Tax cheats cost the country more than £120 billion a year

Tax justice

Addressing the ‘tax gap’ is a vital part of tackling the deficit. Figures produced for PCS by the Tax Justice Network show that £25 billion is lost annually in tax avoidance and a further £70 billion in tax evasion by large companies and wealthy individuals.

An additional £26 billion is going uncollected. Therefore PCS estimates the total annual tax gap at over £120 billion (more than three-quarters of the annual deficit!). It is not just PCS calculating this; leaked Treasury documents in 2006 estimated the tax gap at between £97 and £150 billion.

 If we compare the PCS estimate of the tax gap with the DWP estimate of benefit fraud, we can see that benefit fraud is less than 1% of the total lost in the tax gap (see diagram opposite).
Employing more staff at HM Revenue & Customs would enable more tax to be collected, more investigations to take place and evasion reduced. Compliance officers in HMRC bring in over £658,000 in revenue per employee.

If the modest Robin Hood tax – a 0.05% tax on global financial transactions – was applied to UK financial institutions it would raise an estimated £20–30bn per year. This alone would reduce the annual deficit by between 12.5% and 20%.

Closing the tax gap, as part of overall economic strategy, would negate the need for devastating cuts – before even considering tax rises.

Our personal tax system is currently highly regressive. The poorest fifth of the population pay 39.9% of their income in tax, while the wealthiest fifth pays only 35.1%. We need tax justice in personal taxation – which would mean higher income tax rates for the richest and cutting regressive taxes like VAT and council tax.