Labour pledges to close £36bn tax gap via non-dom crackdown and bolstering HMRC
Labour has pledged to close the £36bn tax gap via cracking down on the non-domicile (non-dom) tax status loophole and bolstering HMRC’s compliance squads, if elected.
The gap between the amount of tax owed and the amount of tax actually collected by the government amounted to £36bn in 2021-22, the party said, as the number of HM Revenue and Customs (HMRC) plummeted by half in five years, with the service under resourced.
Shadow Chancellor Rachel Reeves said her party’s tax plan, including a new target to recoup £5.1bn a year, “will give HMRC the resource it needs to go after those who are avoiding or evading tax and to modernise the tax office so we have a system fit for purpose”.
It came after the National Audit Office (NAO) said £6bn a year could be retrieved by tackling tax avoidance – but Labour said the government’s plan would only recoup £1bn a year.
Reeves vowed she would “take on the tax dodgers because if you make your home and do your business in Britain, then you should pay your taxes here too”.
Labour’s measures include investing up to £555m a year in HMRC to boost tax collection; increasing the number of compliance officers by up to 5,000 to boost investigations and tackle fraud; speed up digitisation of the tax office; and bring in artificial intelligence (AI).
Legal and regulatory changes could also be introduced, including potentially requiring more tax schemes to be reported to HMRC under the disclosure of avoidance schemes regime.
The party said the plan would raise a net £700m in 2025-26 and reach £5.1bn by the end of the parliament, while closing the non-dom loophole could raise £2.6bn within five years.
Reeves confirmed £2bn of the annual funding raised would go on reducing NHS waiting lists; extra dental appointments; and free school breakfast clubs for every primary school pupil.
She added: “After fourteen years in power, the Conservatives have failed to tackle this issue and the tax gap remains unacceptable high. With Labour, things will change.”
The announcement came just weeks after Labour’s spending plans were thrown into disarray by the Chancellor Jeremy Hunt’s decision to adopt two of its revenue-raising policies at the Spring Budget in March to fund a cut in national insurance.
Abolishing non-dom tax exemptions and extending the windfall tax on oil and gas companies were earmarked by Labour to fund additional NHS appointments and free breakfast clubs.
The shadow Treasury team have had to find another way to pay for those promises, with Reeves insisting again: “I have been clear that everything in our manifesto will be fully costed and fully funded. There will be no exceptions.”
“Last month I promised to go through all the government documents in an orderly way to identify the funding streams to honour our commitments to the NHS and schools.
“That process is now complete and the funding a future Labour government will raise from taking on the tax dodgers will fund more appointments in NHS hospitals, new scanners, extra dentist appointments and free breakfast clubs for all primary school pupils.”