Tackling the tax gap – National Audit Office (NAO) Report

This report examines the effectiveness of HMRC’s approach, in partnership with HM Treasury, in reducing the tax gap (£31 billion in 2018-19, equivalent to 4.7% of the total tax owed.)
Background to the report

HM Revenue & Customs (HMRC) reported record tax revenue of £627.9 billion in 2018-19, an increase of £22.1 billion (3.6%) on 2017-18. Tax administrations rely heavily on taxpayers reporting and paying their taxes in line with the rules. In 2018-19 HMRC received 90% of total tax owed this way. Inevitably some taxpayers make mistakes, others choose not to comply, and some cannot pay because of insolvency. In other cases, taxpayers interpret tax rules differently from HMRC, which can affect the amount of tax they pay, or construct artificial arrangements to avoid tax. HMRC’s most recent estimate of the difference between the amount of tax theoretically owed and the amount collected – known as the tax gap – was £31 billion in 2018-19, equivalent to 4.7% of the total tax owed.

A wide range of factors affect the tax gap, some of which are outside the control of tax administrators. For example, the state of the economy, demographic changes (such as more people in self-employment) and the perceived fairness of tax policy can all affect how many voluntarily pay tax (voluntary compliance). Tax administrators can increase tax revenue by encouraging voluntary compliance and stopping non-compliance. This includes making the tax system easier to use, detecting mistakes when taxpayers submit their returns and catching deliberate attempts not to comply.

Content and scope of the report

This report looks at HMRC’s approach to tackling the tax gap. HMRC needs to understand the scale and trend of the tax gap, to gauge its performance in collecting tax revenue and to inform decisions about how to tackle non-compliance. In this report we consider:

  • HMRC’s understanding of the scale of the tax gap (Part One). We set out HMRC’s definition of the tax gap, the main causes and trends in how it has changed, and the strengths and weaknesses of the measure;
  • HMRC’s performance in closing the tax gap (Part Two) including: the amount of tax it generates through its interventions (compliance yield); and whether it takes sufficient account of returns on investment and deterrence effects when deploying resources; and
  • HMRC’s plans for closing the tax gap (Part Three) including the evidence supporting its strategy, progress implementing the strategy and plans to develop comprehensive performance measures.

Report conclusions

In July 2020, HMRC reported that it had reduced the tax gap from its recent peak level of around 7.2% of theoretical tax owed (£38 billion) in 2013-14 to 4.7% in 2018-19 (£31 billion). The figures can be subject to considerable revision each year making it difficult to use the tax gap as a measure to assess performance, particularly in the short-term. It does, however, help in understanding the relative size of each area of the tax gap. HMRC is developing a wider set of indicators to help improve its understanding of its performance.

HMRC’s measure of compliance yield remains the best indicator of its performance because it calculates the direct return from its work to tackle the tax gap. Performance against this measure suggests that HMRC’s work to tackle non-compliance offers good value for money, with rates of return ranging from 7:1 to 44:1. When reducing resources HMRC has chosen to prioritise areas offering lower rates of return to maintain sufficient coverage of all taxpayer groups.

Keeping the tax gap low remains challenging because taxpayers continually change their behaviour to exploit opportunities in the tax system. Although organised around taxpayer groups, HMRC has successfully reduced the tax gap by targeting the underlying incentives behind non-compliant behaviour, in particular in relation to mass-marketed tax avoidance schemes. Lessons from these successes have not been applied more broadly, such as where taxpayers bend the rules or do not take reasonable care. Developing approaches to change the underlying behaviours could complement HMRC’s ongoing work and improve value for money.

Homes, not shops, are key to High St. renewal – report

Promises by government ministers to revitalise high streets with a new breed of shops should be abandoned in favour of turning town centres into residential hubs, creating at least 800,000 homes, according to a report that aims to influence a Downing Street review of planning laws.

