‘Tackling Tax Fraud’: the new PAC report

Overnight the Public Accounts Committee published a timely report on ‘Tackling Tax Fraud’. It’s fairly short and you can read it here.

Prospectively the greatest point of interest in the report is when it addresses the ‘perception that HMRC does not tackle tax fraud by the wealthy.’

There are, of course, two questions buried in that phrase.

Is HMRC failing to do enough to tackle tax fraud by the wealthy? And, is HMRC allowing to grow up in the minds of the public a perception that it is failing to do enough to tackle tax fraud by the wealthy?

Only one of the questions raises a matter of fundamental public importance: are rich and poor treated meaningfully equally under the law. The other concerns whether HMRC should sack its press agency.

And I said “prospectively the greatest point of interest” because the report in good part addresses the second question. I don’t think I care – do you? But, anyway, it concludes that HMRC should “publicise this work“. 

Now we’ve got that out of the way, what do we learn about the important question.

We can glean one or two details of interest.


See if you can spot where the forensic point slides away from the Committee here:

HMRC told us it investigates around 35 wealthy individuals for tax evasion each year, but did not know how many wealthy individuals it had successfully prosecuted. We welcome the fact that HMRC has sought and received funding to increase the number of investigations it undertakes into corporates and wealthy individuals to 100 a year by 2020, indicating that the current level is insufficient.

Yep. There is apparently going to be an increase in funding to move from 35 to 100 investigations a year. But that increase will not only cover wealthy individuals but will also cover corporates.

I was curious about how this point had been allowed to slip so I went back to the oral evidence session which stood as the basis for this report. That didn’t help so I went back to the National Audit Office report which had been addressed in the oral evidence session. As I read those documents, HMRC has never stated that it investigates 35 wealthy individuals a year or that it is now going to investigate 100. Both of those numbers cover both wealthy individuals and corporates.

But at least there is more resource to tackle a group that includes wealthy individuals. Even if we don’t know how that resource is targeted within that group.

Maybe. Here’s the oral evidence session again.

Q147 Stephen Phillips: In one sense, Ms Granger, you have anticipated my question. You are going to increase the number of prosecutions, or investigations that hopefully lead to prosecutions, to 100 for wealthy individuals and corporates from a figure that is currently around 35. Is that right?

Jennie Granger: I think “wealthy and complex” is what we said—

So that number for evasion investigations – and the increase from 35 to 100 – covers (a) wealthy individuals (b) wealthy corporates (c) complex individuals (d) complex corporates.


But forget about investigations for a second. What about prosecutions? How many wealthy individuals face the threat of jail time? Here I go back to the report. And on this it is crisp. HMRC did not know how many prosecutions it had brought of wealthy individuals for tax evasion (see paragraph 10).

What we do know (according to the National Audit Office) is that increasing HMRC’s overall target for criminal prosecutions to 1,000 led it:

to focus on less complex cases, in particular a large number of prosecutions for evading income tax, VAT and tobacco duty, and lower-value cases.

We also know HMRC had estimated that many billions of pounds of tax were being evaded offshore. Many billions were expected to be collected under a number of long-running tax amnesties – but the number of billions actually collected fell very short.

And we know, because the report reminds us, that the 3,600 names on the HSBC Falciani list of those with Swiss Bank accounts led to only one prosecution. And that fact led to widespread public outrage.

Did this shortfall, did this outrage precipitate some change of focus in HMRC’s activities? It’s not easy, on the basis of the Public Accounts Committee report at least, to conclude that it did.

Did it prompt decisive re-resourcing of HMRC to enable that change of focus? We know from the OBR (see paragraph A.23) that HMRC very recently still lacked the resource to chase up an £800m shortfall in expected receipts from tax evasion.

And did it prompt HMRC to gather targeted information to address public concern? HMRC still seems to be (at best) unable to tell us how many investigations into tax evasion by wealthy individuals it is carrying out.

