Commentary on the Burnham government’s first budget is likely to be dominated by big-ticket changes to tax policy: broadly speaking, what taxes, and at what rates, should apply to different kinds of income and people. That’s as it should be. Getting the shape of our tax system right matters hugely for revenue, people’s economic well-being, and fairness.
We can also advance those same goals, though, by improving how we administer and enforce the taxes that we already have, and by fixing the ‘design failures’ littered through the £200+ billion tangle of tax breaks and exemptions in the system.
HMRC estimates that nearly £60 billion a year (and rising) of due taxes are going unpaid thanks to tax avoidance, evasion, error, carelessness and fraud. That’s roughly the same as the UK’s defence budget.
Here are five targeted but ambitious things the Chancellor could announce that would help bring down that £60 billion figure; make sure everyone pays their due taxes; and ensure that when the tax system says they don’t have to, it’s because they’re doing something we want them to do.
Though more or less politically unlikely, all five would we think pay for themselves several times over. Some wouldn’t cost anything in the first place.
1) Find out what the ‘small business tax gap’ actually is
By far the largest component of the ‘tax gap’ – HMRC’s estimate for how much due tax goes unpaid every year – is attributed to small businesses: over £17 billion of underpaid small business corporation tax alone in 2024-25, an estimate that’s grown by more than £9 billion since the pandemic. That’s an incredible revenue loss. The problem is: we have very little idea who or what is evading that tax. The Security Minister and the Exchequer Secretary insist that a big part is suspect vape shops and Turkish barbers. Or it could be accountants just simply getting tax returns wrong, as HMRC’s ‘error’ statistics suggest. Or something else entirely.
To produce the estimate, HMRC looks at just 330-odd tax returns, out of 5 million small business taxpayers. HMRC itself says that the data is “not well understood and is of low quality.” That’s a remarkable situation of non-knowledge to be in, for what is happening to a sum bigger than the budget of the Ministry of Justice. It should be a no brainer to invest a few hundred thousand pounds in a serious Small Business Tax Inquiry to find out where (or if) this public money is being lost.
2) Ask ‘ultra-high-net-worth’ individuals to disclose their offshore assets, companies and income streams to HMRC
The amount of due taxes going unpaid by the wealthiest taxpayers is growing. According to HMRC statistics, the unpaid tax of the top 3 percent of individuals (by income and assets) is now bigger than that of all other 39 million individual taxpayers put together.
HMRC are currently working on a plan to improve wealthy tax compliance, due to be published by the end of the year. One idea, borrowed from successful efforts to crack down on big multinationals’ tax affairs: require the very wealthiest individuals – a much smaller cohort than the top 3 percent that HMRC define as ‘wealthy’ – to provide tax compliance officials, on a strictly confidential basis, with a full and transparent map of all their companies, trusts, partnerships, bank accounts, and assets around the world – whether or not they believe the income from those entities is taxable in the UK.
Disclosure would be a gateway condition for advanced rulings and safe harbours on some parts of their tax affairs. Conversely, if HMRC later finds anything not included on this ‘country by country’ declaration, there would be automatic penalties for non-disclosure. The result: lower costs for HMRC, more certainty for taxpayers, and a reduction in ‘cat and mouse’ games helped by offshore secrecy.
Last month we learned that HMRC is beginning to ask for such ‘offshore maps’ voluntarily from UHNWIs. These enquiries are partly justified by the end of the ‘non-dom’ residence status, which brings more of these assets and their revenues potentially within the scope of UK taxation. Nonetheless this new approach is being heavily resisted by some parts of the wealth management industry. As with ‘country by country reporting’ (CBCR) for multinational companies, placing such offshore reporting for HNWIs on a statutory footing would help. If there are competitiveness concerns about the UK going it alone, we could start working with partners to make it an international standard, as with CBCR.
