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Budget 2020 expert comment - closing the "tax gap"

Dr Arun Advani of Warwick Economics and CAGE comments on measures announced in the budget to improve tax compliance:

"The headlines may focus on money to combat coronavirus, money for infrastructure, and the continuation of the fuel duty freeze, but the announcement in the budget that really caught my eye was the increase in HMRC staff to combat "improve compliance" i.e. make people and companies pay what they owe.

"This is a sensible start to reducing some of the decline in compliance staff at HMRC over the past 15 years, raising much needed tax revenue.

"My work shows that a single auditor working on self-assessment returns can bring in enough revenue to pay for their own salary, and that of four nurses too.

"Since 2010 the "tax gap" - tax never collected - has remained stubbornly high, with around one pound in every seventeen going uncollected. If there were a single tax that could bring all this money in, it would be the fifth largest source of revenue. It is also a source of deep unfairness in the tax system: the data show that most people and firms pay their taxes correctly and on time, so it is a small minority who benefit from the tax system not being properly enforced.

"The proposals in the budget are modest, but they are a sensible start. 1300 additional auditors, expected to bring in an average of £770m a year over the next five years, or almost £600k a head. That is higher than my calculations above, presumably because some kinds of business audits have even higher returns per audit than self-assessment returns. But with a total tax gap of around £35bn, there is still a lot of room to go further: these proposals leave 98% of that tax uncollected."

12 March 2020

Read more of Dr Advani's work here: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/news/11-06-19-press_release/

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