Hang on a second.

Perhaps the question whether HMRC should do more to publicise its work is more interesting than it seemed. But I’m not sure I’d agree with the Public Accounts Committee. I’m not sure HMRC should publicise what it is doing.

People might be cross.

17 thoughts on “‘Tackling Tax Fraud’: the new PAC report

  1. Congratulations on the quality and depth of your ‘report on the report’, but it DOES make really depressing reading.

    If a respected and allegedly powerful cross-party of MP’s allows itself to be bamboozled in this way, even when backed with professional guidance on how to land their punches, from where is any meaningful improvement in the role and performance of HMRC going to come?

    Do keep plugging away, or all could be lost.

  2. I don’t think it’s a great piece. But it’s a great privilege of blogging that you get to write on what floats your boat. And the fog of misinformation here does float mine. In a mixed metaphor sort of way.

  3. HMRC resources are totally inadequate to deal with the scale of tax evasion revealed in the Panama Papers. The obvious solution is transparency: make all tax returns, ownership registers, and country by country reporting public. We can then encourage private bounty hunters to find cases of abuse and refer them to HMRC for prosecution. Fines can be used to pay the private tax experts, who can switch from making money by advising the rich on how to hide their assets, to exposing those that do.

    Fits perfectly with the government philosophy of privatising public services, so should go down well with the chancellor ….. or maybe not ?!!!!

  4. There are clear signs of the usual symptoms of an affliction of target-itis. You point out the NAO’s observation that a numerical target for number of criminal prosecutions appears to have led to resources being applied to less complex and lower-value cases, while at the same time the OBR notes that HMRC say they did not have the resources to chase up an £800m shortfall in expected receipts from tax evasion. At bottom it is a question of priorities, and identifying what we really want HMRC to achieve. I have noted before that HMRC does not actually have any target for what is arguably its key role – the routine collection of revenues to pay for public services. Even £800m is barely a tenth of one per cent of government current receipts. The devil’s advocate might argue that a very significant amount of top management time is being spent in front of committees and responding to multiple urgings for ‘decisive re-resourcing of HMRC’ to address a range of disparate matters that while each important in their own right are even collectively rather more tail than dog.

  5. I don’t disagree with that in principle. In practice what I believe to be HMRC’S fundamental stance on this issue – that criminal prosecutions of offshore evasion aren’t revenue generative – is one I believe to be economically shortsighted and inimical to basic fairness. I’m less interested in the question how that stance should be changed than I am in seeing the stance changed. I haven’t actually called for targets – I see the better line to be simply exposing what I believe to be HMRC’s policy position on this issue and letting it (and the Government of the day) take its chances in the court of popular opinion.

  6. Whilst I agree that the wealthy may have the most money it does not mean that they evade tax anymore than the rest of the population. Therefore HMRC should be left alone to target the people they believe are evading tax and prosecute them if this is the best way of proceeding. It’s immaterial (other than the overly political) whether the evaders are rich or poor does it?

    It’s a waste of time to start a PAC on why HMRC are not prosecuting more wealthy people for tax evasion unless there is evidence to suggest this is where the tax gap resides. If the tax evasion is a large number working in the cash economy then doesn’t it make sense that HMRC concentrate their resources on this population otherwise their wasting time and money on something that will not close the tax gap.

  7. But HMRC’s stance on prosecutions is as per the ‘Hansard Extract’ and its successors.

    First made in 1944, it was a government statement that if full disclosure and cooperation was given in tax investigations, HMRC would tend to settle by way of civil settlement not prosecution. Since then successive governments have endorsed it.

    Your and MPs criticism of HMRC’s approach to prosecutions is that MPs have been telling HMRC what to do for the last 72 years, HMRC have been doing just what they are told and that this is deplorable.

    HMRC don’t have a ‘fundamental stance’ on prosecutions, they are doing parliament’s bidding.