With all this uncertainty about what the “new normal” might mean surely now is not the time to press ahead blindly with the GESP (Greater Exeter Strategic Plan) but pause, reflect, and go back to the drawing-board? -Owl

Phillip Inman www.theguardian.com 

The Social Market Foundation (SMF) said the decline of the traditional high street could not be reversed by policies that “turn the clock back” to a time before online shopping, especially after the trend accelerated during the coronavirus pandemic.

Homeworking was also likely to become a permanent feature of many jobs, leading to further declines in footfall in town and city centres and the closure of more retail outlets.

Empty shops should be given a new lease of life as homes or be torn down in favour of modern apartments to support “new and more beneficial uses for town-centre sites”.

The thinktank, run by former Daily Telegraph executive James Kirkup, said in its report, A New Life for the High Street, that under a “conservative assumption” 5% of commercial land could be released for development, allowing at least 800,000 homes to be built.

Boris Johnson is keen to overhaul the UK’s planning laws and has brought several former thinktank specialists into No 10 to draft a new scheme by the end of the year.

Housing minister Robert Jenrick said last month he wanted to move to a zonal planning system that forced councils and other interested bodies to agree a framework for new developments, sweeping aside the current case-by-case assessment of individual proposals.

The report’s author and SMF research director, Scott Corfe, said he doubted a zonal system that pushed aside council oversight in favour of a framework approved by ministers would allow community assets such as parks, sports centres and open spaces to be protected.

It would also likely deny councils the funds to promote social housing, he said, which was crucial to maintaining a mix of households in town centres.

The SMF said it favoured France’s Zones Franches Urbaines, which offer tax incentives for firms that move to the zones and generate employment. It said a UK version could offer “tax incentives contingent on the hiring of local workers – particularly those that have lost work as a result of economic change accelerated by the coronavirus crisis”.

The thinktank said: “There is a role for government to take the initiative in plans to repurpose urban centres, with a significant role for local authority housebuilding to provide affordable homes for those on lower incomes.”

The SMF said ministers should give councils the green light to close shops and turn them into homes using funds previously allocated to paying local authority debts.

Chancellor Rishi Sunak could transfer the £80bn owed by councils to the central government balance sheet, freeing councils to make improvements in their local area and generate jobs.

“This would essentially transfer local government debt into the hands of central government, which is better-placed to service the debt,” the report said. “A debt write-off would liberate local authorities to invest in urban renewal projects – including the creation of new schools, parks, and sports facilities.”

Corfe said: “Politicians pledging to save the high street are promising voters the impossible. Instead of claiming they can turn back the clock, leaders should aim to make inevitable change work better for urban centres and populations.

“Trying to prop up high street retailers facing long-term decline is not an act of kindness to workers or towns. It just postpones the inevitable and wastes opportunities to develop new policies to help workers and towns embrace the future.

“Nothing can stop the demise of traditional high street shopping so it would be better for politicians to support the next chapter in the story of the high street, with hundreds of thousands of new homes that bring new life to our urban centres.”

Job losses at Exeter Airport – up to 96 face redundancy

Yesterday the “pipe-dream”, today the hard reality

Almost 100 jobs are to go at Exeter Airport, with the owner blaming the economic fallout from the coronavirus health crisis for changing the way it must operate.

Paul Greaves www.devonlive.com 

A consultation has begun with workers employed in a wide range of roles, including baggage handlers, air traffic control, ground crew, security and the fire station. The process is likely to last several weeks.

It is understood that 96 jobs will go.

Parent company the Rigby Group, which owns the airport, says it needs to ensure the long term sustainability of its operation in the face of a new reality that commercial aviation will not recover to pre-Covid-19 levels for some time.

A spokesperson for Exeter Airport said: “The aviation industry is one of the hardest hit by travel restrictions as a result of the COVID-19 pandemic and Exeter Airport is not immune.

“We, like every other airport in the UK, are working incredibly hard to realign our operational requirements against the new world emerging post-lockdown with a view to getting the airport restored as quickly as possible and we will fight to protect every job we can.”

The union which represents most of the workers in line for redundancy has called on bosses to work constructively to lessen the impact of job losses.

News of the cuts is the latest blow to the airport after the collapse of Exeter-based airline company Flybe. The firm, which accounted for 80 per cent of the airport’s passenger traffic, went into administration in March.

