As the Institute for Fiscal Studies has stated, there is “near consensus” that Brexit will damage the economy.
On any view the mid-case £30bn is a very substantial sum of money. Illustratively, to recover it by way of income tax would require an increase in the basic rate of income tax to in excess of 26.5%. It represents about 25% of all NHS spending in 2019-2020. To recover it, either the budget deficit target would have to be abandoned, or spending cut, or taxes raised or some combination of all three.
In an effort to address this very serious concern about the effects of a ‘Leave’ vote, leading Brexiteers including Michael Gove, Boris Johnson, Priti Patel, Dominic Raab and Iain Duncan Smith this morning wrote a letter making a number of promises about where in a post-Brexit world funding might be found (the “Letter“).
The Letter can be read here and it states (in particular):
For example, the UK is set to pay out between £7 billion and £43 billion by 2021 in tax refunds to big businesses which have successfully used the European Court and EU law to escape taxes lawfully imposed on them in Britain.
If we Vote Leave, the Government will pass legislation to prevent these payments being made so that taxpayers are not given these huge bills.
But is this statement true?
The £7.3bn figure comes from Table 4.15 of the OBR’s Economic and Fiscal Outlook from March of this year. It is the sum of this line:
The March 2016 Outlook gives you no further detail of what “tax litigation” relates to but the July 2015 Outlook does and states this:
So the £7.3bn covers sums which HMRC expects to pay out from litigation cases when the amount can reliably be estimated.
But contrary to what the Letter states, the £7.3bn figure does not derive from “tax refunds to big businesses”. It covers all tax refunds to individuals, partnerships, trustees, small businesses, and big businesses.
Contrary to what the Letter states, the £7.3bn figure does not derive from businesses “which have successfully used the European Court and EU law”. It derives from all claims in all courts domestic and EU (and conceivably foreign) and based on all law domestic and EU (and conceivably foreign).
Contrary to what the Letter states, the £7.3bn figure does not derive from attempts to “escape taxes lawfully imposed on them in Britain”. It will derive from the recovery of taxes wrongly over collected by HMRC, taxes wrongly levied by HMRC, taxes lawfully collected in advance and which later have to be repaid and interest on those taxes, whether that wrongful levying or overcollecting or repayment derives from HMRC’s mistaken understanding of domestic or EU (or conceivably foreign) law or otherwise.
Finally, contrary to what the Letter states, the £7.3bn figure is not the bottom end of a range with £43bn at the top. The bottom of the range is £0. The £7.3bn figure represents the aggregate of sums which HMRC expects to pay out (but might not do). This is not a hypothetical point: in 2009/10 well over £2bn (a sum larger than is expected to be collected in any year addressed in the “tax litigation” line above) was written back (see page 92)
Let me put the matter in a nutshell.
The Letter – which let us remember has been signed by Michael Gove, Boris Johnson, Priti Patel, Dominic Raab and Iain Duncan Smith – is (in the respects identified above) simply false.
What of the £43bn figure?
It is the sum total of the £7.3bn above and a further £35.6bn of contingent liabilities or “possible liabilities for cases currently in litigation”: see paragraph 9 of the auditor’s note to HMRC’s annual report for 2014-15 here. Possible, but not very likely as you can see from the highlighted passage earlier in the annual report here:
“The likelihood of a transfer of economic benefit is remote.”
This £35.6bn figure, again, does not relate to big business, European law, breaches of Europe law, or a successful use of the European Court. There is simply no basis for these claims. Moreover, to imply it is remotely realistic that £43bn could be paid out, again, simply does not bear analysis.
The Letter very materially misleads the public. Michael Gove, Boris Johnson, Priti Patel, Dominic Raab and Iain Duncan Smith should immediately disavow the baseless claims to which they have, one hopes inadevertently, put their names.Follow @jolyonmaugham