Our review of material related to past anti-avoidance costings suggests that the performance of these measures has been mixed, with some yielding more and some yielding less than expected. In absolute terms, across all of the measures reviewed, the large shortfall on the UK-Swiss tax agreement means that significantly less has been raised in total than originally expected.
We have discussed the UK-Swiss tax agreement shortfall in detail in previous publications (e.g. Box 4.3 of the December 2013 Economic and fiscal outlook). In short, due to a smaller-than-estimated tax base and larger-than-expected behavioural response, the agreement is only forecast to raise £1.9 billion compared to the initial expectation of £5.3 billion.
Total receipts from the information sharing agreement with the Crown Dependencies are currently expected to match the original costing over time, but to be raised later than originally expected. Assumptions around the amount of early disclosures have proven optimistic.
A key lesson from this exercise relates to the profile of expected yield. Anti-avoidance measures – like many new government activities – can take longer than expected to start delivering results. This includes measures that rely on new processes, staff or external contractors.
The Budget 2011 measure on ‘disguised remuneration: avoidance’ that aimed to levy a tax charge on payments from employee benefits trusts is now expected to raise more than originally estimated. Operational intelligence suggests the number of schemes that would be affected was underestimated and that the legislation has been successful in tackling this form of avoidance.
The package of stamp duty land tax (SDLT) anti-avoidance measures announced at Budget 2012 has also raised more than initially expected. This package included an annual charge on enveloped dwellings and a 15 per cent SDLT rate on newly enveloped properties. HMRC has detailed data on these measures and the latest outturns show that the initial costings vastly underestimated the number of enveloped properties, the average value of these properties and overestimated the incentive to de-envelope. It has been estimated that over the forecast period these measures will yield around £900 million, despite new measures exempting various properties from the charges. The original costing expected £270 million.
This evaluation exercise has confirmed that avoidance costings are subject to significant uncertainty – anti-avoidance measures often target a specific subset of taxpayers who are already actively changing their behaviour in response to the tax system. It also suggests that there has not been systematic bias across the costings: while the shortfall from the UK-Swiss tax agreement means the total yield from the measures considered was below expectations, across other measures there were both upside and downside surprises. We will continue to work with HMRC to review the performance of anti-avoidance measures and ensure that the lessons learnt are applied when we look at future Government policy costings in these areas.