[The following was my contribution to the ICAEW’s Wyman Debate on the Direct Recovery of Debts]
We mostly remember Anthony Burgess for The Clockwork Orange. But his best work of fiction – if you exclude his autobiography – is Earthly Powers. It begins:
“It was the afternoon of my eighty-first birthday, and I was in bed with my catamite when Ali announced that the archbishop had come to see me.”
Several paragraphs later he says:
“I retired twelve years ago from the profession of novelist. Nevertheless you will be constrained to consider… that I have lost none of my old cunning in the contrivance of what is known as an arresting opening.”
I begin with that not because I want to show off my knowledge of English literature (or not just because of that) but because I too have an arresting opening.
It’s this. Most of the arguments against DRD boil down on analysis to: it’s a good policy and it should be easier to collect underpaid tax but HMRC are so hopeless that they can’t be trusted with it.
I propose to begin by looking at the ‘so hopeless’ issue, then at whether it’s a policy worth pursuing, then whether the safeguards are adequate and finally whether there’s some important constitutional issue engaged.
Are HMRC so hopeless that they can’t be trusted with DRD?
Let’s look at the data.
In 2012/13 some 75% of agents (up from 65% three years previously) were overall satisfied with HMRC. For SMEs the equivalent figure is 85% (and has been for the last five years). For individuals and personal tax it’s 75% (and again it’s broadly static).
Given the business HMRC is in – that business is not handing out sweeties to children, it is forcibly extracting money from you (a kind of ‘fiscal dentistry’) – these are pretty respectable numbers.
You might also be interested in what the Ombudsman has to say. I was. She received 1,200 odd complaints about HMRC in 2012. But she only investigated 13 (and upheld 57% of those). Not quite sure what you can read into those figures other than that the Ombudsman doesn’t investigate many complaints.
Even leaving aside the numbers and approaching the matter as one of principle, we don’t say – because social workers sometimes fail to pick up cases of neglect we shouldn’t have social workers. What we do say is – social workers exist for a good reason, they do an awful lot of good, and they sometimes get stuff wrong. So we should put in place safeguards to ensure they get stuff wrong as infrequently as possible.
So I say the starting point is, could these measures do real good? If they can, then the debate should be about the safeguards.
Could these measures do real good?
I begin by pointing out that these measures only concern tax which is due, which is payable and which the taxpayer hasn’t paid. Tax we need to provide public services. Oh, and service our enormous national debt.
Some £48bn a year has to be pursued from can’t pay/won’t pay taxpayers. That’s a huge number: about 10% of all the tax that’s collected.
According to the latest Tax Gap calculations some £4.4bn is lost each year through non-payment. That’s more than the figure for avoidance – which is the only thing we ever talk about. Obviously a lot of that £4.4 is lost through insolvency – but if HMRC were as aggressive as commercial creditors you would expect that £4.4bn figure to reduce significantly.
Of those who don’t pay over 20% have in excess of £50k in their bank accounts. They are likely just taking advantage of the fact that HMRC can (in effect) be played as a cheap and accommodative overdraft facility. They shouldn’t.
The yield from DRD is expected to be £90m a year. And the costs of it are £160k a year – materially, nothing. So it’s an incredibly efficient policy.
It’s also a much more efficient way for taxpayers to pay (compared with the alternative – distraint). Once a taxpayer’s £500 Plasma is seized, transported, valued and auctioned for its second hand price, he’s unlikely to realise much from it. Assuming you’d get £50 for it, after costs you’d need to distraint 1.8m Plasmas a year to generate a yield of £90m). For any economists out there, that’s assuming completely inelastic demand for second hand Plasmas.
Those are the reasons I think it’s a good policy. Now let’s look at the safeguards.
Are the safeguards adequate?
As proposed, you’ve got two sets of safeguards – ‘before the money is taken’ safeguards and ‘after the money is taken’ safeguards.
The main ‘before’ safeguards are these:
• A taxpayer will have been contacted a minimum of four times about his tax debt (HMRC say nine times on average).
• The measures will only be available where in excess of £1,000 of tax is due and unpaid.
• The measures will never be utilised in such a way as to leave a taxpayer will less than £5,000 in his bank accounts.
• Regard will always be had to his regular pattern of expenditure over the previous 12 month period in considering whether taking the money would cause hardship.
The main ‘after’ safeguards are:
• for a period of 14 calendar days from the date of application of the measures, HMRC will not actually be given access to the monies. Instead, during that period, the monies will, in effect, be blocked and the taxpayer (or the other joint account holder) will be able to make representations to the effect that either a transfer of the money to HMRC would cause hardship or the tax debt is not due. If those representations are not accepted, the monies will be transferred to HMRC.
• If the taxpayer still contends that the monies ought not to have been transferred (his representations having been rejected by HMRC) he can judicially review HMRC’s actions; he can appeal to the independent Adjudicator; and, with the support of his MP, he has a further right of ‘appeal’ against the decision of the Adjudicator to the Parliamentary Ombudsman.
They are not perfect but they’re not bad.
Finally, is it a step change?
If, tomorrow, HMRC issue a closure notice amending my tax return I have 30 days within which to pay any excess tax due or to appeal. If I appeal and satisfy HMRC or the Tribunal that I have reasonable grounds for my appeal, I don’t have to pay the tax pending the outcome at first instance. If I don’t appeal, or I don’t satisfy the Tribunal then I have a tax debt to which these measures can apply.
What happens at the moment if I don’t cough up? The Collector can, without court supervision, demand the tax and, if I don’t pay it, can exercise distraint. He can take my Plasma. So I’m afraid I just don’t understand the argument that there is some major constitutional issue at stake.
2 July 2014