Billions lost in tax after HMRC sent staff to fight the Brexit fire

In 2016, as reported by Jonty Bloom in this week’s The New European, an OBR forecast claimed that leaving the European Union would cost the UK economy 4% of GDP. Seven years later, such estimates now feel optimistic as the Brexit bill continues to grow.

Potentially billions of pounds in tax have been lost because of HM Revenue & Customs (HMRC) diverting nearly a one-tenth of its workforce staff to focus on Brexit and Covid schemes. Between 2021 and 2022, said Treasury minister Victoria Atkins in response to ministerial questions, 1,040 civil servants were shifted to deal with problems directly relating to the UK’s departure from the European bloc. A further 1,250 tax compliance officers, who would usually investigate tax dodging and non-compliance, were moved to work on programmes to tackle the Covid pandemic.

In December, Whitehall’s spending watchdog found that in 2020-21 this movement of staff to Covid schemes decreased the amount working on non-compliance by 12%. This has meant that tax revenue made through compliance work was £30.8bn in 2021-22, some £6bn lower than the preceding year.

Now, the Liberal Democrats, who put the question to the minister, are on the government’s case, claiming that Sunak’s administration is in “non-stop firefighting mode”. Sarah Olney, the party’s treasury spokesperson, said the Conservative government’s “gross incompetence” had led to this. “Civil servants are being moved from one crisis to another in a constant game of whack-a-mole,” said Olney.

With the UK’s departure from the EU aligning with the outbreak of Coronavirus, a perfect financial storm was formed. Prior to the pandemic, tax revenues from compliance work were, on average, 5.2% of HMRC revenues. Between, 2020 and 2022 this decreased to 4.2%, which amounted to a £9bn reduction.

The news follows a revelation that hundreds of civil servants – including 400 from the Department for Business, Energy and Industrial Strategy (BEIS) alone – are needed to focus on determining which, out of the thousands of European laws should be abolished and which should be reformed as part of the Retained EU Law bill, as championed by Jacob Rees-Mogg during his time as business secretary last year. The bill returns to the Commons this week and ministers are attempting to deal with criticism of how much civil service time it will chew up by urging other departments to refuse to reveal how many of their staff have taken on this task.