Death of cash helps increase tax revenue

THE death of cash has raked in an extra £12bn for Jeremy Hunt as card and digital payments make it harder for people to dodge tax.

Richard Hughes, chairman of the Office for Budget Responsibility, said the shift away from notes and coins had proven lucrative for the taxman because it was more difficult to avoid value added tax.

He said: “The death of cash has been very good for VAT receipts. The fact that people are no longer using cash has reduced the VAT gap dramatically,” referring to the difference between the amount of revenue expected and the amount of tax actually collected.

The OBR said the VAT “tax gap” has fallen from 0.8pc of GDP in 2005-06 to 0.3pc in 2021-22. In cash terms, it has boosted tax income by £12.1bn.

Cash was used for fewer than one-infive transactions in 2022, according to the British Retail Consortium, down from more than half a decade ago.

Typically notes and coins are used for smaller purchases. The value of transactions involving cash is just a tenth of the total, the BRC said.

By avoiding the anonymity of cashin-hand transactions, card payments and digital transfers make it easier for the authorities to levy the 20pc transaction tax.

Mr Hughes told a Budget event at the Resolution Foundation think tank: “The Government’s efforts to crack down on tax avoidance have also boosted the tax to GDP ratio without raising anybody’s rate, so the Government deserves some credit. The death of cash is making that easier as well.”

The Chancellor announced plans to give HMRC more resources to chase taxes owed in the Budget.

There are currently £81.3bn worth of banknotes in circulation, according to the Bank of England, up by 44pc from £56.2bn in 2014.