The Covid crisis also crippled the wider aviation industry with planes grounded and international travel cancelled. Many workers at the airport were furloughed as part of the Government’s Job Retention Scheme. The JRS is due to end in October.

Since Flybe’s demise the airport has announced some new daily flights. There are hopes, post Covid, that other airline operators will firm up plans to fly from Exeter.

There are also moves for a new ‘freeport’ to be centred on the site to boost the region’s economy after Brexit. If those plans materialise then many thousands of job could be created in the area.

John Stevenson, spokesman for Prospect the union, which represents most of those facing redundancy, said: “Our membership is going through a consultation now. We believe this is a hasty decision. The JRS and furloughing is still in place and will be to October.

“We are still awaiting significant information from the airport itself and call on them to fully engage and be more transparent in its future plans. The consultation is ongoing and we will be aiming to mitigate the number of redundancies and work with members to identify solutions to any job losses.”

He said the union thought it would be well into August before the consultation was concluded.

Law allowing developers to convert shops into homes “truly disgraceful” says RIBA

The UK government’s plans to extend permitted development rights will produce tiny “sub-standard homes” warns the Royal Institute of British Architects.

www.dezeen.com 

 

The new laws will allow developers to convert commercial and retail buildings into housing without making a full planning application extending permitted development (PD) rights that already allow office buildings to be converted.

“No evidence that the planning system is to blame for the shortage of housing”

“The extension of this policy is truly disgraceful,” said Royal Institute of British Architects (RIBA) president Alan Jones.

“There is no evidence that the planning system is to blame for the shortage of housing, and plenty to suggest that leaving local communities powerless in the face of developers seeking short-term returns will lead to poor results,” Jones added.

“Even the government’s own advisors concluded that permitted development had ‘permissioned future slums’ – allowing sub-standard homes to be built with little to no natural light and smaller than budget hotel rooms.”

Jones’ comment about “future slums” is a direct quote from the final report from the Building Better, Building Beautiful Commission, which advised that local authorities be given powers to set higher standards for PD schemes.

Law designed to cut “unnecessary bureaucracy”

Law changes will also mean full planning applications will no longer be needed to demolish buildings and rebuild them as housing.

Property owners will also be allowed to add two more storeys of accommodation to existing residential units. These new laws will come into effect in September 2020.

“We are reforming the planning system and cutting out unnecessary bureaucracy,” said UK housing secretary Robert Jenrick.

“These changes will help transform boarded up, unused buildings safely into high-quality homes at the heart of their communities.”

“Permitted development conversions do seem to create worse quality residential environments”

However, an independent government report published today has revealed homes created through the current permitted development system are of a lower standard of quality than residential schemes that go through planning permission.

“Only 22.1 per cent of dwelling units created through PD would meet the nationally described space standards (NDSS), compared to 73.4 per cent of units created through full planning permission,” reads the report. “Studio flats of just 16 metres squared each were found in a number of different PD schemes.”

Over 70 per cent of homes in PD schemes had windows that faced in only one direction, and most were only one bedroom or studio apartments.

“Permitted development conversions do seem to create worse quality residential environments than planning permission conversions in relation to a number of factors widely linked to the health, wellbeing and quality of life of future occupiers,” concluded the report.

Homes built in converted offices or shops in business parks were particularly bad, the report found, as they were far away from amenities.

Developers and architects argue PD is cost-effective

Permitted development has existed in some form since the UK planning system was inaugurated in 1948. The most significant change to the law was in 2013 when converting offices to residential use without planning permission was introduced.

The report, which looked at case studies in towns across the UK and included interviews with planners and developers, said that the case for PD was “slightly more nuanced” than previous media coverage had suggested.

In interviews with developers and architects, the researchers found these groups appreciated current PD rules because they made the process faster and more cost-effective. Conversely, increased legislation could discourage developers from taking on these projects.

“Requiring higher standards (such as compliance with NDSS) could reduce the number of housing units delivered, particularly in those locations with the most marginal development viability,” said the report.

