COMPLIANCE CHECK ON HMRC MEASURING TAX GAPS STATISTICS
We recently completed our check of the compliance with the Code of Practice for Statistics of HMRC’s Measuring Tax Gaps (MTG) statistics. While these statistics are not National Statistics because some of the components are not sufficiently robust for National Statistics publication, they are important official statistics valued by users and there would merit in conducting a check of compliance against the elements of Code of Practice for Statistics particularly:
- in respect to trustworthiness, we looked at orderly release and transparent processes and management;
- in quality, we reviewed aspects of using sound methods to produce the statistics and how you assured quality; and
- in the public value, we considered the relevance of the statistics to users, the clarity of the insights which the statistics offer to users and how HMRC is innovating and improving them
Your team has proven to be highly committed and engaged when working to enhance the trustworthiness, quality and value of these statistics. We found that HMRC’s leadership of the measurement of tax gaps was cited by eminent bodies such as the International Monetary Fund (IMF) and the National Audit Office. These are important statistics making a vital contribution to informing the national discussion around tax fairness and tax compliance.
We commend the preparation, production and publication of the MTG statistics, for example:
- The main headline statistic – the overall scale of the gap – is front and centre of MTG and is quoted to the nearest billion pounds to help users understand the approximate accuracy of the estimates
- The MTG statistics are valuable tools in helping HMRC make the best use of its resources. The MTG statistics help HMRC make detailed analysis of risks such as those to maximising tax yield. These analyses then contribute to the development of HMRC policy, strategy and operational activity in relation to the different taxpayer customer groups
- The annual MTG statistics publication includes an estimate of the hidden economy and in MTG 2017 you introduced a revised hidden economy methodology using new data from a hidden economy survey commissioned by HMRC. HMRC’s model for estimating the scale of the hidden economy helps gain access to a hard-to-reach population and achieve honest responses to a sensitive topic
- To enhance the quality of these statistics, HMRC proactively engages with external stakeholders by presenting findings at relevant external forums and working alongside experts on methodology improvements. For example, HMRC is collaborating with the Danish authorities on risk-based audits exploring variables for the entire population and management of HMRC’s random enquiry programme. We commend you on your international outreach
- HMRC has chosen appropriate data sources to calculate the MTG statistics. HMRC has assessed and minimised the impact of any data limitations for use, and has explained these well in a detailed methodological annex.
We identified some areas where we consider that you could reinforce the trustworthiness of these statistics through enhanced transparency, demonstrate more openly the quality of the estimates and seek wider engagement with a view to further exploiting the considerable public value that the statistics offer. The detailed areas are:
- Showcasing the value of collaboration on the methods for measuring tax gaps with international and academic topic and methods experts can contribute to greater trustworthiness of these statistics when stakeholders, commentators and users see that HMRC is world-leading in measuring tax gaps and is setting the bar for others to follow
- HMRC could take steps to test whether there is an appetite from users for more nuanced reporting of tax gaps in line with the IMF proposals; and if there is, re-examine its technical capability to produce such estimates. This could provide opportunities to widen the uses of the statistics to new and existing users and potentially offer new insights into the effectiveness of the UK tax system
- HMRC should report to its methods governance body on the outcomes of the review of its continued use of US Internal Revenue Service research for multipliers. Particularly whether these continue to represent international good practice, scientific principles, or established professional consensus. This might better reflect in the statistics, the current behaviours of taxpayers in the UK and potentially supplying more-robust estimates of tax gaps
- HMRC should review whether its assumptions about under-reporting of alcohol consumption continue to represent established professional consensus. This could offer more assurance that the alcohol tax gaps statistics represent the current behaviours of taxpayers in the UK and lead to more-robust estimates of tax gaps
- HMRC to consider linking in the MTG publication to research based on analysis of the tax gap data. This recommendation could help HMRC not only draw attention to the valuable insight that the Institute for Fiscal Studies brought out of HMRC’s data but also publicise the availability of data to approved researchers in Datalab. The greater use that can be derived from HMRC’s microdata can enhance the public value of the data
- HMRC to consider whether the public value of these statistics and data could be enhanced within the budgets available, through examining the potential to meet users’ priorities beyond HMRC staff. Widening engagement might help HMRC to better meet the needs of a wider sets of users when considering where to place its limited development time and funds for these statistics. Additionally, externally verified evidence improves the prospects for people seeing the findings as high-quality, robust and independent.
- Where appropriate, provide comparisons to support interpretation of the tax gaps statistics and data, signpost to relevant statistics, and explain consistency and coherence. This might better help users with interests in fiscal impacts by helping them judge the prospects for future tax raising.
We have included more detail about our judgement and more detail about the recommendations in an annex to this letter. Our Economy Domain Lead, Iain Russell, has agreed with your team that they will continue to engage with each other on progress over the coming months. I would welcome a formal update from you by end of October 2019 about how you have addressed these areas.
Thank you for engaging effectively with us during this review. Please let me know if there is any aspect of this letter that you wish to discuss. I am copying this letter to Anthony Burke as responsible statistician for the Measuring Tax Gaps statistics.
Assessment Programme Lead