Errors in the tax gap debate

Last week the Labour party drip-fed (with an eye on the local elections) a series of policy announcements including a pledge that a Labour government would require “best practice” in tax compliance from companies bidding for government contracts. Now we are heading for a general election and, whatever we make of the various parties’ tax policies, it is clearly helpful if care is taken to ensure accuracy when citing official figures.

A press release declared on 15 April that there would be “nowhere for tax dodgers to hide”, as Labour would “make giant corporations’ tax returns public”. (A reviewed commissioned by the party had called last year for publication of large companies’ returns.)

The press release said: “The ‘tax gap’ between the tax is collected and the tax expected is estimated by HMRC to stand at £36bn.” It went on to say that Labour would “pour the disinfectant of sunlight on large company accounts, helping close down the loopholes and the scams that the tax dodgers rely on”.

What the release did not say was that HMRC estimates that £3.7bn of the £36bn relates to corporation tax.

The Guardian headline on 15 April was: “Labour plans clampdown on ‘sweetheart deals’ to close £36bn tax gap.”

The paper reported the shadow chancellor as saying that “the ‘tax gap’ between what companies should be paying and what is actually received by the exchequer amounts to some £36bn”.

As Maya Forstater explains here, this kind of error is likely to hinder rather than improve public understanding of complex tax issues, at a time when there is a need for better understanding and informed debate to support sound tax policy decisions.

And we’ve been here (or almost here) before:

The tax gap and Labour’s review of HMRC

Double counting in the UK tax gap debate

Errors like these don’t help to restore trust in the tax system. We need those citing HMRC’s estimate of the total tax gap to avoid giving the impression that one group of taxpayers is responsible for all of that gap.