Double counting in the UK tax gap debate

Last June the National Fraud Authority estimated fraud against the public sector at £20bn a year, including £14bn lost to tax fraud (see page 8).

This was based (see page 14) on HMRC’s estimate of the 2010/11 tax gap. The NFA said at page 53:

“For calculating an estimate of tax fraud it is assumed that the underlying behaviours described as ‘evasion’, ‘the hidden economy’ and ‘criminal attacks’ represent fraud. It is estimated that these behaviours accounted for £14bn [of the estimated tax gap of £32bn] in 2010/11.”

Clearly, the NFA’s £14bn is included in the tax gap figure.

Two months ago HMRC estimated the tax gap for 2011/12 at £35bn and revised its estimate for 2010/11 to £34bn.

This week the Commons public accounts committee reported that: “[Taxpayer] losses due to fraud and error are worryingly high. It is staggering that, in one year, the public sector was defrauded of over £20bn and the tax gap rose to £35bn.”

Can you see the problem here? When the committee puts it like that, are you inclined to add the two figures together? Well, yesterday this happened …

The Times had this:

Watchdog: taxpayers losing out on £55bn

Sky News had this:

Govt Losing A ‘Staggering’ £55bn A Year In Taxes

The tax fraud figure has been counted twice, as Heather Self and others have pointed out.

Calum Fuller at Accountancy Age took this up with the PAC, whose response was that “three sets of figures are prepared for different audiences at different times with different bases, including both actuals and estimates and there is a degree of overlap between all three with no single figure currently prepared to present a unified view”.

The PAC report called on the Treasury to come up with a better way to present “cross-government figures” within the Whole of Government Accounts, which can be used “to show the impact of the government’s counter-loss activities”.

The tax debate would benefit from more light and less heat. This sort of confusion doesn’t help, and the PAC’s report and press release could have been much clearer.

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