3) Roll back a new £740m tax cut for the biggest profit-shifting US multinationals, signed off at the expense of UK businesses
Last year, almost unnoticed by the general public, Rachel Reeves led a deal with other G7 countries that effectively suspends the requirement for US multinationals – and only US multinationals – to pay ‘top-up taxes’ that over 130 countries agreed in 2021. These ‘Pillar 2’ taxes are designed to stop corporate giants shifting profits into tax havens. The Trump administration opposes these global minimum taxes, as do the US tech and big pharma companies that are most at risk from having to pay them.
Though this ‘Side by Side’ deal was communicated as safeguarding the continuance of the ‘Pillar 2’ system, in fact it meant the UK and the rest of the G7 bowing to simple bullying: US threats of tariffs and economic retaliation if US multinationals didn’t get a free pass. That saw the previous Chancellor sign off on a deal that will explicitly impose more taxes on UK than on US companies, and make it easier for US multinationals to shift taxable profits out of the UK.
The Office of Budget Responsibility estimates that Reeves’ deal will cost the UK public purse up to three quarters of a billion pounds by the end of this parliament. The deal is not something that the UK can unilaterally unpick. But for both tax justice and a level playing field for UK business, the new Chancellor could seek to initiate and lead efforts together with other countries to re-impose these anti-profit-shifting taxes on US multinationals.
4) Bin the Patent Box
The Budget will inevitably be looking for savings. One report earlier this month suggested that the government may look for an extra £2 billion by cutting the national Boiler Upgrade/Heat Pump schemes.
As it happens, we currently give away a similar sum – just over £2 billion of public money every year – by cutting taxes on profits attributable to patents from 25 to 10 percent. On the face of it, this little-scrutinised ‘Patent Box’ tax regime sounds like a good idea: intended to stimulate innovation and employment across the economy. In fact — in part due to its complex qualification requirements — over half of this £2bn+ goes to just ten companies, and over a quarter goes to just one company: GlaxoSmithKline Plc (GSK), an already highly profitable pharmaceutical giant (which was the leading advocate for introducing the Patent Box in the early 2010s)
When TaxWatch investigated the Patent Box last year, we found that HMRC has granted Patent Box tax breaks to GSK for drugs that weren’t developed here, aren’t manufactured here, and even on the profits of a lupus drug which for several years was unavailable to UK lupus sufferers due to the price that GSK demanded from the NHS (£769.50 per dose).
The Patent Box’s advocates say it helps create jobs. Since it began to benefit from the Patent Box incentive, GSKs UK headcount has fallen by around a quarter. GSK originally promised that once the Patent Box relief was introduced, it would invest £500 million in building a new factory in Ulverston, Cumbria. But GSK cancelled plans for this new factory in 2017, and in June 2025 GSK closed its existing factory in Ulverston too, while announcing new manufacturing facilities in the US (which doesn’t have a Patent Box). The UK tax relief received by GSK Plc through the Patent Box regime represents an annual subsidy of over £50,000 for each of the group’s full-time-equivalent UK jobs.
It’s time to bin the Patent Box, and spend the money on support for real UK jobs, research and manufacturing.
5) Kick tax schemers out of the tax profession
Unlike lawyers or financial advisers, anyone can give tax advice in the UK – with no qualifications, no mandatory standards of conduct, and no requirement to register with a regulator. As TaxWatch’s latest investigation found, some are even working through online pseudonyms and avatars without revealing their true identities.
Self-regulating bodies exist for some of the professions that give tax advice, but around a third of the 85,000 tax advisory firms in the UK are not registered with any professional body. Even tax advisers that are found guilty of serious misconduct can simply carry on giving bad or even misleading advice. They don’t even have to be insured to cover the costs of bad advice. The result: ordinary taxpayers get caught out through too-good-to-be-true schemes, while the tax schemes’ masterminds often face limited or no consequences.
Successive governments have rejected calls for a tax advice ombudsman and minimum professional standards, which exist in many other countries from Australia to Germany. It’s high time that UK taxpayers got similar protections.
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Photo: HM Treasury / Flickr CC BY-NC-ND 2.0
