The government has been criticised for failing to collect £42bn in unpaid tax from businesses and individuals amid concern over the strain on the public finances as the UK’s economy stands on the brink of recession.
The cross-party Commons public accounts committee (PAC) said that an “eye-watering” amount of tax was owed to HMRC, while also criticising tax collectors for lacking ambition to tackle fraud and error.
The figures come as the government faces a renewed wave of strike action in the public sector over pay and conditions, with ministers arguing that more generous pay offers for nurses, teachers and other workers are unaffordable.
HMRC collected £731.1bn in taxes and duties in the financial year 2021-22, the highest on record. However, the group of MPs tasked with holding the government to account over public spending said billions that could be spent on improving public services was being lost through unpaid tax.
It found HMRC was failing to collect about 5% of the tax owed each year. Meg Hillier, the Labour MP who chairs the committee, said: “The eye-watering £42bn now owed to HMRC in unpaid taxes would have filled a lot of this year’s infamous public spending black hole.
“But the public purse will continue missing out on billions of desperately needed revenues as HMRC will only employ more staff to tackle compliance over the next few years – not fast enough to dent the tax gap at a time of huge public sector spending pressures. Meanwhile, taxpayers battle customer services that need improvement.”
Rishi Sunak has promised to reduce national debt as one of his five key priorities for the year, alongside halving the headline rate of inflation, growing the economy, cutting NHS waiting lists and passing laws to stop small boats carrying migrants across the Channel.
The prime minister has repeatedly said bigger public sector pay rises would be unaffordable and could fuel inflation, at a time when taxes taken as a share of the economy are already rising.
However, opposition MPs have criticised the government, arguing that taxes are going up because of the Conservatives’ mismanagement of the economy.
The PAC also said there was a “moral duty” for HMRC to chase money lost through fraud during the Covid pandemic.
The committee was “disappointed” that HMRC “only expects to recover around a quarter of the £4.5bn” that it calculates was lost to fraud and error in coronavirus support schemes.
That amounts to 4.6% of the £96.9bn in government funding to support businesses through pandemic restrictions, including furlough.
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A temporary taskforce has been given £100m to look into 40,000 cases but HMRC said it forecasts the team will retrieve £1.1bn, still leaving more than £3bn unaccounted for.
A spokesperson for HMRC said it had cut the UK’s tax gap by more than 30% since 2005.
“We continue to prioritise collecting unpaid taxes, which is why we are adding a further 2,500 people to our compliance teams as well as rolling out our digital offer to ensure everyone pays what is due.
“We take a supportive approach to taxpayers in debt and balance that with recovering debt from those who can afford it. A blanket approach would put thousands of people and businesses to the wall.
“The Covid support schemes protected millions of jobs and businesses during the unprecedented pandemic and, whilst we ensured payments were not unnecessarily delayed, we also minimised fraud through compliance checks and have protected £1.2bn so far.”