Over £11 billion in unpaid taxes is being written off by the Government this year as tax revenues continue to fall as the recession continues to bite.

Recently released figures show that £27.7 billion of tax went unpaid in 2008-2009 and out of the amount, £11.2 billion has been written off by Her Majesty’s Revenue and Customs (HMRC) as bad debt. This is an increase on the year previous which had figures of £25 billion of unpaid taxes with £7.9 billion written off as unrecoverable bad debt.

Analysts have said that the non-payments will pose additional issues for the Treasury, adding to an already steep decline in receipts from income tax and corporation tax, which looks set to struggle in sync with the recession.

The Treasury have said that bad tax debts, which were revealed in the HMRC annual report, were a reflection of both the current economic downturn and changes in policy. An increase in debtors, falling debt collection rates and increases in corporate and personal insolvencies also had blame placed upon them.

Lord Myners, the Treasury minister, said that of tax uncollected almost 90 per cent was due to business insolvency and that the bad debts accounted for one per cent of all tax. “That is extraordinarily good record of debt recovery which most businesses would find hard to match.”

However, opposition politicians have accused the Government of “astonishing complacency and incompetence” in the chasing and recovery of tax and said that responsible taxpayers were bearing the burden of ministers’ failures.

Lord Oakeshott of Seagrove Bay who is the Liberal Democrat treasury spokesman, said “HMRC is an organisation in meltdown and denial and it is costing honest taxpayers billions when we can least afford it while the cheats go scot free. This rising torrent of tax bad debt, year after year, is a shocking indictment of management failure at HMRC and grossly unfair to honest taxpayers.”

The party calculates that the tax written off as bad debt will cost the average family an extra £465 a year.
Other revelations to have come out of the report show that the Treasury have been chasing over-payments of benefits worth nearly £2 billion. In parliamentary answers, Lord Myners, the Financial Services Secretary to the Treasury, said “The value of benefit over-payments to be recovered, as on 31 March 2009, is £1.8 billion.” He went on to say that ministers were continuing “vigorously to pursue those who can pay but will not.”

The pre-Budget report, to be unveiled by the Chancellor Alistair Darling on December 9, is expected to announce a crackdown on tax avoidance. Dave Hartnett, the permanent secretary at HM Revenue and Customs, has been conducting a review of the tax system with a view to closing loopholes.

An amnesty over voluntary disclosure of foreign bank accounts or assets will come to an end in two weeks and banks are already providing details of offshore accounts and customers failing to disclose any untaxed assets.

Mr Hartnett, who is leading a team of 20 specialist inspectors, has said that he expects the amnesty will provide details of half a million offshore bank accounts.

Meanwhile, an internal survey of staff morale at HMRC has reported that nearly 70 per cent are unhappy. Only 11 per cent of respondents in the department’s own study said HMRC was “well managed” and the same low number said they had confidence in the management. Only 38 per cent said they believed in the objectives of HMRC while only 25 per cent said they were proud to work there.