Union officials have warned that cuts to HMRC’s budget will lead to an increase in tax evasion and widen the gap between the revenue recovered and the amount actually due.
Representatives from the Association of Revenue and Customs faced MPs on Wednesday to give evidence about the impact of the impending cuts. They informed the Treasury sub-committee that the budget cuts could lessen the Revenue’s capacity to identify, prioritise and prosecute people guilty of tax avoidance.
The president of the ARC, Graham Black, said it was not a coincidence that revenues are falling when HMRC has seen significant reductions in staffing levels. The Revenue is composed of world-class tax professionals, and the government should invest in HMRC and its staff if it wants to claw back taxes to reduce the budget deficit, he continued.
In the financial year 2004 – 05, HMRC had 99,179 staff. By June of last year that number had decreased by 31.4% to 68,037. The government spending review announced an additional 15% expenditure cut, which will further reduce staff capacity.
Although the government has promised to invest £900 million in additional tax-gathering resources for the Revenue, this is not additional money, but funding from savings made in other areas of HMRC.
Former ARC president, Terry Cook, told the committee that HMRC’s job is to generate income for the government and should therefore be treat differently to other government departments. Cutting HMRC’s budget will not save the country money; it will cost money as tax avoidance increases.
The latest estimate for the 2008 – 09 gross tax gap stands at £52 billion; £15bn of which is accounted for by uncollected VAT.
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