Labour floats plan to boost HMRC headcount by 5,000

Rachel Reeves says crackdown on tax gap will raise £5bn a year for NHS and schools

By Jim Dunton

09 Apr 2024

Shadow chancellor Rachel Reeves has said a Labour government would boost headcount at HM Revenue and Customs by 5,000 over the course of a parliament to provide increased focus on tax-compliance work.

The Labour Party said its plans would result in an additional £5bn a year going into the national coffers by 2029-30, which would fund spending pledges on the NHS and breakfast clubs for schools. HMRC's full-time equivalent headcount was 63,139 as of February this year.

Under Labour's proposals, larger businesses would be more likely to be subjected to compliance checks and there would be a new focus on offshore tax compliance. Part of the new funding allocation for HMRC would be ring-fenced for strategically important "blockbuster" criminal cases expected to have a deterrent effect.

Chancellor Jeremy Hunt announced a £163m capacity boost for HMRC at last year's Autumn Statement, which was aimed at reducing the so-called "tax gap" – the difference between tax that is owed and tax that is collected. The funding was expected to pay for an additional 700 staff.

Last month's Spring Budget saw HMRC allocated an additional £140m to chase tax debts. Some of the roles that both funding tranches will pay for are expected to be agency-based.

A Labour Party policy document setting out Reeves' HMRC proposals said it expected the additional 5,000 compliance staff to be recruited and trained to work in-house for the department. However it added that "more external resource" could be used to raise tax compliance in the short-term while training takes place.

Labour said its plans for HMRC would cost an additional £555m a year, raising the department's budget by 12%. It said that in 2025-26 the programme would generate a net figure of £700m, but that by the final year of the parliament the annual figure would be £5.1bn.

Reeves said the tax gap, which was £36bn in 2021-22 – the most recent year for which figures are available – had remained unacceptably high under the Conservative government.

"With Labour, things will change," she said. "We will take on the tax dodgers because if you make your home and do your business in Britain, then you should pay your taxes here too.

"The plan we are announcing today will give HMRC the resource it needs to go after those who are avoiding or evading tax, and to modernise the tax office so we have a system that is fit for purpose."

The Labour Party policy document accompanying the announcement said the tax gap had fallen by around a third between 2005-06 and 2016-17 but had seen "very little reduction" since. It said the latest figure was £5bn more than the previous year.

The party added that HMRC's yield from compliance activity had fallen during the current parliament from 5.8% of total revenues to 4.2%. It said the decline was worth £13bn in additional tax revenue that was not recovered.

Other elements of Labour's plans include improving HMRC’s core customer-service offer, investing in digitisation to improve compliance and customer service, and longer-term investment to update technology in the department.

Labour's plans are a way to increase revenue after Hunt last month appropriated the party's proposals on scrapping tax exemptions for people who are not officially resident in the UK for tax purposes – non-doms – and extending the windfall tax on oil and gas companies.

The party also said it expects to raise £2.6bn over the course of the next parliament by closing "loopholes" in the government's non-dom plan.

Civil service leaders' union the FDA said it welcomed the plans for large-scale investment in HMRC. The Labour Party policy document cited proposals for reform set out last month by the FDA's Association of Revenue and Customs section, which covers HMRC.

Assistant general secretary Lauren Crowley said the union was pleased to see Reeves had engaged with the report, which said an investment of £910m would return £11.3bn to the Treasury over the course of a parliament.

"Labour’s plan recognises the scale of investment required," she said. "We call on whoever forms the next government to implement our proposals in full to ensure HMRC has the resources necessary to maximise funds for the Treasury and Britain’s public services.

"Delivering more for less is a soundbite. We are offering concrete proposals to help future governments unlock HMRC’s full potential."

Fran Heathcote, who is general secretary of the PCS union, said Labour's proposed investment in HMRC was positive news.

"HMRC’s workload has rocketed, with the estimated number of income taxpayers rising from 31.7 million to 35.9 million in the past three years," she said.

"Increased workloads, coupled with the systemic low pay affecting vital grades working in the department, remains a major obstacle to HMRC bridging what is an unacceptable gap between the tax that should be paid and the tax that’s actually collected."

Heathcote added: "We await further detail on the plans but hope this indicates that if Labour forms the next government, it will choose to take on the tax dodgers rather than revert to austerity measures which have left public services falling apart and those that deliver them struggling to make ends meet."

A general election must be called by January 2025, however prime minister Rishi Sunak has remained pointedly vague about his plans for taking the nation to the polls.

Earlier this year Sunak said he anticipated the election would take place in the second half of this year.

Last weekend, deputy prime miniser Oliver Dowden raised the possibility of a poll taking place in January during a Sky News interview with Trevor Phillips.

This story was updated at 18:00 on 10 April 2024 to include a response from the PCS union


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