Unpaid Tax

Question

14:47:00

Asked by

To ask His Majesty’s Government how much tax they estimate is unpaid each year, and what steps they are taking in response.

My Lords, the tax gap is estimated to be 5.3% of total theoretical tax liabilities. At the Budget last year, the Chancellor announced the most ambitious package ever to close the tax gap. The Government then built on this at the Spring Statement, setting out plans to make it easier for taxpayers to pay the right amount of tax for a modern and digital tax system. These measures will raise an additional £7.5 billion of tax revenue each year by the end of the Parliament.

I thank the Minister for his Answer. He will be aware that in May the National Audit Office reported on collecting the right tax from wealthy individuals. It noted that “underlying levels of non-compliance among the wealthy … could be much greater” than anticipated and that, based on the most recent figures available, HMRC’s “wealthy team” devoted just 5% of its casework to investigating offshore non-compliance. Given that, what timelines will the Government set for HMRC for tackling non-compliance by the wealthy, particularly surrounding offshore assets?

I am grateful to my noble friend for her question. As part of the action we are taking to close the tax gap, HMRC is recruiting an additional 5,500 compliance officers by the end of the Parliament; 400 of them will work specifically on wealthy offshore risks. HMRC has also created a new team focused specifically on tackling offshore non-compliance cases and is expanding its counterfraud capability, targeting those who facilitate wealthy individuals hiding money offshore. In the report that my noble friend mentions, the National Audit Office recognises that this Government are scaling up compliance activity to tackle serious offshore non-compliance and have committed further funding to do so. Looking ahead, we will take further action to close the tax gap; we have published consultations on strengthening HMRC’s ability to act against tax advisers who facilitate non-compliance and to close in on promoters of marketed tax avoidance. Finally, my noble friend asked about timescales. We will set out further plans in the Budget and will shortly publish a road map setting out HMRC’s strategic ambitions and the transformation required to achieve them.

My Lords, I welcome the Minister’s response—heaven knows, after last week the Government will have to raise a hell of a lot of tax to compensate for the extra expense they are incurring. On offshore tax avoidance, he will be aware that 3 million parcels a week arrive in the UK from offshore suppliers containing goods below £135 in value and therefore exempt from VAT. It is estimated that roughly £1 billion of additional VAT—that is not even in the tax gap—could be recouped. A number of actors, including RAVAS, have ideas on how to cure this. Will the Minister agree to a meeting with the Treasury and HMRC, which keep batting us away, to discuss how we can stop this tax gap?

I am grateful to the noble Lord for his question. I know that he has been in touch with my colleague the Exchequer Secretary to the Treasury and has discussed having a meeting. I am sure that he will be in touch in due course.

My Lords, this is Whistleblowing Awareness Week. The Minister will know that HMRC, in its attempts to claw back large amounts of tax fraud, has announced a new scheme of rewards and incentives to bring whistleblowers into discussion with HMRC and to pursue fraudsters. However, there has been very little information about the structure around this, the mechanisms in place and the portals. Can he update us on what is meant to be the central pillar of the new attack on fraud?

No. I am grateful to the noble Baroness for making me aware of the awareness week. She says that this is the central pillar of our strategy; it is one of them. Most importantly, we are recruiting an additional 5,500 compliance officers, which is the central piece in what we are seeking to achieve. On updates, if there is anything further to say, I will be happy to write to her.

My Lords, back in February the Public Accounts Committee accused HMRC of not being “sufficiently curious about the true scale of tax evasion” in this country, suggesting that the tax authority’s estimate of £5.5 billion a year may be a significant underestimate. Does the Minister share the committee’s concern?

After the measures we took in the Budget and the Spring Statement, no one could possibly say that we are not sufficiently resourcing the fight against the tax gap. As I said in my original Answer to my noble friend, the National Audit Office recognises in its report that this Government are scaling up compliance activity to tackle serious offshore non-compliance and have committed further funding to do so. It also recognises many of the measures we are taking, including, as I said earlier, significant additional investment in compliance officers by the end of the Parliament. The noble Lord will recognise that this is the most ambitious package to close the tax gap ever; we have committed an additional £660 million each year for measures to do so and by the end of the Parliament we will raise an additional £7.5 billion a year.

My Lords, is it not disgraceful that some of the richest people in Britain get honours despite registering for tax purposes in places such as Monaco? As well as that, they are usually first in the queue for tax payouts if they want a subsidy for their business. Is it not time that we took a tougher line on these freeloaders?

I do not think the honours system is for me to comment on. The noble Lord will be pleased to know that we are taking the action I have already described, and we also intend to take further action to close the tax gap. At the Spring Statement, we published consultations on a wide range of issues, including widening the use of third-party data to help HMRC reduce error; strengthening HMRC’s ability to act against those tax advisors who facilitate non-compliance; and closing in on promoters of marketed tax avoidance.

My Lords, will the Minister give us an assurance that the Treasury will pursue Members, former Members and Members on leave of absence from this House with the same vigour as it pursues everyone else? In relation to one notorious tax dodger, will the Treasury accept the cash delivered in a JCB?

It is not for me to comment on individual tax affairs, but of course HMRC will treat every taxpayer fairly.

My Lords, in pursuing tax evasion, the question of information from our dependent territories is key. There was an agreement between the Treasury and the dependent territories on the provision of fuller information about ownership of assets there as they relate to tax evasion here. We are well aware that a number of dependent territories— particularly the British Virgin Islands—have not yet implemented that agreement. Are the British Government pushing them to do so?

Yes, those discussions are ongoing.

My Lords, at the end of 2024, it was reported that HMRC injected an extra £300 million into its compliance and fraud operations. Estimates suggest that these teams now have nearly 28,000 staff—which probably includes some of the 5,500 the Minister mentioned. What is the estimated cost benefit of this significant investment? Will the Minister agree to report to Parliament on the cost and on the tax actually recovered on a regular and consistent basis? We all want to see the success of this initiative.

We have committed an average of £660 million each year on measures to do so. By the end of the Parliament, that will raise an additional £5.7 billion per year. That is quite a good cost-benefit ratio. Each Budget will report progress against that.

My Lords, between 2010 and 2024, HMRC failed to collect around £500 billion of tax. I therefore welcome the additional investment, but I am really concerned about the trajectory. Page 95 of the spending review shows that the HMRC budget for 2025-26 is to be £6.8 billion, rising to £7.3 billion for 2026-27. After that, there is a real-terms cut: the budget will be £7.1 billion for 2027-28, and £6.9 billion for 2028-29. Does the Minister agree that a real cut to the HMRC budget is not conducive to a sustained fight against organised tax avoidance?

What is conducive is the most ambitious package ever to close the tax gap, raising £6.5 billion in additional tax revenue per year by 2029-30 and an additional £1 billion as a result of the measures in the Spring Statement. The spending review fully funded HMRC to deliver on those commitments.