Increase HMRC Resources to Tackle Tax Avoidance and Evasion
Liberal Democrat · what the evidence says
An independent, source-checked look at Liberal Democrat’s policy “Increase HMRC Resources to Tackle Tax Avoidance and Evasion” — what it would actually do across the things that affect your life. Every claim below quotes the source behind it. How this works.
Public finances & the next generation — Helps
moderate · moderate confidence
Giving HMRC more resources to chase unpaid tax has a strong track record of bringing in more money than it costs, which improves the public finances — but the actual revenue gains are genuinely uncertain and may be smaller than politicians claim.
The evidence
- The policy commits to providing HMRC with resources to tackle tax avoidance and evasion and ensure value for money. — libdems.org.uk (manifesto) — “Provide HMRC with the necessary resources to effectively tackle tax avoidance and evasion, aiming to end Conservative waste and ensure value for money for taxpayers.”
- HMRC's compliance work already generated £48 billion in 2024-25, exceeding its target. — gov.uk (media) — “HMRC's compliance work generated £48 billion in 2024-25, exceeding its target, with a target of £50.4 billion for 2025-26.”
- The tax gap stands at an estimated £46.8 billion in 2023-24, representing 5.3% of tax liabilities. — tax.org.uk (media) — “reaching an estimated £46.8 billion in 2023-24 (5.3% of tax liabilities)”
- HMRC's administrative costs rose 15% in real terms between 2019-20 and 2023-24, showing investment in compliance is not costless. — nao.org.uk (institutional) — “HMRC's costs of administering the tax system increased by 15% (£563 million) in real terms between 2019-20 and 2023-24.”
- Past compliance investment has returned at least £6.30 per £1 invested, suggesting resourcing HMRC improves the fiscal position. — fda.org.uk (media) — “for every £1 invested in HMRC compliance activities, the Treasury has received at least £6.30 in return.”
- An investment of £910 million into HMRC could return £11.3 billion over a parliament, per FDA estimates (advocacy source — treat with caution). — fda.org.uk (media) — “a large-scale investment of £910 million into HMRC could return £11.3 billion to the Treasury over the course of a parliament, significantly reducing the tax gap.”
- Politicians across parties are projecting £5–6 billion annual revenue gains from increased HMRC investment, though these are contested. — tax.org.uk (media) — “politicians, including Labour and Conservatives, are projecting significant revenue gains (e.g., £5 billion and £6 billion annually respectively by the end of the next Parliament) from increased investment in HMRC.”
- The OBR considers revenue estimates from anti-avoidance measures subject to high uncertainty and a potential source of fiscal risk. — obr.uk (institutional) — “The OBR views the increasing reliance on such uncertain revenue as a "potential source of fiscal risk."”
- Diminishing returns are possible as easier compliance gains are exhausted, though not certain. — fda.org.uk (media) — “it is "not straightforward to predict future yield, as there may be diminishing returns," though they see no obvious reason for the overall return on investment to decrease.”
- The PAC and NAO suggest HMRC may be underestimating the true scale of evasion, implying there is headroom for further recovery. — committees.parliament.uk (government) — “the PAC called for a clear strategy to tackle tax evasion, expressing concern that HMRC may be "underestimating the true scale of evasion."”
Biggest unknown: Whether projected revenue gains of £5–11 billion materialise depends heavily on behavioural responses and the actual scale of evasion, which the OBR flags as subject to high uncertainty and a potential fiscal risk if overestimated.
