Source · Select Committees · Public Accounts Committee
Recommendation 12
12
Acknowledged
HMRC's tax gap attributed to criminal attacks has significantly decreased over time.
Conclusion
We also asked HMRC if it is also seeing an increase to commit fraud among taxpayers as a whole. HMRC told us it does not forecast a propensity to fraud but that the tax gap, which might be considered an equivalent figure, has been holding steady.20 In written evidence submitted after our session HMRC clarified that the tax gap has fallen over time from 7.5% in 2005–06 to 4.8% in 2021–22, the same level as the preceding year. It also stated that HMRC does not make a separate estimate of the amount of the tax gap due to fraud, but set out that the tax gap due to ‘criminal attacks’ fell from 15% in 2020–21 to 11% in 2021–22.21
Government Response Summary
The government agrees with the Committee’s recommendation and states it has presented detailed evidence to the Office for Budget Responsibility (OBR), who have incorporated this within the overall forecast for fraud and error prevalence in the welfare system.
Government Response
Acknowledged
HM Government
Acknowledged
1.5 The government agrees with the Committee’s recommendation. Recommendation implemented 1.6 The department has presented detailed evidence to the Office for Budget Responsibility (OBR), who have incorporated this within the overall forecast for fraud and error prevalence in the welfare system. The evidence comes from a range of sources that suggest a widespread upwards pressure on fraud across the economy, as well as related criminal behaviour such as shoplifting. 1.7 These sources include police recorded crime data for England and Wales, which shows shoplifting has been trending upwards since 2012, excluding a sharp drop during the pandemic, and that reported shoplifting reached record high levels in July 2023. 1.8 The latest Cross-Government Fraud Landscape Annual Report by the Public Sector Fraud Authority identified a 7% annual increase in detected fraud outside tax and welfare for financial year 2020-21, and the Office for National Statistics' 2022 crime survey reported that 41% of all crimes were fraud related. Additionally, social research was considered, particularly the 2022 British Social Attitudes Survey, which reports that attitudes towards benefit fraud have softened since 2016. 1.9 The 5% estimate comes from Home Office data for fraud offences referred to the National Fraud Intelligence Bureau by Cifas, who facilitate fraud data sharing between over 600 large public and private UK organisations. This data showed an average annual increase of 5% from 2015-16 to 2019-20. This period is chosen to represent a business as usual, pre- pandemic period. This data for 2022-23 shows an 11% annual increase. 1.10 As all sources show an ongoing and consistent upwards trend in fraudulent activity over time, the department expects these trends to continue. The department acknowledges that extrapolating the 5% figure is a judgment call – reasonable arguments could be made for a higher or a lower figure, but the department’s analysts concluded that this was the best attempt at a central assumption.