Britain’s official tax gap of £35bn is only the “tip of the iceberg” and is being exacerbated by tax officials’ failures to use the law to clamp down on internet giants such as Google and Amazon, according to the high-profile chair of a committee of MPs.
Margaret Hodge cast doubts over HM Revenue & Customs’ estimate of just how much taxation is lost through avoidance, evasion and non-payment as the public accounts committee questioned Britain’s leading tax officials.
The officials admitted that they do not include money earned in Britain by Google, Amazon and Starbucks – all accused of tax avoidance, but who reiterate that they abide by the law – in their tax gap estimate.
In a wide-ranging hearing, the committee also established that a policy to recoup taxable income from UK residents who hide money in Swiss bank accounts has gained just £440m so far this year, instead of the £3.12bn expected; and that the civil servant responsible for shaping tax policy once compared tax collection to “extortion”.
Addressing the tax gap, Hodge said: “It does not include a lot of what ordinary punters in the street think you should be collecting, particularly in regard to the large corporations. The tax gap is really the tip of the iceberg in the gap between the money that you collect and the money if everyone paid their fair share.” The officials facing the committee were Edward Troup, tax assurance commissioner, Jim Harra, director general of business tax, and Jennie Granger, director general of enforcement and compliance.
Hodge challenged officials over their failure to test and define the law by pursuing internet giants through the courts. “It looks to me that you should be litigating. Why have you not chosen to litigate and test your powers?”
Harra repeatedly refused to be drawn on the issue. “What we have to look for is this: is there evidence that the offshore operation does nothing more than rubber-stamp?” he said. The officials indicated, however, that an inquiry into Google, sparked by whistleblower Barney Jones, is ongoing.
Addressing the clampdown on Swiss bank accounts, which George Osborne had factored into the government’s estimated income last year, Troup confirmed reports from last month that officials had collected significantly less than expected.
Hodge asked: “That’s a lot of money, over £2bn [shortfall] being fed into the public expenditure figures – who is being held to account?” Troup replied: “It’s money that we would not have got through any other means.”
So far, 18,000 names have been given to HMRC by the Swiss authorities and letters have been sent to 9,000 of those, he told MPs. But HMRC had no “hard information” about the true amount of money held in the accounts.
“We still do not have sufficient information – we would like more information and this is an agreement which has had to take account of Swiss banking secrecy,” he added.
Troup was then asked if he really once wrote an article which said: “Taxation is legalised extortion.” He confirmed that he had written it but said that it was in the the 1990s.
Hodge questioned whether, in the light of the article, he is the right person to fight for taxpayers. Troup defended his professionalism and integrity and made a distinction between his position as a commissioner and that of a tax inspector. “I am a tax professional. Jim [Harra] is our lead tax inspector,” he replied.
Hodge then suggested that HMRC officials have developed an overly cosy relationship