RIBA said it would be writing to the government to lobby for better space regulations.

“The extension of PD rights is not just damaging – it’s a missed opportunity,” said Jones.

“There are fantastic examples of high quality, low cost, sustainable developments across the UK, like the 2019 Stirling Prize-winning Goldsmith Street – but to ensure these become the norm we need changes to the tax and funding systems to incentivise investment in sustainable buildings alongside minimum space and environmental standards.”

Goldsmith Street is a social housing development in Norwich by Mikhail Riches, which Piers Taylor called a “roadmap for precisely the type of housing the UK needs“.

Home owners permitted to add two extra floors

Home owners will soon be able to add an extra two floors to their houses without needing full planning permission.

By Roger Harrabin BBC environment analyst www.bbc.co.uk 

And developers will be able to knock down unused commercial premises and build residential units.

The government said the new rules would prompt people to build more bedrooms or flats for elderly relatives, and create additional apartments.

The changes will be allowed under what’s known as Permitted Development.

This restricts the powers of local councils to prevent development going ahead.

The councils are appalled, saying the deregulation does not allow local people a proper say in the way their area looks.

But the government says it will mean redundant space can be quickly re-purposed to revive High Streets and town centres. It adds that if householders want to build upwards they’ll have to carefully consider the impact on neighbours and the appearance of the extension.

Quality of life

The move comes on the day of a damning report to ministers about a previous government scheme to allow commercial buildings to convert to residential.

It said just a fifth of the resulting homes met national space standards. Some flats were just four metres by four metres, and 10 of the units surveyed appeared to have no window at all.

Seven out of ten of the units couldn’t get adequate light or ventilation.

It concluded the scheme has created worse homes – “affecting the health, wellbeing and quality of life of future occupiers”.

Speaking about Tuesday’s further deregulation, Housing Secretary Robert Jenrick said: “We are cutting out unnecessary bureaucracy to give small business owners the freedom they need to adapt and evolve, and to renew our town centres with new enterprises and more housing.

“These changes will help transform boarded-up buildings safely into high quality homes at the heart of their communities.

“It will mean that families can provide much-needed additional space for children or elderly relatives as their household grows,” he said.

Unsightly extensions

The government believes the planning system is a block on economic growth, but some councils say their planning systems can’t cope because the government has stripped so much of their funding.

Local Government Association housing spokesman David Renard, said: “The planning system is not a barrier to housebuilding with nine in 10 planning applications approved by councils. .

Neighbours have the right to comment on a development and “should not be exposed to the potential of unsightly large-scale unsuitable extensions being built unchallenged and without scrutiny in their communities,” he said.

Mr Renard added: “It risks giving developers the freedom to ride roughshod over local areas with communities having no way of ensuring they meet high quality standards, provide any affordable homes or ensure roads, schools and health services are in place.”

Follow Roger on Twitter @rharrabin

Teignbridge back plans to have say on Greater Exeter plans

The meeting heard that irrespective of whether Teignbridge was part of the GESP or not, the Government housing targets require 760 new homes a year to be built, although being part of the GESP could reduce the numbers in Teignbridge with the other districts providing a greater share. [Owl emphasis]

Note EDDC Strategic planning Committee considers the GESP and consultation tomorrow 5 pm

Daniel Clark www.devonlive.com

Teignbridge District Council has become the second of the four administrations in the Greater Exeter area to sign up to consult on a blueprint for development in the region.

The Greater Exeter Strategic Plan will provide the overall spatial strategy and level of housing and employment land required across Exeter, East Devon, Mid Devon and Teignbridge in the period to 2040.

A minimum target of 2,663 homes per year, or 53,260 homes over the 20 year period of the plan, is required to be built, with the overall need for development sites equating to 63,912 homes.

Exeter City Council’s executive had previously approved going out to consultation in September on the GESP Draft Policies and Site Options consultation document, and Teignbridge’s executive on Tuesday morning unanimously gave the thumbs up.

