It’s not true that ‘lost’ tax revenue is 360 times greater than benefit fraud

A graph annotated to claim that the amount lost to tax evasion, avoidance and other non-payment is 360 times greater than the amount of money lost to benefit fraud is being shared on social media. 

This is not correct.

It is true that the “tax gap”—the estimated difference between the amount of tax that should have theoretically been collected, and the amount actually collected—is far higher than the amount lost by the government to benefit fraud each year, but by nowhere close to a factor of 360.

We’ve previously fact checked a number of claims on social media making similar comparisons between the amount the government loses to benefit fraud versus the tax gap.

Tax gap

The latest figures estimating the tax gap published by His Majesty’s Revenue & Customs (HMRC) cover the 2021/22 financial year. They estimate the overall tax gap to be £35.8 billion.

Of this, an estimated £4.7 billion was accounted for by tax evasion (the illegal non-payment or underpayment of tax), and £1.4 billion by tax avoidance (avoiding paying tax through schemes that operate “within the letter, but not the spirit, of the law”).

The remainder of the gap is accounted for by criminal attacks, “failure to take reasonable care” by the taxpayer, errors, the “hidden economy”, differences in legal interpretations and other non-payment (for instance, write-offs following insolvency).

Benefit fraud

According to the latest Department for Work and Pensions figures for the 2022/23 financial year, an estimated £6.4 billion in benefits was overpaid due to fraud (around 2.7% of total benefit spending).

Overall, the government overpaid a total of £8.3 billion in benefits in 2022/23—whether through fraud, claimant error, or official error—with approximately £1 billion in overpaid benefits recovered.

Looking at the 2021/22 financial year—the latest for which figures on both benefits and the tax gap are available—approximately £6.5 billion was lost to benefit fraud. This amount is around six times smaller than the tax gap.

Alternative tax gap estimates

However the graph’s annotation shared on social media compares benefit fraud to an alternative, much higher estimate for the tax gap produced by Richard Murphy, a chartered accountant and founder of the Tax Justice Network advocacy group, who has argued that HMRC significantly understate the amount of tax revenue lost to evasion, avoidance and debt. 

A report authored by Mr Murphy and published by the Public and Commercial Services Union (PCS) in 2014 estimated that in the 2013/14 financial year the tax gap was actually £119.4 billion, of which £82.1 billion was accounted for by tax evasion, and £19.1 billion by tax avoidance.

In response to the report HMRC said at the time: “The PCS tax gap estimate is over-inflated, flawed and muddled. The IMF has endorsed HMRC’s estimate of the gap at £35bn, which is in line with the code of practice for official statistics.” 

The National Audit Office (NAO) summarised the IMF’s findings, saying it “concluded that HMRC produced one of the most comprehensive studies of the tax gap available internationally. It concluded that in general the methodologies HMRC used to estimate the tax gap were sound”.

However, the IMF “also recommended that HMRC improve its estimates of undetected non-compliance”, according to the NAO.

We’ve written about the estimate in previous fact checks about the tax gap. 

In 2019 Mr Murphy published an updated estimate of the tax gap, which placed it at £89.4 billion (including £71.7 billion in tax evasion and £11 billion in tax avoidance).

But using either of these estimates, both of which are substantially higher than the government’s own estimate, would still not show the tax gap to be 360 times higher than benefit fraud.

The amount lost to benefit fraud in 2022/23 is approximately 19 times lower than Mr Murphy’s 2014 estimate, and 14 times lower than his 2019 estimate.

Image courtesy of pixabay