Rachel Reeves has said an incoming Labour government would launch a £5bn crackdown on tax avoiders to close a gap in its spending plans exposed by Jeremy Hunt scrapping the non-dom regime to finance tax cuts.
Warning households and businesses that Labour was prepared to adopt tough measures to tackle tax fraud and non-compliance, Reeves said the funding would be used to pay for free school breakfast clubs and additional NHS appointments.
Speaking before a visit to a hospital in Manchester with the shadow health secretary, Wes Streeting, she will accuse Hunt of hampering HMRC’s ability to collect tax after budget cuts that will limit the number of compliance officers and tax investigators.
Labour’s plan will reduce “the tax gap” – the difference between the amount of money HMRC is owed and the amount it actually receives – to previous levels after it increased by more than £5bn over the past year.
Reeves will also raise £2.6bn over the next parliament by closing what she described as loopholes in the government’s plans to abolish exemptions for non-doms – people who are not “domiciled” in the UK for tax purposes.
The government reforms will allow non-doms to use family trusts to avoid inheritance tax and to have a 50% discount in the first year of when new rules apply. Reeves said she would ban the use of trusts to avoid the tax and scrap the 50% discount.
It comes a month after Labour’s spending plans were thrown into question by Hunt adopting two of the party’s top revenue-raising policies at the budget to fund a cut in national insurance.
The policies – abolishing non-dom tax exemptions and extending a windfall tax on oil and gas companies – had been earmarked by Labour to fund extra spending on the NHS and schools above and beyond Tory plans.
Reeves said: “I have been clear that everything in our manifesto will be fully costed and fully funded. There will be no exceptions.
“That is why last month I promised to go through all the government documents in an orderly way to identify the funding streams to honour our commitments to the NHS and schools.
“That process is now complete and the funding a future Labour government will raise from taking on the tax dodgers will fund more appointments in NHS hospitals, new scanners, extra dentist appointments and free breakfast clubs for all primary school pupils.”
Labour said the tax gap had widened by £5bn to £36bn in 2021-22, blaming an under-resourced HMRC for the failure to collect revenues and manage compliance.
Reeves said the tax authorities in the US, Australia and Canada had secured big increases in tax receipts from taking a tougher stance on tax dodgers.
Last year, Gareth Davies, head of the National Audit Office, said it was possible to recover annual savings of £10bn from fraud prevention and £6bn from cracking down on tax evasion and avoidance.
It comes after the head of Britain’s trade union movement – the TUC general secretary, Paul Nowak – and the businessman Julian Richer joined forces to demand tougher government action to catch wealthy tax dodgers.
In an interview with the Guardian, they warned billions of pounds were going uncollected that could be used for schools and hospitals.
Reeves said the party would invest up to £555m a year in boosting the number of compliance officers at HMRC, increasing productivity and improving the organisation’s “dire” customer service.
Labour will also consider requiring more tax schemes to be registered with HMRC to make sure they were legitimate, and plans a focus on offshore tax compliance.
The plan would raise a net £700m in 2025-26, rising to £5.1bn a year by the end of the parliament.
Reeves said: “At a time when working people in Britain are being asked to pay more in tax because of the Conservatives’ economic failures, it is wrong that a minority continue to avoid paying what they owe.”
Laura Trott, chief secretary to the Treasury, said: “The Conservatives have introduced over 200 measures to clamp down on tax non-compliance and we are sticking to the plan to strengthen the economy so we can cut taxes, putting £900 in the pockets of the average worker.”
