Chancellor John Healey is set to deliver his first Budget (Image: Getty)

A staggering £43.8billion is owed to the UK Treasury in unpaid tax – more than enough to wipe out the need for Labour’s tax rises to plug a looming black hole. The Chancellor faces a £35billion gap in his maiden financial statement next week, which could force him to hike taxes or delay vital spending.

But shocking figures show the amount of unpaid tax HM Revenue and Customs (HMRC) has failed to collect has tripled in recent years, from £15billion in 2018-19. And £18.8billion of the current £43.8billion owed is unlikely to ever be recovered, with some of the debt so old it is becoming harder to collect.

Gareth Davies, head of the National Audit Office, said: “HMRC has made good progress on tax debt in the challenging circumstances of recent years, but faces an increasing problem of old debt which is harder to collect.” The rise in unpaid taxes followed the Covid pandemic, the report warned.

Sir Geoffrey Clifton-Brown, chairman of the Committee of Public Accounts, said: “The Government is still a long way from the pre-pandemic average of 2.5%. £43.8billion remains outstanding, 8.2million taxpayers are in debt, and new debts are increasing while an increasing share of debt is becoming older and harder to collect.”

Experts have warned that Mr Healey faces a Budget black hole of up to £35billion, which he will need to plug by increasing taxes, cutting spending on essential services or abandoning plans to increase health or defence spending.

Danni Hewson, head of financial analysis at AJ Bell, said shoppers are watching their spending as they prepare for “another tough winter”. She said households were “taking a long, hard look at their essential spending and cutting back on their supermarket shop”.

Valentin Boboc, chief economist at the Institute of Economic Affairs, said: “Sudden falls in retail sales can reflect a particular event or temporary shock. For example, September’s warm weather appears to have discouraged autumn clothing purchases.

“The accompanying deterioration in consumer confidence is more concerning. It suggests that persistent living-cost pressures and uncertainty ahead of the Budget risk translating into weaker spending in the months ahead.

“The Chancellor should use the Budget as an opportunity to bring more confidence for both consumers and businesses.”

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In a pre-Budget announcement, Mr Healey this week set out plans to cut red tape and tariffs to give businesses “the breathing space they need to invest, innovate and create good jobs”. Reducing paperwork and form-filling will save employers £800million, he said.

But with public debt standing at £3,005.0billion at the end of September, £91.7billion more than a year earlier, experts warned the Chancellor had little room to manoeuvre.

Alexander Harvey, of Oxford Economics, predicted the Budget would be a “stopgap”, designed to tide the Government over before more significant announcements in 2027. He said: “The measures will be small-scale, aimed at easing the cost of living”.

Possible changes include extending the temporary removal of VAT from electricity bills, in force from October to December, for another six months. Prime Minister Andy Burnham has also asked ministers to develop a plan to remove standing charges from gas bills.

The Budget will also include new measures to move power out of Whitehall. But both 10 Downing Street and the Treasury are keen to play down expectations of major spending announcements or tax cuts.

Last week, the Institute for Fiscal Studies warned that Mr Healey needed to find between £20billion and £35billion to fund his spending plans, suggesting any measures to put more money back in voters’ pockets will be limited.

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Meanwhile, MPs are launching an inquiry on Tuesday, the day before the Budget statement, looking at the obstacles holding back employers in the UK.

Liam Byrne, chairman of the Business and Trade Committee, said: “Your chance to build a business should depend on your ideas and effort, not your postcode or your parents’ bank balance. Today, too many people with both genius and guts can’t get the backing they need, while traders face crime and costs that eat their vital cashflow.”

On Wednesday, the UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), will publish its latest economic forecasts alongside the Budget. It is expected to upgrade growth for the current year compared with previous projections, but is likely to indicate growth might slow in 2027.

Earlier this month, the IMF said the UK economy is set to grow 1.3% this year, up from a previous 1% forecast. However, it reduced its prediction for 2027 to 1.2% from 1.3%.

It indicated that the adoption of artificial intelligence (AI) and other technology spending has helped support growth so far this year despite the Middle East conflict.

Inflation rose to 3.5% in September, slightly ahead of predictions, driven by a 30% jump in motor fuel prices connected to fighting in the Middle East.

