on TalkTV.
June 2024
With a general election called for the 4th of July, political parties are setting out their stall to voters. Whoever wins the election will face a reality check in government: the country is falling apart. The UK desperately needs investment to deliver a fair economy, and revive crumbling NHS services, schools and councils. Fair, progressive tax reforms will be essential to address the overriding sense of decay and crisis. Make no mistake, tax will define the next parliament. An incoming government will face the choice of who to ask to contribute more or deliver a brutal round of austerity to already decimated services. That’s why Tax Justice UK and Patriotic Millionaires UK are making the case for fair tax reform, calling for political parties to consider ten tax policies to reduce inequality and help to support high quality public services. These ten reforms - from taxes on wealth to the closure of tax loopholes - are sensible, credible policies, with widespread support from economists, think-tanks, millionaires and the public. The policies are designed to place the onus of raising revenue on the very wealthiest people and richest companies rather than the average tax-payer. In recent decades the UK’s super-rich have benefitted from a boom in wealth while inequality has widened and public services have been decimated. Therefore, it is only fair that those with the broadest shoulders are asked to pay a fairer share to breathe life back into the UK. Polling shows the public and millionaires want the wealthiest to pay more, and would be more likely to vote for a party that committed to higher taxes on the wealthiest to invest in public services. Voters believe that both Conservatives and Labour would put up taxes. Three in five millionaires believe that for any kind of economic growth to succeed, taxes are going to have to rise to pay for further national investment. Politicians have an open goal to raise money to revive the country and keep the majority of the public on-side, with just over £60 billion available from various tax reform policy options. 1 - Apply a 2% wealth tax on assets over £10 million, raising up to £24 billion a year Setting a wealth tax at a high threshold of £10 million in assets ensures that a tiny proportion of the population are impacted - just 20,000 people, which is 0.04% of the population. This makes it far easier for HMRC to administer and ensures people have a diversity of assets, ensuring their ability to pay without selling property. It would ensure that those who have benefited enormously from structural economic changes over the last decade contribute fairly and create significant revenue to repair the country. Huge momentum is growing, with a former advisor to Tony Blair, millionaires, unions, journalists and newspapers joining calls for a wealth tax. 2 - Equalise capital gains and income tax rates, to raise £16.7 billion a year This would simplify the tax system by treating income from wealth and income from work in the same way. There is no obvious reason why someone going to work should pay more tax on their wages than someone living on the income they derive from their investments. This has huge cross-party support, including centre-right think-tanks and Conservative politicians. The Institute for Fiscal Studies recently said it would be a positive measure for growth if it was accompanied by higher allowances. 3 - Apply National Insurance to investment income, raising up to £10.2 billion a year Currently National Insurance is just paid on income from work but a new government should expand the tax base to income from investments – such as dividends from shares, rent from property, and interest on savings. This would equalise and simplify the treatment of different types of income under the taxation system, and ensure that income from wealth is taxed at the same rate as earnings from work. 4 - Close inheritance tax loopholes to raise £1.4 billion a year Inheritance tax has a multitude of reliefs (88 at the last count) that enable wealthy estates to engineer their finances to pay low levels of tax. This is evidenced by the fact that estates worth over £10 million pay an effective average tax rate of just 17% despite a headline inheritance tax rate of 40%. As a starting point, curbing business and agricultural property reliefs, could raise £1.4 billion a year. Evidence shows a small minority of very wealthy estates use these loopholes to avoid paying their full rate of inheritance tax. 5 - Close the loopholes in the new non-dom scheme to raise up to £1 billion At the Spring Budget, the Chancellor Jeremy Hunt announced he would close the non-dom loophole. This was a huge campaign win for tax justice advocates as we had long called for this unfair tax loophole to be closed. The government has since set out the new arrangement for non-doms and amidst reports of heavy lobbying from the private wealth industry, the scheme has been revealed to be littered with loopholes. Two exemptions within the current scheme's design could cost in the region of £1 billion in the first year, with concerns raised by academics Andy Summers and Arun Advani. One loophole enables non-doms to avoid paying UK inheritance tax on their worldwide estates if they are shielded in a trust by April 2025, potentially costing £430 million a year. Another loophole provides an arbitrary 50% discount to tax paid on overseas income and capital gains in the first year, potentially costing £600 million. UK residents do not benefit from such exemptions, therefore there is no reason such inequities should be included. 