Chancellor’s plan to raid financial institution accounts to steadiness the books seems ‘very unsure’, warns OBR

The Chancellor’s hopes of balancing the books hinge mainly on millions of taxpayers filling in their self-assessment forms more often, official figures show.

In the Budget John Healey left just £15billion of headroom to meet his fiscal rule of paying for day-to-day public sector spending entirely from tax receipts by the end of the decade.

The biggest boost to Treasury coffers that he unveiled last month was a tax avoidance crackdown to yield an extra £3.6billion a year by 2031-32.

But the Office for Budget Responsibility (OBR), the official forecaster, has cast serious doubt on how much of this will be raised, saying its forecast is ‘very uncertain’.

Central to the OBR’s calculations is a Government plan to force millions of self-employed workers to fill in self-assessment tax returns on a more regular basis.

From 2029, more than 12million taxpayers will have to make payments throughout the year rather than in a lump sum at the end of the financial year.

The OBR reckons the new system will rake in £1.6billion a year. However, the change could trigger a cash crunch for business owners, sole traders and landlords, as they will have to pay tax on a quarterly or even monthly basis.

It also means that tax revenue for the Exchequer is brought forward, helping Healey to make his sums add up.

‘The measure on self-assessment payments being made in a more timely way in the year, rather than with a lag, as is the current approach, is the one that raises the most in this Budget from 2029-30 onwards,’ the OBR’s Tom Josephs told MPs last week.

Asked if it was realistic that more than £3billion of extra money could be raised by HM Revenue & Customs (HMRC) hiring more staff to chase up debts owed, Josephs said: ‘It is definitely an area that we highlight as very uncertain.’

He added: ‘There is quite a lot of risk around the estimates that we make of the additional revenue from compliance measures and measures that aim to reduce tax debt.’

HMRC is hiring 7,000 extra staff as part of a blitz on tax avoidance’ that will target small and medium-sized business owners. It will also have powers to directly recover tax owed from bank accounts.

It wants to close the estimated £59billion tax gap – the difference between how much should in theory be raised from taxation and what is actually collected. 

But the OBR said recent efforts to close the gap had failed. And experts say it will take time to train new tax inspectors to handle what can be highly technical and complex cases.

‘The Chancellor is effectively looking to balance the nation’s books on promises to reduce tax dodging,’ said Mike Lewis, director of TaxWatch, a think-tank that scrutinises the tax system. 

‘It’s the biggest revenue-raising policy in the Budget.’

However, he added: ‘Around 80 per cent of the extra staff are new recruits still in 18-month initial training.

‘These new staff will also need new tools, especially data systems and technology.

‘And that’s a problem, because last year’s spending review gave HMRC the deepest capital spending cut of any Whitehall department.’

Growing pressure to tackle errors, late payments and fraud in the tax system will also make HMRC more proactive and intrusive.

Ian Robotham, partner at international law firm Pinsent Masons, said: ‘The key takeaway for UK businesses is that HMRC is under sustained pressure to increase compliance yield.

‘That is likely to mean more targeted compliance interventions and, in appropriate cases, more intensive investigations, which can be costly and time-consuming for businesses to manage.’

The tax crackdown is likely to feature large when Healey faces a grilling about his recent Budget from MPs on the Treasury Select Committee on Wednesday.