Rachel Reeves is making an announcement today on how she will plug the gap that she thinks exists in her financial plans as a consequence of Jeremy Hunt stealing her intention to close the domicile rule.
As the Guardian notes this morning, she has resorted to the age-old intention of politicians who do not know how to balance their supposed books by claiming that she will close the tax gap.
Firstly, let me make it absolutely clear that I welcome that intention. It is entirely appropriate. I discuss it at length in the Taxing Wealth Report 2024. I look at the issue in chapter 15 of that report, where in four subsections, I deal with the need to better estimate the tax gap, to undertake tax spillover assessments, to set up an Office for Tax Responsibility to monitor delivery on this issue, and to reform HM Revenue & Customs so that its presence in local communities might be recreated so that it might deliver on this promise.
It would also be well worth looking at chapter nine, and in particular subsection 9.1 on reforming the administration of corporation tax and subsection 9.3 on the reforming of Companies House, both of which are essential if we are to close the tax cap.
In that case, given my enthusiasm for this topic, it would be churlish in the extreme to not welcome Rachel Reeves' intention to tackle this issue.
That said, excepting her comments on domicile, which are appropriate because the Tories are very clearly trying to manipulate the replacement rules for this in favour of the wealthy, Reeves' comments this morning do appear to have an inappropriate focus to them.
In particular, she is highlighting another age-old mantra, which is that we must pay great attention to offshore tax abuse use if the tax gap is to be closed. Whilst there will, inevitably, be some outstanding opportunities for tax investigations during the period when the domicile rule is closed as matters, previously unseen come to light, I overall doubt that this is where the focus of attention for HMRC should now be. After all of my years campaigning on offshore, I am not saying the issue has gone away. It has not, but it has reduced, considerably. All the effort expended on it has now paid a considerable return. As a consequence, the evidence is now very strong that the problems in tax recovery are not to be found offshore. Nor, by and large, are the problems created by tax avoiders. It seems that HMRC is catching up with them. Instead, the problem that we face is in collecting tax from those who owe it and choose not to declare it within the domestic economy.
As I note within the Taxing Wealth Report 2024, whilst the overall claim of HMRC is that the tax gap is falling (which I doubt) what is also unambiguously true is that the tax gap for the self-employed and small businesses is very high, and in the latter case, in particular, rising rapidly.
In the case of small companies, it is estimated that 30% of all corporation tax liabilities owing or not now paid. Although HMRC never seems to extrapolate a tax loss in one tax to imply that there must be a consequent loss of revenue in another tax, it necessarily follows that if this is the case, then those same companies that do not pay the corporation tax that they owe must also fail to pay the VAT and PAYE that they owe, meaning that it is my belief that both those estimates are seriously underestimated as a consequence. In addition, I do not take seriously HMRC's claim that the tax gap amongst the self employed is now only 18.5%, representing a decline over the last few years from a peak of 32.5%. If small companies fail to pay 30% of the tax that they owe there is no reason to think that small businesses do anything significantly different.
If Rachel Reeves is serious about closing the tax gap, this is where she would start looking for money. And, as I note in the Taxing Wealth Report 2024, if she wants to collect the significant sums involved in this loss, then she would require that HMRC begin to reopen its local tax offices because only by having a presence in the communities that it serves, and which pay tax, can it understand who is not paying that money, and who is helping them to evade it.
Simultaneously, she should be transforming the information that UK banks are required to submit to HM Revenue and Customs each year so that all those companies trading in the UK can be properly identified, and she should be massively increasing the resources available to Companies House to increase the effectiveness of its operation in tracking down corporate data in the UK.
There is a real opportunity to reduce the tax gap in this country, but Rachael Reeves will not close the tax gap by looking overseas. Pretending that the problem is elsewhere is no longer realistic. It's in her own backyard.
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Well said. Reeves frequently reminds us that she was a Bank of England economist (well they have a good track record of forecasting inflation and GDP growth NOT!) and presumably thinks we should be impressed by that. However, as your post suggests, she doesn’t live in the real world or understand properly what goes on in it.
Thank you, Graeme.
Many people forget her gig after the Bank of England, economist AND lobbyist at HBOS. Not long after, HBOS had to be bailed out by Lloyd’s and soon after the long suffering taxpayer. Reeves never talks about those days.
Is it true that in the tax gap numbers you produced for Jeremy Corby (which he used widely) you included ISA subscriptions and tax relief on pension contributions?
No
That is total nonsense
Rachel Reeves was on Radio 4’s Today program this morning and was pressed on her taxation plans which the interviewer told her would an amount which was less than 1% of govt spending.
She fell back to claiming Labour would grow the economy by better planning and working with private industry encouraging them to invest.
It was very depressing and I think she actually believes what she is saying.
…..I’d be more generous, more a case that Reeves wants to believe what she is saying, and sees the economy top down rather that bottom up.
More a case she isn’t that bright!
“better planning and working with private industry encouraging them to invest.”
It would be helpful if Reeves reminded us of the historic record with respect to UK gov “planning” (wrt industry).
In the case of “encouraging industry to invest” – given there is no money in the gov pot (Reeves’ own words) this means that we are in the land of “pretty please”.
It is both sad & satisfying to see a persons inadequacies so brutally exposed and she is but the most recent in a long long line of inadequates that pretended they knew anything about how goverments are financed.
Neither Reeves nor Starmer have shown the slightest curiousity about whether there ‘is money ‘ or not . given the dire state of the NHS, public services etc.
But now – they seem more confident in interviews – just batting it off with the meaningless ‘we will grow the economy ‘etc.