As well as outlining policies for how development should take place, it includes 39 sites where major housing or employment land could be allocated, although not all of the sites will be taken forward to the final version of the GESP.

The meeting heard that irrespective of whether Teignbridge was part of the GESP or not, the Government housing targets require 760 new homes a year to be built, although being part of the GESP could reduce the numbers in Teignbridge with the other districts providing a greater share.

Cllr Gary Taylor, portfolio holder for planning, proposing that the council does agree to the consultation, said: “The numbers are significant but there is no additional burden placed on Teignbridge above the 760 mandated by the government formula.”

Leader of the council, Cllr Gordon Hook, added: “I would ask everyone to face reality. This authority is restricted by government dictate. No one in the room believes that the housing formula is right, just, fair, or what we need locally, and I have made my position manifestly clear.

“We do not like the formula and the numbers imposed on us and would have it differently, but reality is we cannot do anything about it. We don’t like the idea of using good agricultural land and are looking for good brownfield site exploitation.”

He added that the numbers of houses required to be built in the region is set down by Central Government, and referring to the Conservatives General Election win last year, said: “In December, the public voted overwhelmingly for mass building.”

Newton Says No councillor Richard Daws though called on the Liberal Democrat administration to press the pause button on the GESP. He said: “We have voiced our concerns over housing numbers which are overstated, and the other major concern I have with GESP, is that we are entering a post-covid world with a pre-covid plan. I want to be a matter of public record than when the debris from covid is still flying in the air, I think it is reckless to proceed rather than pause as things will change in a way we can’t get our heads around and the council is responding as if things are normal.”

However Cllr Andrew McGregor said the post-covid world could lead to even more people wanting to live in the district if more people work from home, and so the demand for houses could be greater, not lower, in a post-covid world.

The executive unanimously agreed to put the GESP Draft Policies and Site Options consultation document out for consultation, and subject to approval by East Devon, and Mid Devon councils, the eight week consultation will take place between September 21 and November 16, with the responses feeding into a recommendations over which sites to take forward.

The GESP allocates 39 sites for development, although not all sites will be included in the final document. While 63,912 homes are required over the life of the plan, existing planning commitments – either unbuilt homes with planning permission or sites in local plans – amount to about 33,390 homes.

The GESP proposes that about 18,500 of the homes are provided on strategic scale GESP allocations, with 12,000 to be allocated on smaller sites via local plan reviews and also potentially in neighbourhood development plans.

Worst hit regions in the UK named as economic impact of coronavirus laid bare

New figures show the areas in the UK where businesses have been worst affected by the coronavirus pandemic.

South West – 61.9% of businesses reporting a fall in revenue

www.mirror.co.uk

According to new statistics from the ONS, Scotland was hit the hardest with 62% of businesses reporting a decrease in turnover outside of the normal range.

This compared to 58% in England and Wales, and 49% in Northern Ireland.

In terms of regions, the North East was hardest hit with 64% of businesses saying their turnover had fallen by at least 20%.

By contrast, Northern Ireland saw the lowest impact, with 49% seeing a drop, and had the highest proportion of businesses with turnover unaffected at 28%.

But while 58% of businesses still trading reported a fall in turnover, some 12% said turnover had increased.

Worst hit regions according to the ONS

  1. North East – 64.3% of businesses reporting a fall in revenue
  2. Scotland – 62% of businesses reporting a fall in revenue
  3. South West – 61.9% of businesses reporting a fall in revenue
  4. Yorkshire & the Humber – 61.2% of businesses reporting a fall in revenue
  5. West Midlands – 60.9% of businesses reporting a fall in revenue
  6. North West – 60.1% of businesses reporting a fall in revenue
  7. East Midlands – 59.3% of businesses reporting a fall in revenue
  8. South East – 59.2% of businesses reporting a fall in revenue
  9. London – 58.9% of businesses reporting a fall in revenue
  10. East of England – 58.7% of businesses reporting a fall in revenue
  11. Wales – 57.5% of businesses reporting a fall in revenue
  12. Northern Ireland – 48.9% of businesses reporting a fall in revenue

When it came to business resilience – that is to say how well prepared companies are to handle a downturn – Wales was found to be at the most risk.