  8. The Hansard Statement doesn’t apply in all circumstances. It only applies, I believe, where the statement is made and full cooperation is asked for and given. So I don’t think there is any tension between the position I have stated and the policy articulated in the Hansard Statement.

  9. The problem is that there is lots of evidence that HMRC prioritises lower value, easier fraud cases. And limited evidence that HMRC pursues higher value, more difficult cases involving offshore evasion. I don’t think that state of affairs is in our long term financial interests. I also think it’s inimical to basic justice. I don’t think there’s any reason why I shouldn’t hold that view. And I don’t think HMRC should escape scrutiny of its conduct.

  10. Failure to prosecute does not necessarily translate into failure to recover the tax. HMRC prosecutions have always been selective, with HMRC taking the view that it is better to get the money in than to spend money sending someone to prison. But they have to prosecute a person from time to time to change the calculus and “pour encourager les autres”. Does it really matter if that number is 30 or 100? Given the resources, perhaps it could be ten or even a hundred times as much. (By way of comparison, I believe there are well over 100,000 prosecutions for theft each year, plus another 15,000 for fraud.) See https://www.gov.uk/government/statistics/criminal-justice-system-statistics-quarterly-september-2015

  11. No, but failure to prosecute does translate into failure to cause prospective tax evaders to recognise there are real and meaningful risks and costs attached to evasion. That’s the fiscal argument – pursuing today’s yield is short termist. It kicks the can down the road…

  12. In the United States the IRS is very keen on ‘encourager les autres’ – hence prison sentences for Wesley Snipes of ‘Blade’ fame and for the inimitable Ms Lauryn Hill.

  13. It should be noted that the UK’s tax Gap is internationally quite good, and the vast majority of tax payers try to pay their taxes correctly.

    Our system relies on people trying to do the right thing, to collect as much revenue as cost effectively as it does. If our tax paying culture was similar to some southern European countries, we would have real fiscal problems.

    This impact on general attitudes, more than even the absolute amounts which is really damaging. If you think other people are cheating it discourages you from complying fully. Therefore I agree that both perception and actual risk of evasion is important.

    I can certainly understand HMRC position given limited resources (and pressure to not lose court cases it does take on), so a lot of recent anti-avoidance legislation seems to be designed to counter perceived abuses without having to litigate grey areas.

    However increasing the risk of taking on an “audit lottery” with evasion or tax avoidance schemes would seem to be a worthwhile investment, even if less cost effective in the short term.

  14. “cause prospective tax evaders to recognise there are real and meaningful risks and costs attached to evasion” – well, yes, that is what I meant by changing the calculus. Most people are honest and will do their best to comply, but some aren’t, so there has to be some appreciable level of real downside risk (of getting caught and punished) to dissuade them from breaking the law. Similar to the way the criminal law used as a weapon against those tempted to steal, or commit benefit fraud.

  15. “Here I go back to the report. And on this it is crisp. HMRC did not know how many prosecutions it had brought of wealthy individuals for tax evasion (see paragraph 10).”

    I’m sorry but , given the small numbers necessarily involved in complex evasion cases and that very complexity coupled with HMRC governance procedures meaning each and every case will have a high internal profile, how can HMRC possibly not know the number?

  16. What the comments here do show are two basic misunderstandings from the Panama papers.

    1. That these papers show ANY corporate evasion of UK duties. The difference between evasion and avoidance may need to be re-stated.

    2. As they are in the hands of professional news organisations, the BBC and Guardian in the UK, that HMRC has access to this information.

  17. Partly this is about the old saw of recruiting and retaining the right number of quality staff (see NHS et al). How are good people to be persuaded to join HMRC?
    Partly it is about what we do when tax evasion or avoidance are suspected. Someone who has, under advice, returned his tax calculation in a certain way is very different from an evader.
    A balanced approach is needed. When Rossminster was raided in 1979, Lord Denning described the raid as an illegal and excessive use of power. I wonder if that view still holds sway.

Comments are closed.