OBR Predicts Failure

The Office For Budget Responsibility (OBR) seems to be unimpressed with government/HMRC attempts to close the "tax gap", and government/HMRC bluster about tackling avoidance (perfectly legal) and evasion (illegal).

In short they have dismissed the bluster, and have ignored it.

Page 99 of the OBR November 2010 report states the following:

"Forecasts for tax receipts do not generally include any explicit assumptions about changes in the level of tax compliance. For most taxes, an implicit level of compliance will be reflected in the current level of receipts. In most of the tax models, the current level of receipts will be projected forward using the most appropriate set of economic determinants. Effectively we are assuming that the level of compliance remains constant as a proportion of overall tax revenues. The one
exception is the VAT forecast, where the forecast explicitly projects a VAT gap, the difference between the theoretical tax liability and actual receipts.

HMRC published a document in September on Measuring Tax Gaps 2010 which indicates that the tax gap for HMRC taxes (the difference between tax collected and tax that should be collected) has been close to £40 billion in recent years.a Specific factors such as Missing Trader Intra-Community (MTIC) fraud and a rise in VAT debts during the economic downturn have affected compliance in particular years, but in general the tax gap has been broadly stable. This was achieved against a 2007 HMRC Spending Review settlement of a 4.9 per cent real reduction per year.

The Spending Review 2010 settlement for HMRC included overall resource savings of 15 per cent. This assumed 25 per cent efficiency savings and a £900 million investment to address the tax gap and tackle tax avoidance and evasion. This included measures to increase criminal prosecutions, tackle offshore evasion, extend HMRC’s coverage of high risk areas and the greater use of debt collection agencies.

Inevitably there are always large uncertainties about the effects of both the efficiency savings and additional investment. As a result, we have not included the impact from either factor in the November forecast. If improvements in tax compliance do occur, receipts outturns would come in above what was implied by the economic determinants. At this point they would then be incorporated into the tax forecast. The same would apply in reverse if HMRC savings led to a loss of compliance yield for any tax."

Tax does have to be taxing.

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