Tax Evasion Report 2016

#patriotspaytax

by Jenny Symmons

Three years ago, David Freeman and John Mitchell collaborated to write a report for CSM on a campaign they thought may be fruitful – one tackling Tax Evasion. [1] Inspiration has also been drawn from investigations by the Tax Justice Network, Tax Research UK, and a 2010 report by ARC (union for managers and professionals in HMRC) titled “Being Bold.” Since 2013 the economic landscape has changed vastly, from gains in post-recession growth following coalition and Conservative government plans, to the murky waters we find now ourselves in since the Brexit vote.

Christians on the Left, alongside may other charities and NGOs, have been on the case of tax injustice for many years. However, the issue had somewhat dropped off the public radar until one story hit the international press in April 2016: the hugely convicting Panama Papers. The release of these documents lead us to question the morality not just of the world of big business – but also our own national leaders; how is it they can get away with such scandalous theft on an international scale? Why is it they have not been taken to account? And how can honest citizens influence our government to take more measures to ensure that no one – no matter how wealthy or influential – can get away with cheating the tax system?

Since then, this issue has been somewhat buried underneath layers of political rubble. In May attention was re-directed to local and mayoral elections. In June, the Brexit vote obliterated the status quo. And in the months since then, chaos within the Labour Party has seen its unity come into question, as we experience a hugely divisive leadership election. None of this, however, changes the fact that our big businesses and extremely wealthy individuals are cheating the UK out billions of pounds of tax money. This is, quite simply, a dire problem with an achievable solution. We seek to bring this issue back into the fore, in the hope that we can have a positive influence on government policy and bring this money back into the national pocket.

Whilst the bulk of media attention regarding tax fraud is directed towards tax avoidance (the legal, but immoral, act of finding loopholes in the law so that parties can wriggle out of paying their fare share of tax), tax evasion is less publicly acknowledged. This is the illegal and deliberate non-paying or under-paying of tax, from individuals, corporations or trusts. In this report we will focus on the scale of tax evasion committed by big businesses in the UK, and how much this economic crime is costing our exchequer year on year. Christians on the Left propose that the strongest solution going forward would be for HMRC to create a special Business Unit, with the purpose of tackling business-specific tax dodging.

Tax_Gap_by_Behaviour.png

Tax evasion cost the UK government £4.4 billion between 2013-2014. Every year it accounts for 10-15% of the UK tax gap. What do we mean by ‘tax gap’? This is the amount of money that makes up the difference between the money that HMRC in theory should collect in tax, and what it actually collects in tax. In the same tax year, the tax gap was estimated to be an astronomical £34bn – meaning 6.4% of the tax liabilities of that year were not collected. The government maintains that a tax gap of this proportion is normal; indeed, in 2015 boasted of having “one of the lowest tax gaps in the world” [2]. Most western nations have a tax gap of approximately 5%, and ours must be accepted. However, we refuse to accept a financial injustice on such a great scale. Although the percentage tax gap has fallen by 2% in the past 9 years, £34bn is no small or meaningless amount [3]. The biggest task initially may be for us to convince the government that although there has been progress over the past decade, there is even more to be done; complacency is expensive when it comes to tackling tax evasion.

As can be seen from the graph above, the largest stake of the tax gap belongs to the underworld of the Hidden Economy, which remains unbridled as it steals £6.2bn from the tax payer in the year examined. Although the percentage of the tax gap made up by evasion may have slimmed marginally in the past few years, it continues to cheat billions out of the system – and there’s no inclination that in the proceeding years of this government, any money will be shed from that figure given the lack of measures tackling the issue.

Why is tax evasion so prevalent?

Tax evasion exists on such a large scale partly due to:

  • Complexity of online system, potentially people unknowingly under-declaring. General tax system too complicated – too difficult to understand which encourages avoidance. A simpler system would be harder to find loop-holes in and easier to change laws – as it stands, v complicated changing laws because whole system has to change
  • Business holders being unaccountable, thinking they can get away with under-declaring
  • HMRC being under-staffed, not having the man-power to chase up those with receipts that don’t add up
  • HMRC’s staff has been cut by an estimated 43% between 2005-2016, from 92,000 to around 52,000 [4]
  • Tax non-compliance has been aggravated by a closure of enquiry centres and low call-centre staff
  • Poor availability over the phone means people had to wait twice as long for tax advice through the call centres from 2013-2014. Furthermore, in the same period the number of calls actually handled by HMRC fell from 79% to 65% [5]. This poor service, a result of budget cuts under the coalition government, has made it more and more difficult for those who want to abide by the system to do so.
  • The government failing to effectively crack-down on the so-called ‘Hidden Economy’
  • The government not wanting to waste money and resources in long-winded prosecutions for tax evaders – meaning offenders often knowing they can get away with it. When cases are taken to court, it is not treated as a serious crime. As David Freeman writes; ‘punishment is often minimal, it often pays to cheat the system.’ [6]
  • HMRC plans to reduce spending by a further 1/3 over next 5 years [7]

 

Why have we decided to channel our efforts into filling the tax gap?

Firstly, the money should righteously be spent elsewhere; the £34bn missing in lost tax receipts is sorely needed in our vital public services. How much could our NHS use even a small portion of those billions? What a difference would some of that fortune make to struggling schools? Perhaps we could even channel some into industries set to lose out following the withdrawal of EU funding, such as our medical research. As a community, CotL believes in challenging the government to spend its budget in such a way that supports all of its citizens equally, and provides healthy public services whilst also protecting jobs. When public services are cut and jobs are lost, due to stern austerity measures imposed by the government, this affects the already-disadvantaged groups in our society the most. £34bn could continue to line the accounts of our corporations – or it could provide more school funding, more NHS staff, more environmental investment.