6 - Introduce a 4% tax on share buybacks, raising approximately £2 billion a year Some of Britain’s largest companies are transferring profits to their shareholders at record levels. According to IPPR, if the UK implemented a share buyback tax at 4%, the rate proposed by US President Joe Biden, it would have raised approximately £2.2 billion in 2022. Taxes on shareholder transfers would help to ensure that companies are not channelling profits to their shareholders at a time of national economic crisis and encourage investment in the real economy. 7 - End fossil fuel subsidies for oil and gas companies to raise £2.2 billion a year Oxfam estimates that taxpayers subsidise oil and gas companies in the North Sea for activities such as exploration and decommissioning to the tune of £2.2 billion. The UK taxpayer should not be footing the bill for polluting, highly profitable fossil-fuel companies, nor their cleanups. 8 - Close the loophole in the oil and gas windfall tax, costing £2 billion a year Despite oil companies’ record profits since the war in Ukraine, the UK taxpayer continues to fund a loophole for the industry that the Institute for Fiscal Studies (IFS) has characterised as a "huge tax subsidy”. This is because the windfall tax implemented by the government contains what the IFS calls “indefensibly generous” investment allowances. This loophole enables oil companies to claw back roughly £45 for every £100 spent on new UK oil and gas projects. This costs the taxpayer approximately £2 billion a year. 9 - Tax private jets to raise £700 million a year Private jets release ten times more carbon per passenger than commercial flights. Despite this, most private jets pay no VAT, no fuel duty and most passengers pay the same low rate of air passenger duty as ordinary commercial flyers. There are many ways that private jets could be taxed, including proposals to levy VAT, which could raise £180 million; tax fuel, which could raise £200 million; and increase air passenger duty, which could raise £320 million. The UK has more private flights and more pollution from private jets than any other country in Europe, therefore an incoming government should look to tackle the UK’s outsize contribution to this problem. 10 - End tax reliefs that benefit huge multinational corporations The UK tax code is the most complex in the world, with over 1180 tax reliefs. Even HMRC - the UK’s tax watchdog - recently admitted that it only knows the cost of 365 of the UK’s tax reliefs. It is littered with inefficiencies, inequities and special treatment for favoured interest groups and the wealthiest. For example, Video Games Tax Relief (VGTR) cost £197 million in 2022, more than five times as much as it was anticipated to cost when it was introduced. Despite being designed as a relief to help independent developers produce “culturally British” games, evidence shows it is large, multinational firms that benefit from the lion's share: US-owned company Rockstar, who produce Grand Theft Auto, revealed it obtained almost £80 million in VGTR in 2021-2022 - 41% of all VGTR paid out in the UK. This tax relief illustrates the issue with our complex, outdated tax code. It is one amongst hundreds of unfair, costly tax reliefs that need to be phased out by a new government. *** These policies build on previous policy work from Tax Justice UK and Patriotic Millionaires UK, found in our ‘Six wealth taxes’ and ‘Close five loopholes’ pieces. We have updated sources and data where available. These revenue figures are estimates based on research from government institutes, academics and think tanks, in particular the work of economists Dr. Arun Advani (University of Warwick) and Dr. Andy Summers (London School of Economics), co authors of the final report of the UK Wealth Tax Commission. The figures cited in this paper should be taken as indicative estimates, since revenue calculations for tax changes are difficult to estimate as dynamic and behavioural effects can be uncertain. The policies in this paper should also not be taken as exhaustive - they are indicative of the multitude of sensible policy options available and should be placed in a wider package of tax reform, including measures on tax avoidance, work on global tax governance, investing more resources into HMRC and fixing the broken council tax system. This paper was written by Rachael Henry, Head of Advocacy and Policy at Tax Justice UK. To see the paper in full, including footnotes on methodologies, please see here. |
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