tackling the tax gap

We have a financial crisis in the UK. It was not caused by the government; the crisis was caused by a collapse in our national income. That was, in turn, caused by the collapse of the banking sector...

Any deficit reduction policy aimed at cutting spending is wholly misdirected. What we need is a deficit cutting policy aimed at increasing government income, and there are three ways to achieve this.

The first is for the government to stimulate a moribund economy by encouraging investment. This is the Keynesian solution that is proven to work. The second is to raise selective new taxes on those best able to pay them. This is possible. The third option is to tackle the tax gap.

The tax gap has three parts. The first is tax avoidance, which I estimate to be about £25bn a year. This arises from the exploitation of loopholes in UK tax law and between UK tax law and that of other states – especially tax havens. The second part is tax evasion – that is breaking the law. I estimate this to be £70bn a year. HM Revenue & Customs claims it is much less, but their methodology for estimating anything but VAT evasion is very weak. Last, there is unpaid and late-paid tax – currently evaluated by HMRC to be at least £26bn.

Put these figures together and they come to more than £120bn. Enough, at least in principle, to close the whole current government deficit.