£4.6bn savings on avoidance? Is it possible?

Given the fuss over last night’s Prime Ministerial debate I hesitate to turn to a subject that isn’t about passion, flair and PR but I did want to raise some interesting observations about something in the Liberal Democrat manifesto.
It’s the pledge to cut tax avoidance by around £4.6bn in the first year as part of a Lib Dem government’s austerity measures.
Now the widespread belief is that this is wildly optimistic. Some advisers have told us that there just isn’t that much avoidance around.
However, Vince Cable, the Lib Dem shadow chancellor, has been adamant that this is possible.
I took a quick a look at some numbers based on past Budgets. In each Budget the chancellor has included measures to protect revenues – effectively measures to shut tax avoidance schemes.
In 2008 the Budge laid out a number of measures which the chancellor claimed would save £1.7bn over three years. In 2009 similar savings, though for different measures, would amount to £1.1bn over threes year and the Budget this year said measures against avoidance would save £1.6bn, once again over three years.
That’s a total of £4.5bn. Not far from the number the Liberal Democrats estimate they can save. But the savings come over a period from 2008 to 2013 – five years.
If the Lib Dems had said they could save £5bn in the first three years of being in power, we would have thought it a stretch, but with real drive it might be possible. But as it is they say it will all come in a much shorter time. It’s possible for savings to be made, but the timeframes don’t seem right.
Plus, where do they think the avoidance is that HMRC hasn’t already shut down? Of course some of it will be new schemes, but it’s difficult to imagine, in the wake of the disclosure regime and in a climate where the taxman is so aggressive on avoidance, that there is very much left to unearth.

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