Chancellor’s £9bn tax avoidance claims met with scepticism by campaigners
Despite tougher measures listed in autumn statement, previous efforts have failed to raise Treasury receipts as expected.
Claims that the chancellor’s latest crackdown on tax avoidance would bring in a record-breaking £9bn over five years were met with scepticism yesterday by tax campaigners and industry professionals quick to point out that existing efforts were already failing to deliver.
George Osborne, listed the measures, many of them previously announced: “We are going to tackle the growth in intermediaries disguising employment as false self-employment, [the avoidance of] employer national insurance… We will end the abuse of dual contracts, offshore oil and gas contracting, derivatives linked to profits and share buy-backs.”
He also said buy-to-let landlords who attempt to dodge tax on a property sale by making it their primary residence for a period before selling would be targeted.
Osborne also hoped to make savings by reducing error and non-payments in the tax system. Latest HMRC estimates show those two factors alone contribute about £11.6bn towards the UK’s official £35bn tax gap — the difference between taxes due and taxes received. The HMRC tax gap for avoidance, as narrowly defined, is just £4bn and does not include the tax lost in the cross-border corporate structuring of multinational firms such as Google, Amazon and Starbucks.
Behind the chancellor’s claims to be taking the battle against tax erosion to new heights, the small print of the autumn statement showed the Treasury had been forced to cut estimated returns from his earlier anti-evasion efforts.
A landmark deal with the Swiss authorities was described in Osborne’s autumn statement last year as “the largest tax evasion settlement in UK history”. It was expected to bring in £5.3bn over six years as £40bn of UK taxpayers’ assets — hidden in anonymous accounts in Switzerland — became subject to the “ground-breaking” disclosure agreement with HMRC. Under the agreement, Swiss banks were to impose a withholding tax on certain assets held by UK residents if the owners did not disclose their identity to HRMC.
Yesterday, the Treasury admitted the deal, which came into force in January this year, was now only expected to deliver £1.9bn over the next five years.
“No one should believe Osborne’s claim that this package of tax avoidance measures will bring in £9bn in the next five years,” said War on Want’s tax campaigner Murray Worthy. “Last year, he claimed that the government [in 2013-14] would get £3bn from UK taxpayers hiding wealth in Switzerland, yet in reality the government is on course to get less than a third of that. Time and again, Osborne overestimates the impact of his government’s tax tinkering, this is just another example of his wishful thinking.”
Richard Mannion, national tax director at accountancy firm Smith & Williamson, said: “The chancellor underlined this focus, however, his estimate of it bringing in £9bn over the next five years sounds optimistic, bearing in mind the work done to stamp out tax evasion and avoidance to date and the receipts already generated.”
Six weeks ago, Margaret Hodge MP, chair of the public accounts committee had described the chancellor’s forecast — provided for him by the Office for Budget Responsibility and based on HMRC analysis — as “an Alice in Wonderland figure”.
Appearing before Hodge’s committee, HMRC tax assurance commissioner Edward Troup told MPs just £440m had been released from Switzerland during the first six months of 2013/14, conceding there was no prospect of meeting the chancellor’s target of £3.1bn for the year. Troup said he had already held discussions with the Swiss authorities about the dramatic shortfall. “Did I come away completely reassured that we were going to get the full amount of the £3bn? No, I didn’t. Did I say that her majesty’s government was not at all happy with this? Yes, I did.”
Tax experts and MPs have long warned that Osborne’s expectations for smoking out assets held anonymously by UK residents in Switzerland were premature. Some critics suggested UK tax evaders could stay ahead of HMRC’s efforts by switching funds from Swiss bank accounts to other asset classes or elsewhere.
MPs were told there had been just one prosecution for tax evasion relating to UK residents hiding assets in Switzerland.
In yesterday’s autumn statement, the Treasury said: “The government is working closely with the Swiss authorities to ensure the agreement is being fully and properly implemented.”
Ambitious expectations of tax receipts from the Swiss deal followed a similar agreement with Liechtenstein which has delivered £800m — substantially more than expected. Since then, other such deals have been struck with Jersey, Guernsey and the Isle of Man. In his March budget Osborne had claimed these deals with the crown dependencies would shake out more than £1bn in tax receipts from illegally sheltered assets — a figure that was quickly questioned by Jersey politicians.
Some tax experts have suggested UK tax evaders wishing to come clean to HMRC have been migrating their hidden assets to Liechtenstein, because this offers the generous terms for an eventual tax settlement. The Britain’s Liechtenstein agreement, which still has two and a half years to run, restricts the historic period of inquiry into a UK tax evader’s history. The penalty is also restricted, and there are, for many, ways of continuing to shelter assets from inheritance tax.