Steve October 8, 2020
this-viral-post-on-benefits-and-tax-avoidance-is-inaccurate

A viral post which we’ve seen circulating on Facebook and WhatsApp makes various claims about the cost to British taxpayers of asylum seeker benefits, benefit fraud and errors, and tax avoidance.

While some are incorrect, others are in the right ballpark or need more context.  

Benefits for asylum seekers

The post claims that benefits for asylum seekers cost taxpayers £60 million per year. It is unclear where this estimate comes from but it is too low. 

We asked the Home Office for the latest figures on the cost of providing cash and accommodation benefits to people seeking asylum. 

It directed us to its annual report which shows that the department spent £470 million on “asylum costs” in 2019/20. 

It also told us this included the costs of accommodation and cash support for people seeking asylum and management fees to external providers for the provision of these services, though excludes some other costs such as some grants provided to unaccompanied children seeking asylum.

Benefit fraud and errors

The post then says that benefit fraud and error costs £3 billion per year. This is in the right ballpark.

The DWP estimates that each year it overpays £2.8 billion in benefits as a result of fraud, £1.1 billion as a result of error from the claimant, and £0.8 billion as a result of error from officials (for example by DWP, HMRC or local authorities).

It also estimates that it underpays £1.3 billion as a result of claimant error and £0.7 billion as a result of errors from officials.

It’s unclear if the Facebook post has a specific type of error in mind when it talks about the cost of fraud and error, whether it is any type of error or specifically claimant error.

If it’s any type of error then the gross overpayment comes to £4.6 billion, while the net overpayment (overpayments minus underpayments) is around £2.6 billion.

If you’re just looking at claimant error or fraud then the gross overpayment is around £3.9 billion, while the net loss is also around £2.6 billion. 

Tax avoidance

Finally, the post claims that tax avoidance costs £90 billion per year. 

This appears to refer to an unofficial estimate of the total “tax gap” calculated by Richard Murphy who runs the website Tax Research UK.

HMRC says: “The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid.”

Mr Murphy’s £90 billion estimate does not just refer to tax avoidance, but all things that contribute to the tax gap, including things like errors.  

By contrast HMRC estimates that the tax gap is around £31 billion, of which around £4.6 billion is evasion, which is illegally omitting concealing or misrepresenting information to reduce tax, and £1.7 billion is avoidance, which is reducing your tax liability by acting within the letter but not the spirit of the law.

We’ve written before about Mr Murphy’s estimate before and why it varies so much from HMRC’s official figure

The biggest component of the difference is how each calculates the value of the hidden economy or shadow economy

HMRC uses a “bottom up” approach, by surveying “moonlighters” (people who have a declared income but also an undeclared income on the side) and “ghosts” (people who do not declare any income to HMRC) to estimate the tax gap from the hidden economy. This comes to £2.6 billion. 

Mr Murphy instead applies a “top down” approach, applying the tax yield as a proportion of GDP (which he works out to be around 33%) to the estimated total value of the hidden economy to work out the tax gap. His figure comes to between £60 billion and £67 billion.  

Both figures have their limitations. 

Mr Murphy’s calculation is somewhat simplistic in assuming that the 33% figure which represents tax as a proportion of GDP can be applied to the hidden economy. For example there will be parts of the hidden economy (such as the trade in illegal drugs) which by their very nature cannot be taxed and so there is no tax gap. 

Meanwhile, HMRC acknowledges that the coverage of its data isn’t comprehensive and so the “estimate should be interpreted broadly as a lower limit for the true scale of the tax gap relating to this group of taxpayers.”

More generally the International Monetary Fund (IMF) reviewed HMRC’s analysis back in 2013.

The National Audit Office (NAO) summarized 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.

Ultimately, the NAO notes that “The tax gap is inherently difficult to estimate and HMRC acknowledges that no estimate of the tax gap can be definitive and that its estimates carry a degree of uncertainty”.

This article is part of our work fact checking potentially false pictures, videos and stories on Facebook. You can read more about this—and find out how to report Facebook content—here.

For the purposes of that scheme, we’ve rated this claim as partly false
because the claim about benefits for people seeking asylum is wrong, the claim about benefit fraud is broadly right, and the claim about tax avoidance refers to a disputed estimate of the total tax gap, not just tax avoidance.

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