Rachel Reeves is set to win

In my blog ‘Life under a Labour Government’ last week, I said Rachel Reeves plans to save extra revenue by clamping down on tax avoidance. I went on to say, ‘This is such an old chestnut that it can hardly be considered radical—but ironically, now is the time it could prove to be a groundbreaker…’

According to the Guardian newspaper, Rachel Reeves, Shadow Chancellor of the Exchequer, aims to raise £5 billion a year by the end of the Parliament from a clampdown on tax evasion. However, this is only 14% of the staggering £36 billion ‘tax gap'—the difference between the amount of money HM Revenue & Customs is owed and the amount it actually receives. This scale of the tax gap should raise our concern and awareness about the issue. 

The Guardian quotes James Murray, the Labour Party’s financial secretary, as saying that Labour may need to extend the powers given to inspectors to ensure that businesses and households pay the correct amount of tax. 

This is unlikely to be necessary. Tax inspectors have significantly more powers than the police in investigating a murder; with a warrant, they can search and seize, track and trace, detain and question—and much more.

According to the Guardian, the public accounts committee has criticised tax collectors for lacking ambition to tackle fraud and error.

HMRC says Andrew McKenna, former co-head of HMRC Compliance and Fraud, told me in Episode 21 of my series ‘How to Keep Your Money’ that HMRC has invested in world-leading digital, artificial intelligence, which can pull data from bank transactions, Google maps, flight bookings, business accounts and social media to draw a financial map of every taxpayer and to match it against the tax returns of businesses and individuals. This flags up discrepancies between lifestyle and declared tax liability.

Tax collectors cannot be criticised for lacking in ambition they are well ahead of the curve.

In addition, HMRC has been deluged with information from foreign financial institutions since 2018, including reliable information about UK taxpayers' non-payment of undeclared funds offshore, which I talked about last week.

What is holding back tax collection is no longer a shortage of reliable information but the necessary staff trained to analyse the data and investigate those suspected of cheating their tax obligations.

The Guardian quotes Rachel Reeves as saying that she intends to invest more than ‘£500 million in HMRC to increase the number of tax inspectors to begin to close the £36 billion tax gap..’

‘Labour,’ she said, ‘could ‘ramp up’ the number of HMRC staff ‘pretty quickly’ if the party wins the election’.

‘At the start, you might need to bring in extra resources, but then you need to train people within the government to do this work,’ she said. ‘This isn’t rocket science.’

Accountants UHY Hacker Young said that HMRC collected a record high of over £39 billion from tax investigations in the year to 31 December, up 22% from £32 billion in 2022. The trend is, therefore, already established.

Labour has appointed a four-expert panel to advise the party on ways to tackle tax avoidance. Sir Edward Troup, a former special adviser on tax and head of HMRC, will lead the panel. You can catch up on his interview with me as our Podcast of the Week below.

Edward is joined by Bill Dodwell, former tax director of the Office for Tax Simplification and a retired senior accountant at Deloitte. The panel will also include MP Dame Margaret Hodge, a former chair of parliament’s public accounts committee.

Interestingly, the panel will also include Mike Bracken, founding partner of consultancy Public Digital. He is also the founder and former executive director of the UK Government Digital Service—the man responsible for the artificial intelligence that created the data on each of us that will flag up tax cheats. He can tell the panel how best to use this data.

The message from the appointment of this panel for tax cheats - is that there is nowhere to hide - either at home or abroad. It is only a matter of time before the ‘nudge letter’ arrives on your doorstep.

Tony Blair, former Labour Prime Minister and founder of the Tony Blair Institute (TBI) was quoted in last weekend’s Sunday Times magazine article: ‘It is possible to make huge and deep-seated reform today - in public services, in government itself. The productivity in the economy could improve dramatically due to the application of technology…. ‘

‘..We are undergoing a technology revolution, a real-world event…’

He is right and everything else is just a distraction, a sideshow.