The gap between tax revenue the UK government expected to raise and the amount paid annually has hit £40bn, putting extra pressure on both main parties over their pledges to crack down on tax avoidance.
HM Revenue and Customs (HMRC) said there was a shortfall of £39.8bn in the 2022-23 financial year, up from £38.1bn a year earlier. This represents 4.8% of the amount of tax theoretically due, down from 5.2% in the previous financial year.
Richard Murphy, a tax expert, said the assessment of tax losses to the exchequer was “seriously underestimated” and that Labour’s plans would not improve the situation. He said the amount of tax not being collected could be closer to £100bn.
Labour has promised to target tax dodgers. In April the shadow chancellor, Rachel Reeves, said she would cut the difference between money owed and actual receipts, known as the tax gap, by £5bn by the end of the next parliament, by investing £555m in new HMRC staff and modernising systems.
HMRC estimates that 32% of the corporation tax owed by small businesses is not paid, amounting to lost revenues of almost £11bn, making this group accountable for the greatest share of unpaid tax.
However, Labour’s plans target the wealthy, Murphy said, and do nothing to address tax avoidance among small businesses. “The tax abuse scandal is among white-van men,” he said. “But politicians don’t want to hear that as white-van man lives in their constituency.”