Job cuts hit home as tax gap widens

The government’s accounting watchdog said falling staff numbers at HM Revenue & Customs had contributed to pushing the VAT tax gap from under 12% in 2004/05 to more than 14% in 2005/06.

‘The VAT tax gap is influenced by many factors, but the areas from which headcount reductions have been made do contribute indirectly to this key target and therefore some account should be taken of it in assessing the impact of headcount reductions on service quality,’ the NAO stated.

It added that reductions, which could amount to 25,000 job losses by 2011, were a ‘potential constraint’ on how HMRC dealt with tax collection across all its operations.

The criticisms are rare official expressions of worry about ‘efficiency’ savings at the department.

‘If the government is serious in tackling the annual £25bn which goes uncollected in taxes, then it needs to invest in HMRC rather than slash its budget by 15% over three years,’ said Public and Commercial Service Union general secretary Mark Serwotka.

Much of the gap may be a result of carousel fraud, though losses from that area are thought to be dropping. HMRC is facing cuts of 5% a year in real terms as part of Gordon Brown’s efficiency drive. The department has faced criticism over unopened letters, which unions blame on staff cuts.

Advisers are also concerned about the department’s workload in relation to offshore accounts. HMRC will have to concentrate much of its future resources on trawling through hundreds of thousands of offshore account holders’ details, after it gained disclosure orders against a further four banks on top of its original victory against Barclays last year.

‘I’m sure they will look to streamline the process,’ said CIoT personal tax specialist Anne Redston. ‘But HMRC has insisted there will be no amnesty.’

An HMRC spokesman said that its strategy to handle the offshore accounts workload had not yet been formulated, and further disclosure orders were not planned against other financial institutions.