Richard Murphy, co-founder of campaign group Tax Justice Network, has said that HMRC is getting ready to carry out ‘economic suicide’ with plans that will ‘hurt the UK economy’; What HMRC ‘plans’ is Murphy talking about?

HMRC staff cuts = ‘economic suicide’?

Richard Murphy, who is also the director of Tax Research UK, told investigative website Exaro News that HMRC’s ‘crazy’ plans to cut 17,595 staff by 2015 will ‘hurt the UK economy’ as their failure to collect billions of pounds in tax will only get worse.

We look at the debate surrounding HMRC staff cuts and the current tax gap in more detail to ask whether HMRC is on the way to ‘economic suicide’ as Murphy suggests.

HMRC Staff Cuts

From 2007 to 2010 uncollected taxes at HMRC rose by almost seventy percent. At the same time over 12,000 staff at HMRC we dismissed from their jobs; coincidence or not?

Now HMRC is planning to cut an additional 17,595 job positions at the revenue by 2015, a decision that Murphy has branded as ‘crazy’. Seeing a correlation between the loss of staff at HMRC and the increasing figure for uncollected tax, Murphy said:Richard Murphy, Tax Justice Network

“Having fewer people in the tax authority will just make it worse. These are unproductive job cuts, because people only pay taxes when chased.

“Cutting the employment of what are effectively our debt collectors – people working at HMRC – is crazy; it is economic suicide. It makes no sense at all. If there are fewer tax collectors, it is ultimately going to hurt the UK economy.”

In 2005 the Inland Revenue and HM Customs and Excise were merged together to create HM Revenue and Customs, HMRC have been cutting jobs ever since. According to the National Audit Office (NAO) continuing staff cuts at HMRC mean that the revenue are set to reach an ‘all-time low’ of 56,100 staff by April 2015.

In 2009 the Public and Commercial Services Union (PCS) – the trade union for British civil servants – highlighted an internal document that said HMRC “does not have the resources to pursue debts under the amount of £10,000.”

The PCS branded HMRC job cuts as ‘counterproductive’ as the jobs being axed tended to “bring in far more money than is spent on staffing costs”.

HMRC hired over 1,100 temporary staff in April to go after previous years’ tax returns and to recover unpaid tax bills; positions that PCS argues should have been filled with permanent staff instead.

Mark Sewotka, Public and Commercial Services UnionMark Serwotka, general secretary for the Public and Commercial Services Union (PCS) said:

“Collecting even just one-tenth of these missing billions would change the debate about the need for spending cuts overnight. Instead of cutting jobs and damaging our economy, the government should tackle tax dodgers and invest in its own staff and in public services to help our economy grow.”

In response an HMRC spokesperson has said that 99 percent of the debt that HMRC is able to recover, it does, and that 90 percent of money HMRC is owed cannot be collected due to company liquidations and insolvency cases where debt is unable to be pursued.

Boasting that the yield for HMRC compliance work was increased to £13.9b “last year alone”, the HMRC spokesperson said that the £917m HMRC was funded by the government to tackle tax avoidance, tax evasion and tax fraud was being used to increase tax taken from compliance work “by £7 billion a year in 2014/2015, which we are on target to do”.

“By focussing on front-line services and significant expansion of our e-services, we are delivering more with less,” he added.

The Tax Gap

The tax gap is the difference between tax taken from HMRC and the amount of tax that should have been collected by the revenue. HMRC’s failure to collect ‘billions of pounds in taxes’ leaves the current estimate for the UK tax gap standing at £35bn.The UK Tax Gap is £35bn

Richard Murphy from the Tax Justice Network thinks that the axing of 17,595 jobs at the revenue in the next three years will only heighten the situation and increase the amount of tax uncollected by HMRC.

In a report published on 14 May by the Public Accounts Committee titled HM Revenue and Customs: Compliance and Enforcement Programme, Parliament congratulates HMRC on their Compliance and Enforcement Programme for bringing in “£4.32bn of tax revenue over the five years to 2010-2011”, attributing the majority of the success to innovation that has allowed “HMRC to make better use of data to assess the risks and patterns of evasion and to deliver substantial productivity improvements by processing cases more quickly and efficiently”.

However; the report also raises concerns over the effect cutting staff at HMRC has on the amount of uncollected tax: Between 2006-2011 HMRC reduced staff in their compliance and enforcement division from 29,387 to 26,000 – removing 3,387 job positions. The Parliament report estimates that “around £1.1bn of additional revenue could have been generated had these staff reductions not been made”, and that for every £1 saved, £10 had been lost in tax revenue.

HMRC’s estimate of the tax gap being £35.bn in 2009/2010 – around 8% of the total tax due – is also suggested by the Public Account Committee’s report as being ‘much greater’ by other estimates. Tax Research UK, also run by Richard Murphy, estimated the UK tax gap at a whopping £120bn per year; a claim which HMRC states as ‘very misleading’.

In their published response to Closing the tax gap: HMRC’s record at ensuring tax compliance, The Treasury Committee states that HMRC’s tax gap estimate of £35bn and Tax Research UK’s estimate of £120bn are ‘not directly comparable’ as the £120bn estimate “confuses the tax gap with cash flow and legitimate reliefs in a number of areas”.

“But we are confident that £35bn is a much more realistic estimate of the tax gap than £120bn”, the report added.

So, will continuing staff cuts at HMRC ‘hurt the UK economy’ by having a direct effect on the amount of tax uncollected by the revenue? All the figures and facts so far point to a possible so called ‘economic suicide’ by HMRC…whilst all we can do is watch and wait.

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