Compass’ Alternative Spending Review

A short diversion from yesterday’s plotted course.

Compass today released its alternative spending review. The plan includes closing the structural deficit by raising £85bn in extra tax including £32.5bn from “Clamping down on tax avoidance” (see page 8). This figure is borrowed from HMRC’s calculations of the tax gap (see “Further Details on Eliminating the Structural Deficit” in the Compass Plan). But a perusal of HMRC’s own calculations show that only £5bn of the tax gap is attributable to avoidance. The vast majority is linked to various types of criminality – under or non reporting, criminal frauds, the black market – or simple non-payment. In these areas the tax gap is wide and persistent. There is no magic wand to be waved.

As I argued in my blog post of yesterday:

“A (completely wrong-headed) belief has grown up that £32bn per annum of prospective income – i.e. the so-called tax gap – is just lying around waiting for the Labour Party to come back into power and pick it up.”

I went on to argue that perpetuating this belief was damaging because it undermined the party’s inclination seriously to address the lingering public perception that the Labour Party can’t be trusted with the economy.

Compass rightly recognises the need to tackle that perception:

Earning the trust to spend money wisely in the future is paramount for any progressive party or coalition, including the Labour Party who have a particular problem in that many voters think it was not careful enough with the public finances when in Government.

Unfortunately its alternative spending review is a rather retrograde step.