Despite the sort of semi ridicule by the interviewer in the R4 Today programme about ‘only 1% of spendin’g – why dont they ask her about you and others showing ‘there is money’ – would she just say ‘no there isnt’?
I still don’t see how they can possibly cut services more – so they will face an immediate crisis once they are in government.
Mike comments on Rachel Reeves competence as shadow finance minister “she is but the most recent in a long long line of inadequates that pretended they knew anything about how goverments are financed” Agreed, Mike, and what are the chances that if/when she becomes Chancellor she will suddenly acquire all the necessary skills?
Out of curiosity can anyone here remember a genuinely talented Chancellor who clearly understood the economy and starred in the role? I can go back to the 1960s and am struggling to think of a goodie, although Brown and Darling reacted with commendable haste and efficiency in the 2008 Financial Crash, but had already blotted their copybooks by failing to ensure adequate regulation in the City beforehand.
I can’t….
The tax gap is the difference between the tax that has been collected and the tax that should have been collected according to the tax rules.
Your taxing wealth document is a fantasy report, based on applying lots of new taxes on people and pretending that behaviours won’t change. That is nothing to do with a ‘tax gap’.
There is no new tax gap estimate in the Taxing Wealth Report 2024. It assumes what will happoen if the law changed.
You are making up a fantasy critism about a report that only exists in your imagination.
There seems to be a recent surge in rudely critical posts, usually accusing you of lying, misunderstanding something, or here that your tax report is a fantasy.
Was it always like this, and you filtered them out? Or is it a recent thing, and some group somewhere has decided you are worth attacking. In which case I’d have thought they’d do better to come up with arguments. Are they even real people?
It is always like this – every day
You have to be thick skinned to write a blog like this
They never admit who they are. If they do the identity is liklely to be false.
They are always trite
They never present anything even approximating to an argument
I delete the vast majority because they just waste time
There are so many inadequates in this country trained by the rottweiler right-wing press who now think slagging somebody off is presenting an argument. It’s obvious they’ve never left the playground!
I have this thought that there are services that provide ‘boiler rooms’ of trolls for interested parties to hire; to attack a blog, or political Party, or politician, or whatever, with overwhelming amounts of criticism and hatred, the makes it look as if the whole world has turned against the victim; and create a media storm intent on carrying the story forward, ruining someone’s reputation; without ever supplying a single piece of evidence.
It’s the future growth point for the service sector……
A chap called Tim Worstall porvides most of the trolls here with their misinformation.
He has written about 5,000 blog posts on me over many years. The man is slightly obsessed.
The tedious Tim Worstofall. Resident at CapX, one of the branches of Tufton Street.
Indeed…..
It’s always easiest to shoot the piano player.
Dismissing any complex position without posing a counter view involving reasoned argument automatically triggers Brandolini’s law.
I do think tagging as trolls is the simplest form of rebuttal, given the intent.
Unfortunately, the higher the profile the Taxing Wealth report achieves, the more quasi-organised trolling there will be.
I suspect that the main protagonists will probably be what Labour Together calls “instrumentalists”.. rather than the committed Tory neoliberal.
When I posted an MMT synopsis to an R4 group, later with a link to the Taxing Wealth summary, the instant dismissal from the militant LINO centrists (though all claiming to be well left of centre) was that creating money is invariably inflationary and always has been.
Always, no exceptions..
No explanation of the role of tax or the events post the GFC could dissuade them.
That’s the LINO line…
Attracting trolls today, then? You must’ve done something right!
Aye, they don’t like it up ’em, Mr Griffin!
Most of the time it’s bleeding obvious who is trolling. I don’t see why they bother unless they particularly enjoy being irritating.
Off thread. Alan Bates, Post Office Enquiry, has despatched and eviscerated, quietly and minimum fuss, the Post Office, the NSFP, the Civil Service, and Ed Davey and the Lib Dems; all by lunchtime.
If the Government or in turn to come Labour had any sense (they don’t), once the Postmasters scandal is fixed , and soon if there is any justice; they should beg Alan Bates to accept the Chairmanship of the Post Office, if they want to rescue its otherwise discredited, ruined brand. He is probably the only person in Britain who could turn it round, and carry the public with him.
I despise Carlylean hero worship, and I suspect so does Bates; but he does have a proven capacity to act with formidable self assurance under real pressure, and against both the odds and a deliberately authoritarian and intimidating institution with great power; and retain his clarity and focus on the key issues. That is impressive, not least for being a rarity in British Corporate and Political life; but he is probably too smart to take the job/ poison chalice.
The last is probbaly true
Thank you to Ken, above.
With regard to your sentence, Brown and Darling reacted with commendable haste and efficiency in the 2008 Financial Crash, I was involved as a bankster lobbyist from the spring of 2008, some months before Lehman in mid-September.
UK, US, Japanese and Swiss regulators joined forces from the turn of the year as the situation deteriorated. Japan soon bailed out of the initiative, saying its banks were ok. Switzerland left not long after. King, Bernanke and Paulson agreed to a mass recapitalisation over the spring of 2008 to maintain confidence and not single out firms and countries. Brown and Darling were having none of it. The Bush administration took that as their cue to delay and did so. The rest is history.
Many UK officials would like the records opened now and a hearing about how 2008 was allowed to happen. (New New) Labour is repeating its mistake of cosying up to the City.
I am sure that is true from what I knew about what was going on at the time
Thank you, Richard.
Northern Rock (February) and Bear Stearns (March) began to concentrate minds.
As with water and other utilities now and even Carillion, Labour did not want to be associated with nationalisation. Another missed opportunity.