Labour plans £5bn crackdown on ‘tax dodgers’ to fill non-dom gap in spending plans

Rachel Reeves will pledge to raise more than £5bn a year and plug a hole in Labour’s spending plans through a new crackdown on “tax dodgers”, with some of the revenue raised to be used on the party’s plans for the NHS and primary school breakfast clubs.

Labour had initially pledged to fund its plans to cut NHS waiting lists and introduce free breakfast clubs in primary schools using the revenue raised by scrapping the non-dom tax status.

But the Chancellor Jeremy Hunt announced in the Budget in March that the government was abolishing the current tax system for non-doms and will use the money raised “to help cut taxes on working families”, forcing Labour to find new ways to raise cash.

‘The tax gap is unacceptably high’

The Shadow Chancellor will on Tuesday vow to “take on the tax dodgers”, announcing a target to raise £5.1bn a year by the end of the next parliament by closing the gap between the amount of tax owed and the amount the government collects.

According to figures from HM Revenue and Customs (HMRC), the tax gap stood at £36bn in the 2021/22 tax year, though the department said the amount of unpaid tax that year had “remained at an all-time low of 4.8%”.

Speaking ahead of a visit to a hospital in Manchester with Shadow Health Secretary Wes Streeting, 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.

“After 14 years in power, the Conservatives have failed to tackle this issue and the tax gap remains unacceptable high. With Labour, things will change. We will take on the tax dodgers because if you make your home and do your business in Britain, then you should pay your taxes here too.

“The plan we are announcing today will give HMRC the resource it needs to go after those who are avoiding or evading tax and to modernise the tax office so we have a system that is fit for purpose.”

How Labour’s plans will work

Labour says its plan to close the tax gap will see up to £555m of additional funding go to HMRC each year to increase the number of compliance officers working out of the tax office by up to 5,000. It says this will enable more investigations, tackle fraud and ensure tax owed is collected.

The funding will also cover investment in digitisation of the tax office to improve compliance rates and customer services, and free up resources to focus on more complex cases.

The party additionally plans to work with businesses, the tax profession and digital service providers to “bring a new focus to HMRC’s modernisation”, including greater use of AI.

Its plan will also outline legal and regulatory changes that a future Labour government “would consider introducing” to tackle tax avoidance, including requiring a wider range of tax schemes to be reported to HMRC under the disclosure of tax avoidance schemes regime.

According to Labour, the plan would raise a net £0.7bn in 2025/26, rising to £5.1bn a year by the end of the parliament.

Labour plans to fill ‘loopholes’ in Tory non-dom tax

Though Labour said it supports “most aspects” of the government’s proposed replacement to the non-dom rules, it has claimed that there are loopholes in the government’s plans.

Alongside its plan to address the tax gap, Labour will also announce plans to close the alleged loopholes, which the opposition party said would raise £2.6bn over the course of the next parliament, including £1bn in year one.

Reeves is expected to confirm that £2bn of the funding raised each year from the party’s plans will go towards its existing proposals for the NHS and primary school breakfast clubs.

Speaking ahead of time, the Shadow Chancellor reiterated that Labour’s manifesto “will be fully costed and fully funded”, adding: “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.”

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