MPs say tax collectors lack ambition, with £42 billion still unpaid | HMRC

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The government has been criticized for failing to collect £42 billion in unpaid taxes from businesses and individuals amid fears of a strain on public finances as Britain’s economy stands on the brink of recession.

The House of Commons Public Accounts Committee (PAC) said a “surprising” amount of tax was owed to HMRC, while also criticizing tax collectors for their lack of ambition in addressing fraud and error.

The figures come as the government faces a renewed wave of public sector strikes over pay and conditions, with ministers saying more generous pay offers for nurses, teachers and other workers are unsustainable.

HMRC collected £731.1 billion in taxes and fees in the 2021-22 financial year, the highest level on record. However, the group of MPs tasked with holding the government accountable for public spending said billions that could be spent on improving public services are wasted through unpaid taxes.

It found that HMRC was failing to collect about 5% of the tax due each year. Meg Hillier, the Labor MP who chairs the committee, said: “The £42 billion now owed to HMRC in unpaid taxes would have filled much of the infamous black hole of public spending this year.

“But the public treasury will continue to lose billions in badly needed revenue as HMRC will only hire more staff to address compliance over the next few years – not fast enough to reduce the tax gap at a time of massive spending pressures in the public sector. Meanwhile, taxpayers are struggling Customer services that need to be improved.”

Rishi Sunak has promised reducing the national debt as one of his five main priorities for this year, along with halving the headline inflation rate, growing the economy, cutting NHS waiting lists and passing laws to stop small boats ferrying migrants across the Channel.

The prime minister has repeatedly said that larger increases in public sector salaries would not be on hand and could fuel inflation, at a time when taxes that are taken as a share of the economy are already rising.

However, opposition MPs criticized the government, arguing that taxes were rising because of the Tories’ mismanagement of the economy.

The PAC also said there was a “moral imperative” for HMRC to chase down funds lost through fraud during the Covid pandemic.

The committee was disappointed that HMRC “only expects to recover around a quarter of the £4.5 billion” it calculated was lost to fraud and error in the coronavirus support schemes.

That amounts to 4.6% of £96.9bn in government funding to support businesses through pandemic restrictions, including furloughs.

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A temporary task force was given £100m to look into 40,000 cases, but HMRC said it expected the team to recover £1.1bn, still leaving more than £3bn unaccounted for.

A spokesperson for HMRC said it had reduced the UK tax gap by more than 30% since 2005.

“We continue to prioritize the collection of unpaid taxes, which is why we are adding an additional 2,500 people to our compliance teams as well as rolling out our digital offering to ensure everyone pays what is due.

“We are taking a supportive approach to taxpayers in debt and balancing that with debt recovery from those who can afford it. A comprehensive approach would put thousands of people and businesses up against a wall.

“Covid support schemes have protected millions of jobs and businesses during the unprecedented pandemic and whilst we have made sure payments are not unnecessarily delayed we have also reduced fraud through compliance checks and protected £1.2 billion to date.”

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