Some 44% of firms in the principality had less than 6 months cash reserves, compared to 41% in England, 37% in Scotland and 35% in Northern Ireland.

The worst hit sector by the virus was arts, entertainment and recreation – with 61% of businesses still closed and 48% of businesses not planning to reopen in the next two weeks either.

Accommodation and food services were next worst off, with 22% of firms not planning to start trading for at least 2 weeks and another 26% closed but looking to reopen soon.

The new figures come as the ONS also reports a staggering 650,000 drop in the number of people employed on payrolls and a more than doubling of those claiming benefits.

Worse could be to come too, with one business in three saying it plans to lay off staff in the next three months.

But not everything is faring badly.

“There were three industries where 99% or more of businesses reported continuing to trade (including trading for more than the last two weeks or had started trading again within the last two weeks after a pause in trading),” the ONS said in satement.

It highlighted water supply, sewerage, waste management and remediation activities sector (100%); the human health and social work activities sector (private sector businesses only) (99%); and the manufacturing sector (99%).

Ministers lavished millions on towns in marginal Tory seats before polls

Ministers used a government regeneration scheme to target millions of pounds in grants at marginal Conservative seats before the last election, an analysis by The Times suggests.

Oliver Wright, Policy Editor | George Grylls www.thetimes.co.uk 

Today a report by the National Audit Office (NAO) reveals the process by which ministers selected 101 towns in England to each benefit from a £25 million boost to their economies last September.

It shows 61 of the towns were chosen at the discretion of ministers led by Robert Jenrick, the housing and communities secretary. An analysis shows that all but one of them were either Conservative-held seats or Tory targets before the election.

Of those held by Conservative MPs, 80 per cent had majorities of less than 5,000. Only one Labour seat targeted for funding did not fall to the Conservatives.

Only two towns chosen had Tory majorities of more than 10,000 before the election, one of which was Mr Jenrick’s seat, Newark.

The revelation is likely to put pressure on Mr Jenrick after controversy over his approval of a housing development backed by a Tory donor against the advice of officials.

Last night Meg Hillier, who chairs the Commons public accounts committee, said it would look into the matter. “This NAO report shows that some of the most deprived towns in England will be left behind once again,” she said. “Taxpayers’ money is not other people’s money and if ministers were so closely involved it might be seen by some as political.”

She added: “Nine out of ten towns were ruled out with no explanation before they reached the starting line, while some affluent towns are still in the running. Ministers relied on flimsy, cherry-picked evidence to choose the lucky towns. Those that lost out have not yet had the chance to make their case.”

The NAO’s findings bear out Times research from November last year which found evidence of the fund being used to boost Tory target seats.

Steve Reed, the shadow communities secretary, said: “There are now serious concerns that ministers may have allocated funding for political gain at the 2019 election, something which breaks strict rules on impartiality.

“The secretary of state must explain as a matter of urgency how ministers decided where to spend this money and why so many communities lost out.”

The £3.6 billion towns fund was unveiled last summer shortly after Boris Johnson entered Downing Street as part of his early pledges to “rebalance growth” across England after Brexit.

Those towns selected to benefit from the scheme were announced by Mr Jenrick in September but his department refused to publish the selection criteria amid criticism that affluent towns had been prioritised over poorer communities. The NAO’s report reveals that officials attempted to create a set of seven criteria for deciding which towns should benefit, including income and skill deprivation, low productivity and exposure to Brexit.

But while ministers accepted a recommendation that all 40 high-priority towns identified be selected to bid for funding they retained discretion over the remaining 61 places allocated.

The NAO report shows that these towns were often less in need of assistance — 12 were officially classed as “low priority’” of which, The Times’s figures suggest, nine were in marginal seats.

A spokesman for the Ministry of Housing, Communities and Local Government said: “As set out in the report the department put in place a robust process to identify towns for Town Deals, which ministers followed throughout. The selection criteria was set by officials and took into account factors including income deprivation, skills, productivity and investment opportunities.”