Labour’s latest campaign is to close the tax gap. With the help of Richard Murphy they reckon there is £120 billion of unpaid tax, tax evasion and tax avoidance. The last Labour government put the figure at a more modest £40 billion but was never able to close the gap.
This morning I wish to concentrate on unpaid tax. That is tax that has been identified and claimed by Customs and Revenue but not yet paid. In May 2010 this stood at more than £23 billion. Substantial sums were written off during the preceeding year as the Revenue came to recognise that some of this money could not be collected.
Before the election the last government was keen to avoid the Revenue and Customs going in and pushing more companies into administration when they were unable to pay their taxes. It is often the government that institutes bankruptcy proceedings when a company is running out of cash and credit.
Mr Murphy estaimates that 160,000 companies owing £4.8 billion are taking advantage of the last government’s “Time to pay” deferral scheme. This poses a nice problem for the new government. Should they carry on with this scheme and allow more revenue to await collection? Should they accelerate demands for payment and try to wean business off the easy terms scheme? How much of the outstanding tax is truly recoverable?
The Labour MPs who are making a noise about the tax gap should remember that the one bit of it where we can all agree the tax is owing and the gap exists is in the category of late payments and delayed payments of tax. They should also recognise that this is difficult terrain. Their government allowed delay for good reason. They did not want more closures and job losses as the Revenue drove more businesses into bankruptcy. Labour in office had a policy of deliberately widening the tax gap. It is only in opposition they see narrowing it as a good soundbite to try to avoid confronting the need to close the budget deficit in other ways.