HMRC owed shocking £43.8bn in taxes – more than enough to wipe out need for tax rises

A staggering £43.8billion is owed to the UK Treasury in unpaid tax – more than enough to wipe out the need for Labour’s tax rises to plug a looming black hole. The Chancellor faces a £35billion gap in his maiden financial statement next week , which could force him to hike taxes or delay vital spending. But shocking figures show the amount of unpaid tax HM Revenue and Customs (HMRC) has failed to collect has tripled in recent years, from £15billion in 2018-19. And £18.8billion of the current £43.8billion owed is unlikely to ever be recovered, with some of the debt so old it is becoming harder to collect. Gareth Davies, head of the National Audit Office, said: “HMRC has made good progress on tax debt in the challenging circumstances of recent years, but faces an increasing problem of old debt which is harder to collect.” The rise in unpaid taxes followed the Covid pandemic, the report warned. Sir Geoffrey Clifton-Brown, chairman of the Committee of Public Accounts, said: “The Government is still a long way from the pre-pandemic average of 2.5%. £43.8billion remains outstanding, 8.2million taxpayers are in debt, and new debts are increasing while an increasing share of debt is becoming older and harder to collect.” Experts have warned that Mr Healey faces a Budget black hole of up to £35billion, which he will need to plug by increasing taxes, cutting spending on essential services or abandoning plans to increase health or defence spending. Danni Hewson, head of financial analysis at AJ Bell, said shoppers are watching their spending as they prepare for “another tough winter”. She said households were “taking a long, hard look at their essential spending and cutting back on their supermarket shop”. Valentin Boboc, chief economist at the Institute of Economic Affairs, said: “Sudden falls in retail sales can reflect a particular event or temporary shock. For example, September’s warm weather appears to have discouraged autumn clothing purchases. “The accompanying deterioration in consumer confidence is more concerning. It suggests that persistent living-cost pressures and uncertainty ahead of the Budget risk translating into weaker spending in the months ahead. “The Chancellor should use the Budget as an opportunity to bring more confidence for both consumers and businesses.” 'Stopgap' Budget In a pre-Budget announcement, Mr Healey this week set out plans to cut red tape and tariffs to give businesses “the breathing space they need to invest, innovate and create good jobs”. Reducing paperwork and form-filling will save employers £800million, he said. But with public debt standing at £3,005.0billion at the end of September, £91.7billion more than a year earlier, experts warned the Chancellor had little room to manoeuvre. Alexander Harvey, of Oxford Economics, predicted the Budget would be a “stopgap”, designed to tide the Government over before more significant announcements in 2027. He said: “The measures will be small-scale, aimed at easing the cost of living”. Possible changes include extending the temporary removal of VAT from electricity bills, in force from October to December, for another six months. Prime Minister Andy Burnham has also asked ministers to develop a plan to remove standing charges from gas bills. The Budget will also include new measures to move power out of Whitehall. But both 10 Downing Street and the Treasury are keen to play down expectations of major spending announcements or tax cuts. Last week, the Institute for Fiscal Studies warned that Mr Healey needed to find between £20billion and £35billion to fund his spending plans, suggesting any measures to put more money back in voters’ pockets will be limited. Meanwhile, MPs are launching an inquiry on Tuesday, the day before the Budget statement, looking at the obstacles holding back employers in the UK . Liam Byrne, chairman of the Business and Trade Committee, said: “Your chance to build a business should depend on your ideas and effort, not your postcode or your parents’ bank balance. Today, too many people with both genius and guts can’t get the backing they need, while traders face crime and costs that eat their vital cashflow.” On Wednesday, the UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), will publish its latest economic forecasts alongside the Budget. It is expected to upgrade growth for the current year compared with previous projections, but is likely to indicate growth might slow in 2027. Earlier this month, the IMF said the UK economy is set to grow 1.3% this year, up from a previous 1% forecast. However, it reduced its prediction for 2027 to 1.2% from 1.3%. It indicated that the adoption of artificial intelligence (AI) and other technology spending has helped support growth so far this year despite the Middle East conflict. Inflation rose to 3.5% in September, slightly ahead of predictions, driven by a 30% jump in motor fuel prices connected to fighting in the Middle East. The Bank of England has forecast that inflation will peak at slightly above 4% at the start of next year. The Government’s official target is 2%.