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UK tax gap nears £40bn as Tories and Labour pledge crackdown

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Banking and Fintech Reporter

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Although billions is lost to illegal activity every year, large parts of the shortfall are also due to human error.
Although billions is lost to illegal activity every year, large parts of the shortfall are also due to human error.

The gap between how much tax the government owes and the amount it collects has grown to almost £40bn, latest official figures show, as the Conservatives and Labour vow to tackle tax dodging ahead of the general election.

The UK’s so-called tax gap in the 2022 to 2023 tax year is estimated to stand at £39.8bn, representing 4.8 per cent of uncollected tax, according to new data from HMRC.

This figure is up in cash terms from roughly £38.4bn in 2021 to 2022, when the gap was 5.2 per cent. The tax gap was 7.4 per cent, or £32.6bn, in 2005 to 2006.

Although billions is lost to illegal activity every year, large parts of the shortfall are also due to human error.

Clamping down on tax evasion and avoidance has become a key pledge of both the Conservative and Labour parties ahead of the general election on 4 July.

Earlier this week, the Tories promised a £2.4bn tax break for pensioners if it wins the election, funded by a plan to raise £6bn per year through improved collection and a clampdown on avoidance and evasion.

Meanwhile, Labour has laid out plans to raise an £5bn a year by 2029-30 by reducing tax dodging, which it said would be used to cut NHS waiting lists and introduce a free breakfast policy for primary schools.

“Simply put, it is not just or right for billions of pounds of tax to be left uncollected,” said Rachael Henry, head of advocacy and policy at Tax Justice UK.

“The NHS desperately needs extra funds and people are having to put unaffordable basics back on supermarket shelves far too often. The tax gap of £40bn is vital revenue to help clear waiting lists and guarantee people get the healthcare appointments and treatments they need.”

Tax Justice UK said that if the UK’s tax gap shrunk 10 per cent, it could cover the cost of ending the two-child benefit cap, while closing it by 20 per cent could pay for around 60,000 nurses, 40,000 teachers and 40,000 police officers.

“It is an open goal for the government and a winner for the country,” Henry added.