Corbyn’s planned investment would probably create faster economic growth (outside factors such as oil prices and international wars being equal) but if it\u00a0going to raise the money Corbyn needs to pay for a programme of investment of the size propose today, most or all of the growth in the economy would have to be recouped by taxation. Or, since Corbyn\u00a0did not announce\u00a0increased taxation today, the UK economy would have to grow consistently at over 6% per year for a decade to fund Corbyn’s plans. Some European economies (Ireland, Romania and Malta<\/a>), bouncing back from very low levels, are predicted to manage annual growth rates of over 4% in 2016, but no one expects this to be sustained over a significant period. That level of\u00a0sustained growth in a developed economy would be nothing short of miraculous.<\/p>\n The other option Corbyn discussed was reducing tax evasion.<\/p>\n Every government promises to crack down on tax evasion, and while I’m not denying Corbyn’s enthusiasm to achieve his goal, I’m less convinced that the money he needs is there\u00a0waiting to be tapped. Yes, it is outrageous that firms and individuals can exploit national and international rules to minimise their tax payments, but the complexity of closing tax loopholes and the mobility of capital makes boosting government revenues more difficult than it sounds. Some money might be available, but it’s not likely to the huge sums that some observers have claimed.<\/p>\n HMRC estimates the current “tax gap” at around \u00a334bn per year<\/a>\u00a0– of which about half is due to tax fraud – this is a significant sum but some put the gap much higher. Richard Murphy (formerly a Corbyn adviser) has\u00a0estimatied a tax gap of \u00a3119bn<\/a> – which would more than\u00a0cover Corbyn’s investment plans, if it could be collected. Murphy’s figure include \u00a318bn tax debt (money we know is owed but those in debt are struggling\/avoiding repayment), \u00a319bn estimated in tax avoidance (using legal means to lower tax bill) and around \u00a382bn estimated in tax evasion (deliberate, unlawful actions to avoid tax).<\/p>\n But how much of this is recoverable?<\/p>\n That’s much harder to say. Murphy, for example, offers no estimate of how much of that \u00a3119bn might be recovered. It certainly isn’t the whole of that figure. It might not be very much of it at all. [ADDENDUM: I should have spotted\u00a0that in a separate report Murphy has estimated that \u00a320bn is realistically recoverable<\/a> for a cost of around \u00a31bn – so net to the exchequer of \u00a319bn.]<\/strong><\/p>\n “Tax debt” is already pursued and most of what can reasonably be recovered is probably collected, though it\u2019s possible there\u2019s some room for squeezing more from the system.<\/p>\n It might also be possible to change the laws to collect all of the money avoided using legal means – “tax avoidance” – but, again, this seems unlikely. There is a literal army of tax lawyers and accountants whose working lives are devoted to exploiting loopholes in tax laws and they are unlikely to go away. High profile cases – such as Google, Facebook, Starbucks and other corporations can be pursued through legal changes or shamed via public opinion, but it’s unlikely to change their basic desire to limit the tax they pay.\u00a0In the complex field of international taxation, watertight legislation is probably a pipedream and international agreements are difficult to envisage. Some fraction of the money lost to avoidance might be recovered, but it will not be easy and how much is uncertain.<\/p>\n On deliberate tax evasion – even if Murphy’s very high estimate of what he calls “shadow economy” (\u00a382bn) is correct – much of this money is related to very small enterprises – individual builders taking “cash-in-hand”, corner shops (knowingly or unknowingly) selling goods that have been imported in ways that avoid paying duty or counterfeit items on which no VAT is collected or wealthy individuals who knowingly and criminally hide their earnings. This money can, and should, be pursued but collecting a significant proportion of it is likely to be very difficult. I think there’s some value in Murphy’s figures as a very rough estimate of off-book economic activity, but I’m less convinced of its use as a measure of collectable tax liabilities.<\/p>\n The HMRC measurement of the tax gap seems the more realistic figure in terms of money that might be collected and to be more useful for policy makers. But the HMRC figures contain some further bad news for the hopes of finding an untapped pool of money to pay of Corbyn’s plans. There has already been significant success in reducing the tax gap as a proportion tax liabilities – it fell by almost a quarter between 2005-6 and 2013-14 (HMRC chart below<\/a>). The low hanging fruit has already been picked, further reductions are going to be more difficult and more expensive to achieve.<\/p>\n
![\"HMRC](\"http:\/\/www.mmcgrath.co.uk\/wp-content\/uploads\/2016\/08\/HMRC-tax-liablities.jpg\")
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