Exclusive: George Osborne accused of misleading Parliament over claims he is cracking down on tax avoidance

Investigations Reporter

George Osborne has been accused of using “dodgy statistics” during the last Budget as he trumpeted the Government’s success in cracking down on tax avoidance.

The Chancellor of the Exchequer told MPs in March that HM Revenue and Customs was “collecting twice as much [tax] as before” through new measures to target super-rich individuals and multinational companies, who employ expensive accountants and lawyers to shelter their vast wealth in overseas tax havens.

However, inquiries by The Independent have established that Mr Osborne was not referring to physical money already banked by the State, and was only outlining a target of tax collected for this Parliament – one that was based on a completely different measurement from the previous five-year election cycle.

After the Coalition gained power and Mr Osborne became Chancellor in 2010, HM Revenue and Customs quietly changed how it measured the amount of money it recovers through “compliance” action taken against those who avoid tax.

Since 2010, the national tax agency has significantly boosted its balance sheet by adding in “revenue protected” figures - which is a prediction of extra future tax paid by those who get caught and, HMRC assumes, will mend their ways.

The change is hugely significant. For instance, in the tax year 2012/13, only around 40 per cent of the HM Revenue and Customs’ figures were “cash collected” and the majority was based on the prediction of “revenue protected”, according to its annual report.

The accounting change allowed HMRC to hand the Chancellor internal estimates for “compliance yield” of £100 billion collected over this Parliament, against just £52 billion in the five years before the last election – which operated under the different system.

This allowed Mr Osborne to tell MPs in the Budget that the Government had collected “twice as much [tax] as before through compliance”.

The news will add to concerns that the Government and HMRC are publicly claiming to clamp down on tax avoidance, while in private pursuing quite the opposite.

Last month, The Independent reported how Andrea Leadsom, the new City Minister, used controversial trusts to reduce her potential tax bill and took advantage of offshore banking arrangements for her buy-to-let property company.

Mr Osborne has faced similar tax avoidance allegations after it emerged he was a beneficiary of a trust fund which owns 15 per cent of the Osborne & Little family business founded by his father, the baronet Sir Peter Osborne. The Chancellor has denied gaining financially through his tax arrangements

One insider told The Independent: “George Osborne’s claims over tackling tax avoidance are nonsense. The actual money collected is a fraction of this and the rest is fake, based on what [HMRC] is ordered to say are the invisible benefits of their efforts.

“These formulae have been cobbled together and agreed between HMRC and the Treasury. Over recent years, well over half of HMRC’s compliance receipts have been fictional and the situation is getting worse in the run-up to the general election.

“George wants a debate about how tough he is being. He does not want a debate about this.”

Margaret Hodge, chairman of the public accounts committee, said she would be raising these matters with HMRC chief executive Lin Homer when the Whitehall mandarin next appears in front of MPs.

She told The Independent: “I don’t think it helps anybody if the Government is failing to be transparent and honest with the figures.

“Feigning success by having a false comparison with the past, or depending on predictions of success in the future, risks undermining confidence in HMRC’s genuine efforts to get better at tackling tax avoidance.”

Shabana Mahmood, shadow exchequer secretary to the Treasury, said: “George Osborne has been caught using smoke and mirrors to try and hide his failure to tackle tax avoidance.

“While ordinary families are facing a cost-of-living crisis and the deficit is still high the amount of uncollected tax actually rose last year.

“The Chancellor should stop using dodgy statistics and finally act to make sure everyone pays their fair share.”

Earlier this month, it emerged Formula One boss Bernie Ecclestone, who is currently on trial in Germany for alleged bribery offences, settled a potential £2 billion tax bill with HMRC for just £10 million

Last year, a joint investigation by BBC Panorama and Private Eye revealed allegations that the Coalition had brought in new rules to help multinational companies reduce tax on UK profits.

David Heaton, a Government tax advisor, also resigned after the programme also broadcast a secret recording of him advising people how to “avoid paying tax” and keep money “out of the chancellor's grubby mitts”.

A HMRC spokesperson said: “The methodology used by HMRC entirely bears out the Chancellor's statement. The way we calculate our compliance yield has remained broadly the same over the last five years, and when we update the methodology we provide clear reasons for doing so. All our figures are subject to full scrutiny by both the NAO and Parliamentary committees.”

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