Britons owe an “eye-watering” £42 billion ($51 billion) in unpaid tax, with about 5 per cent of the money owed each year failing to be collected by HM Revenue and Customs, the Commons Public Accounts Committee has found.
MPs have said that billions of pounds could be spent on public services if the taxes were collected.
The Liberal Democrats called the amount owed “absolutely staggering” and said “serious action to close this tax gap black hole” must be taken as the country battles a cost-of-living crisis.
It comes at a time when several sectors, from railway workers to nurses, are striking over pay in the face of high inflation and stretched public finances.
In a report published on Wednesday, MPs criticised ministers for not doing more to claw back the money owed to the public purse.
“The eye-watering £42 billion now owed to HMRC in unpaid taxes would have filled a lot of this year’s infamous public spending black hole,” said Dame Meg Hillier, chairwoman of the committee.
“But the public purse will continue missing out on billions of desperately needed revenue 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.”
The committee's “HMRC Performance in 2021—22" report recommended that the tax body set out “what level of investment” its compliance team would require to “reduce the size of the tax gap”.
According to the 22-page document, HMRC collected £731.1 billion in taxes and duties in 2021-22 — the highest on record as Britain emerged from the pandemic.
But despite that, the committee said more could be done to claim unpaid taxes.
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“In June 2022, £42 billion was owed to HMRC in tax debt, much more than before the pandemic,” said the report.
“This debt is now set to fall more slowly than initially expected as taxpayers feel the effects of the cost-of-living crisis.
“In 2021—22, HMRC generated £30.8 billion from its compliance activities, though this also remains below pre-pandemic levels of performance.
“For every £1 that HMRC spends on compliance activities, it recovers £18 in additional tax revenue.
“The government is missing the opportunity to recover billions in lost revenue by not resourcing compliance.”
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MPs also said there was a “moral duty” to continue to go after money lost through fraud during the Covid pandemic.
The committee said it was “disappointed” that HMRC “only expects to recover around a quarter of the £4.5 billion” that it calculates was lost to fraud and error in coronavirus support programmes.
That amounts to 4.6 per cent of the £96.9 billion handed out by the UK government to support businesses through pandemic restrictions, including furlough.
A temporary task force has been given £100 million to look into 40,000 cases but HMRC said that it forecasts the team will retrieve £1.1 billion, still leaving more than £3 billion unaccounted for.
MPs said that the forecast meant the rate of return for the funding was expected to be less than if invested in tax compliance.
“The PAC has reported on the many problems in the Covid support schemes that made an open goal for fraudsters, but HMRC is settling for trying to recover less than a quarter of estimated losses in schemes such as furlough,” said Dame Meg.
“We recognise the problems HMRC faces — due to poor controls, the horse has bolted — but we believe there is a moral duty to pursue fraud.
“HMRC must ensure dishonesty is not seen to create advantage.”
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Christine Jardine, the Liberal Democrat Cabinet Office spokeswoman, said: “This government is losing absolutely staggering amounts of money through its incompetence and inability to collect the tax it’s owed.
“We need to see serious action to close this tax gap black hole.
“Ministers need to immediately get a grip on this situation, anything less would be a failure for millions of people who are struggling with the cost-of-living crisis.”
Pat McFadden, Labour’s shadow chief secretary to the Treasury, said: “The government should be trying to recover every pound of this before hitting households with more tax.
“It’s not just the tax unpaid, but the sums lost to Covid fraud which show the extent of the problem.
“The Tory record is one of waste, fraud and more and more taxes to make up for their mistakes.”
An HMRC spokesman responded: “Since 2005, we have cut the UK’s tax gap by more than 30 per cent, and 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 £1.2 billion so far.”
