Closing the UK’s tax gap is ‘not rocket science’, says Rachel Reeves

The shadow chancellor, Rachel Reeves, has said proposals to close the tax gap to fill a hole in her spending plans is not “rocket science”.

Reeves was forced to respond after Jeremy Hunt used his budget to adopt some of Labour’s revenue-raising policies to fund his pre-election cut in national insurance.

Reeves has set out how she would raise £5bn a year by the end of the next parliament by narrowing the “tax gap” – the difference between the amount of money HM Revenue and Customs (HMRC) is owed and the amount it actually receives.

Labour also hopes to raise £2.6bn over the next parliament by closing “loopholes” in the government’s plans to abolish exemptions for “non-doms”, people who are not “domiciled” in the UK for tax purposes.

Defending the plans, Reeves told BBC Breakfast she could “ramp up” the number of HMRC staff “pretty quickly” if Labour won the election.

“At the start you might need to bring in extra resource but then you need to train people up within the government to do this work,” she said.

“This isn’t rocket science – previous governments have managed to close that tax gap, as it’s called.”

She added: “The government’s plans that they announced in March about non-doms, they said they were taking our policy; well, it turns out they’ve taken it but left a load of loopholes in it.

“And so if you are a non-dom you can still get out of paying inheritance tax: in the first year of their policy there’s a 50% discount, we don’t get 50% discounts on our taxes.

“People who go out and work today – teachers, plumbers, doctors – they don’t get a 50% discount. Why should some of the wealthiest people in the country get that discount? We would abolish that and we would put that money into frontline public services, where it belongs.”

The chancellor announced changes to the non-dom status, which Labour had earmarked to fund commitments on schools and the NHS, in his March budget alongside an extension of the windfall tax on oil and gas firms.

In response Reeves has said Labour will work on closing the tax gap, which had widened to £36bn in 2021-22, £5bn more than it had been the previous year, as an under-resourced HMRC struggled to collect revenues and manage compliance.

The party said it would invest up to £555m a year in boosting the number of compliance officers at HMRC.

It will also consider requiring more tax schemes to be registered with HMRC to make sure they are legitimate, and plans a focus on offshore tax compliance.

While the measures are expected to raise more than £5bn a year by the end of the parliament, only £2bn of that money will go to funding NHS appointments and primary school breakfast clubs, with the rest being kept back for other priorities.

Reeves told BBC Radio 4’s Today programme: “This is the worst economic inheritance since the second world war and it will constrain what an incoming government could do, but there’s always choices to be made.

“And the choices that I’m announcing today are that we will strengthen the rules to ensure that non-doms pay their fair share of tax and we will crack down on tax avoidance and ensure the tax code is fully complied with to bring in over £5bn a year by the end of the parliament.”