The Public Accounts Committee bemoans how HMRC is failing in squeezing the last few pennies out of the populace:
The government has been criticised for failing to collect £42bn in unpaid tax from businesses and individuals amid concern over the strain on the public finances as the UK’s economy stands on the brink of recession.
The cross-party Commons public accounts committee (PAC) said that an “eye-watering” amount of tax was owed to HMRC, while also criticising tax collectors for lacking ambition to tackle fraud and error.
Several things need to be said about this. The most obvious being that this includes all bad debts. Which itself includes those who have gone bust - people and organisations of whatever type. That money is simply unrecoverable and so shouldn’t be included in any measure of what might be recoverable. We’d all be much better served by a measurement which excludes funds in bankruptcy.
A second point is that we don’t in fact want a system which gains every penny. Just as we don’t want a legal system which punishes every infraction. The aim is “tolerable administration” not the ability to only do precisely what government allows nor a forced insistence to do everything it dictates. Dictate being the correct root for a system which was exact and enforced to be so.
The third is this from the report itself:
For every £1 that HMRC spends on compliance activities, it recovers £18 in additional tax revenue.
Possibly, possibly, although we’d be willing to argue about that. However, while it’s fashionable these days to insist that neoclassical economics is all wet it is still true that we must take account of the Marginalist Revolution. That statement is of the average return to HMRC spending upon compliance. Which includes all that easy low hanging fruit which the system already recovers. This does not mean that the next £ spent will recover £18. For marginal matters - there are diminishing returns to any activity after all.
Finally, even that number claimed is not really the tax going uncollected. For in every assumption about how much a tax will raise there is that sub-assumption that some won’t pay it. For every scheme for dog licences there is a prior agreement and the knowledge that some tearaways just won’t bother. Insistences about income tax accept that some windows will still get cleaned for cash. Yes, having a simple and cheap system for corporate registration means that some will abuse this system - but what’s the overall benefit of having a simple and cheap system of corporate registration?
There are benefits to be had from a slightly leaky tax system as with so much else. What really matters here is the definition of “slightly” which is something the PAC doesn’t address at all - it should.