Secondly, we are called by Jesus to “give back to Caesar what is Caesar’s.” (Matt 22:21) Quite simply, everyone owes their tax to HMRC; from the supermarket shelf-stacker to the CEOs of our banks. This basic principle is what is fuelling our ‘Patriots Pay Tax’ campaign, calling upon our citizens and our businesses to be honest in their tax returns for the sake of our country’s welfare. We believe we are just custodians of our financial resources; they are not ours to protect – or even hide.  The release of the Panama Papers in the spring saw a widespread outcry against the unethical, if not illegal, practices of many world leaders (as well as corporations). There was a demand for change – for more transparency, and a tighter system. We would encourage this effort to not lose momentum as we become more distracted by political movements and shifting debates. Calling out tax cheats and encouraging a more moral approach to paying will in hope contribute to a more honest society – as well as a richer exchequer.

Thirdly, we believe there is an injustice in the way people claiming benefits are portrayed in the media – often unfairly believed to be ‘robbing’ our economy, whilst the public could be forgiven for having no idea about the scale of corruption in tax payments from businesses. For the tax year 2013/14, the DWP reported that benefits fraud was estimated to cost the public exchequer £1.2bn – just 3.5% of the tax gap [8]. Tax evasion on the other hand, at £4.4bn, is responsible for 12.9% of the tax gap. In other words – tax evasion cheats the UK out of almost three quarters more money than benefits fraud. Not that you would know it, however, from the way the two are disproportionally reflected in the media. In his report, David Freeman wrote that ‘Deliberately underpaying tax is more costly and prevalent practice than scroungers and benefit fraudsters, but it being such a middle class crime it is relatively unknown and neglected in the media.’ [9]

Following the release of the Panama Papers, many MPs called for the government to place a greater focus on tackling tax evasion, following the example set by our European neighbours. In Prime Minister’s Questions on 13th April 2016, Angus Robertson (SNP) condemned Cameron’s government for assigning 3250 DWP staff to chasing up benefit fraud, whilst only 300 HMRC staff were investigating tax evasion. The claims were refuted by the Prime Minister, however if they are true, it would be a sorry state of affairs given the above figures that tax evasion is 9.4% costlier than benefits fraud. It would also reinforce the trend of the mistrust of people claiming benefits, and soft-touch on big business.  Part of our aim in this campaign would be to put tax cheats in the spotlight, and ease the condemnation broadly stamped on those who claim benefits.

Tax_Evasion_vs_Benefit_Fraud.png

So what do we propose?

We propose that HMRC creates a special Business Unit, dedicated to targeting businesses suspected of evading their tax liabilities. We would also suggest they commit to following-up individuals of high-net worth. Furthermore, with a specified Business Unit, HMRC civil servants would be able to assign staff to work with certain businesses on their taxes, keeping a close eye on procedures. An expanded team for chasing up any parties found to be violating the system would also provide a higher compliance yield.

The government is also advised to take measures to improve its customer service, through phone lines and personal appointments, to make it as easy as possible for the willing-to-comply public to do so. 

These measure would require more investment in HMRC – more staff and a significant budget increase, in what would be a stark reversal of the spending trend of the coalition, and then Conservative, administrations. However, we would argue (with David Freeman and John Mitchell) that investment in HMRC is essential for the future of improving tax revenue, and cutting the budgets during a period of austerity is worsening the collection of tax. Trying to save money by cutting the budget for HMRC is a false economy; the department, when fully resourced and staffed, would bring in a vast amount more for the country than it would cost. According to some estimates, for every £1 spent on HMRC in the budget, the exchequer would get £10 back. We cannot let £4.4bn slide, knowing how vital that could be for our public services that have been under strain in recent years, and investment in the HMRC is a very small price to pay for what would be a hugely beneficial return.



[1] ‘A potential CSM Tax Evasion Campaign’, David Freeman, 2013

[2] Treasury Press Release, 22 October 2015.  https://www.gov.uk/government/news/uk-tax-gap-falls-to-64-per-cent

[3] HMRC Report measuring Tax gaps, October 2013. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/470540/HMRC-measuring-tax-gaps-2015-1.pdf

[4] ‘Tax Evasion in 2014 – and what can be done about it.’ A report by Richard Murphy of Tax Research UK, for the Public and Commercial Services Union. http://www.taxresearch.org.uk/Documents/PCSTaxGap2014Full.pdf

[5] http://www.theguardian.com/politics/2015/jan/01/waiting-times-double-year-government-helplines

[6] ‘Tax Evasion Campaign’, Freeman, p.3

[7] http://www.theguardian.com/politics/2016/jul/27/hmrc-customer-service-standards-will-fall-after-further-cuts-say-mps

[8] DwP’s Fraud and Error in the Benefits System estimates (2013/14), November 2014 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/371459/Statistical_Release.pdf

[9] ‘Tax Evasion Campaign’, Freeman, p.3

 


Jenny Symmons is a Member and Volunteers at Christians on the Left, currently living in Scotland. She spent much of her summer helping out in the office in London and this was one of the fruits of her labour!

David Freeman and John Mitchell are Members of Christians on the Left.


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