Our reading: The fiscal logic of this policy is straightforward: if HMRC recovers more tax that is legally owed but unpaid, public revenues rise without raising tax rates, directly improving the debt path and reducing the burden on future generations. The evidence base for a positive direction is reasonably strong. HMRC compliance already generates tens of billions annually, and past investment has demonstrated a return well above its cost. The tax gap remains large in cash terms — nearly £47 billion — meaning there is a plausible pool of recoverable revenue. The mechanism (more resource → more compliance activity → more yield) is supported by historical returns and by specific legislative examples (e.g. online marketplace VAT rules yielding five times the predicted amount). However, magnitude confidence is moderate rather than high for two reasons. First, the OBR explicitly flags that anti-avoidance revenue estimates carry 'high levels of uncertainty' due to behavioural responses, and over-reliance on such projections is itself a fiscal risk. If the yield is overestimated and budgets are set against it, the fiscal position could worsen relative to expectation. Second, the FDA projection of £11.3 billion is from an advocacy source (a union with an interest in HMRC staffing) and must be weighted accordingly — it is indicative, not authoritative. The CIOT's more cautious framing — noting that cash gap is at a record high even as the percentage falls — tempers optimism. On balance, the direction is 'improves': the mechanism is real, evidenced, and the counterfactual (underfunded HMRC leaving more of the gap uncollected) clearly worsens the fiscal position. The magnitude is moderate rather than major because actual near-term gains are uncertain and the OBR's fiscal-risk warning prevents high confidence in the upper-end projections.
Inequality & fair shares — Genuinely contested
n/a · low confidence
Resourcing HMRC to close the tax gap could narrow inequality if enforcement falls mainly on higher-income avoiders, but the evidence shows most evasion is attributed to small businesses and nearly half the tax gap is inadvertent error — so the distributional effect is genuinely unclear. Without evidence on who bears the additional enforcement burden, the direction on inequality cannot be determined.
The evidence
- The policy commits to providing HMRC with resources to tackle tax avoidance and evasion. — libdems.org.uk (manifesto) — “Provide HMRC with the necessary resources to effectively tackle tax avoidance and evasion”
- The tax gap was estimated at £46.8 billion in 2023-24, representing 5.3% of tax liabilities. — tax.org.uk (media) — “reaching an estimated £46.8 billion in 2023-24 (5.3% of tax liabilities)”
- Inadvertent error or carelessness makes up 45% of the tax gap; evasion and avoidance together represent only 17%. — commonslibrary.parliament.uk (government) — “inadvertent activities (error or carelessness) making up 45% of the tax gap, and evasion and avoidance together representing 17% in 2021-22”
- 81% of the £5.5 billion lost to tax evasion in 2022-23 was attributed to small businesses. — nao.org.uk (institutional) — “81% of the £5.5 billion lost to tax evasion in 2022-23 was attributed to small businesses”
- Politicians project £5–6 billion annually from increased HMRC investment, but these figures are contested. — tax.org.uk (media) — “politicians, including Labour and Conservatives, are projecting significant revenue gains (e.g., £5 billion and £6 billion annually respectively by the end of the next Parliament) from increased investment in HMRC”
- The OBR regards revenue estimates from anti-avoidance measures as subject to high uncertainty and a potential fiscal risk. — obr.uk (institutional) — “The OBR views the increasing reliance on such uncertain revenue as a "potential source of fiscal risk."”
- The PAC has expressed concern that HMRC may be underestimating the true scale of evasion and called for a clear strategy. — committees.parliament.uk (government) — “HMRC may be "underestimating the true scale of evasion."”
Biggest unknown: Whether the additional enforcement activity falls disproportionately on higher-income taxpayers and large-scale avoiders (narrowing the gap) or mainly on small businesses and ordinary taxpayers making errors (with no clear inequality-narrowing effect).
Our reading: For this policy to improve O14, the enforcement uplift must fall disproportionately on those at the top of the income or wealth distribution, thereby compressing the gap. No evidence unit provided establishes this. The two strongest measurable facts cut against a clean 'improves' verdict: 45% of the tax gap is inadvertent error by ordinary taxpayers (E23), and 81% of the evasion component comes from small businesses rather than high-net-worth individuals or large-scale structured avoiders (E18). Enforcement concentrated in these areas has no clear inequality-narrowing effect and could even bear down on lower-wealth sole traders. The policy text commits only to resourcing HMRC to tackle avoidance and evasion broadly — it names no target population, no enforcement priority, and no distributional aim. The revenue projections are large but the OBR flags them as highly uncertain (E16), and the PAC notes HMRC may be underestimating the scale of evasion (E20) while lacking a specific evasion strategy (E28). There is no cited evidence in the provided units that the marginal enforcement activity would be skewed toward high-income groups rather than the small-business and error segments that dominate the gap. The distributional direction is therefore genuinely uncertain — not a lazy hedge, but a real absence of evidence on the deciding parameter.