Labour to take £7.5bn from tax avoiders

The chancellor of a Labour government would use his first day in office to adopt a 10-point plan to tackle evasion and avoidance to raise about £7.5billion extra a year.

Designed to repair the party’s economic credibility, the clampdown to “protect the nation’s finances” will be fleshed out today in Labour’s manifesto.

It will pledge that a Labour chancellor and the taxman would both be annually summoned before parliament to report on their progress in hitting the £7.5bn target.

The tax revenue would come from closing loopholes used by private equity managers and hedge funds, and from scrapping the ‘shares for rights’ scheme, estimated to be worth £1bn.

The removal of so-called ‘non-dom’ status would accompany these moves, as would an increase in the penalties for tax avoidance, including bigger fines under the GAAR.

But most critically for contract and other independent workers, revenue would also come from tackling “disguised self-employment” by introducing “strict deeming criteria”.

In what could be a related move, a Labour chancellor would ask the Bank of England to focus on risks from the “informal economy,” including avoidance, evasion and the ‘tax gap.’

In addition, the party says it would tackle the use of “dormant companies” to avoid tax by requiring them to report more frequently.

At the weekend, Labour leader Ed Miliband said: “The amount of uncollected tax has risen by billions of pounds under the government because the Tories refuse to close the loopholes”.    

He went onto say that under the last Labour government, the tax gap was falling by £1.5bn a year (between 2005-06 and 2009-10), but now it is up every year by £1bn.

Taking further aim at the Tories, whose manifesto is due out tomorrow, Labour said George Osborne cannot spell out how his party plans to raise £5bn from avoiders and evaders.

The “culture and practice” of HM Revenue & Customs towards these two contingents should be detailed however, believes shadow chancellor Ed Balls, who has a promised a review.

In particular, and if Labour wins the May 7th election, such a review into HMRC would be given the green-light within a few weeks and be told to report within three months.

Accountant Paul Aplin, of the Institute of Chartered Accountants in England and Wales says he was initially “unconvinced that much value could be achieved in such a short timeframe.”

“My initial reaction was therefore somewhat sceptical,” he wrote last week. “The more I thought about it, however, the more I felt that there was a case for a much broader review.”

Blogging after Labour’s pledge to raise £7.5bn, tax justice campaigner Richard Murphy said it was a step “in the right direction.” But he thinks an even bigger step is possible.

In fact, Mr Murphy believes that the target of a £7.5bn extra yield from anti-evasion and avoidance measures may even be exceeded, if sufficient “resources are allocated” to HMRC.

Labour says the “current measures and processes” in place to tackle avoidance and evasion will be the subject of a report by HMRC, if the party is voted into government.