The Bank of England has forecast that inflation will peak at slightly above 4% at the start of next year. The Government’s official target is 2%.

HMRC Owed a Shocking £43.8bn in Taxes – More Than Enough to Wipe Out the Need for Tax Rises?

Britain’s tax debate has been thrown into sharp focus by claims that HM Revenue and Customs is owed £43.8 billion in unpaid taxes, prompting renewed questions about whether the government should concentrate on collecting money already due before asking households and businesses to pay more.

The figure highlights a persistent challenge for the public finances: the difference between the tax revenue the government expects to receive and the money it actually collects. At a time when families are struggling with living costs, businesses are concerned about operating expenses and ministers face competing demands for public spending, unpaid tax has become an important part of the discussion about fairness.

For critics of further tax increases, the argument is straightforward. If billions of pounds are owed to the Treasury, the government should make every reasonable effort to recover that money before considering additional taxes on people who already meet their obligations.

However, the £43.8 billion figure needs to be understood carefully. Money owed to HMRC does not automatically translate into an equivalent amount that can be collected immediately, and it does not necessarily mean that every pound could be used to cancel planned tax rises. The distinction between outstanding tax debts, disputed liabilities and money that ultimately proves unrecoverable is crucial to understanding the issue.

Why the £43.8bn figure matters

HMRC is responsible for collecting taxes that fund a wide range of public services, including the NHS, schools, transport, policing and social security. When taxpayers fail to pay what they owe on time, the government can face cash-flow pressures and may need to devote additional resources to recovering the outstanding amounts.

A large unpaid-tax figure naturally attracts attention because it raises questions about how effectively the system is operating. Workers whose income tax is deducted through PAYE may reasonably ask why they should face higher bills if other taxpayers have failed to meet their obligations.

Small businesses that pay their taxes on schedule may also question whether the system treats everyone consistently. For them, unpaid tax is not merely an accounting issue. It can create an impression that businesses and individuals who comply with the rules are carrying a disproportionate share of the burden.

The government, meanwhile, has to balance enforcement with the practical realities of tax administration. Some outstanding amounts can be recovered through payment arrangements, enforcement action or the correction of errors. Other cases may involve insolvency, complex disputes or circumstances in which collecting the full amount is difficult.

That is why the headline figure should be treated as a starting point for examining HMRC’s performance rather than proof that the entire sum could immediately be transferred into the Treasury’s accounts.

The tax debt is rising in age as well as scale

One of the most significant findings from the National Audit Office is that collecting the money owed is becoming increasingly difficult. Its report, published on October 23, 2026, says the £43.8 billion tax-debt balance at the end of the 2025–26 financial year represented 4.7% of HMRC’s total tax receipts. Around half of the outstanding debt had been on the books for more than a year. <Cite refs={[“turn878820search0″,”turn878820search1”]}/>

The age of a debt matters because the longer it remains unpaid, the harder it can become to recover. Businesses may close, individuals may become insolvent, and some taxpayers may fail to engage with attempts to resolve their accounts.

The NAO also reported that HMRC estimated 46% of the outstanding tax debt might not be collected. That does not mean every case is hopeless, but it demonstrates why the full £43.8 billion cannot simply be treated as money waiting to be deposited into government accounts. <Cite refs={[“turn878820search0”]}/>

This presents a challenge for ministers. They need to ensure that debts are pursued promptly while recognising that some taxpayers are struggling financially and may need reasonable payment arrangements.

It also raises questions about whether HMRC has enough staff, technology and effective procedures to deal with cases before debts become more difficult to recover.

HMRC’s record comes under scrutiny

HMRC has already taken steps to improve debt collection, including recruiting additional staff and making greater use of private-sector debt collection agencies. According to the NAO, measures introduced since 2021 have generated an additional £10.7 billion in revenue. <Cite refs={[“turn878820search0”]}/>

That progress suggests the department is not standing still. Nevertheless, the scale of outstanding debt means there is still considerable pressure to improve the system.

The government must also distinguish between deliberate tax evasion and taxpayers who cannot pay on time because of cash-flow problems or financial hardship. Those who deliberately avoid their obligations should face appropriate enforcement, while people who are willing to pay but need time may benefit from structured arrangements.

A more effective approach could involve identifying high-risk cases earlier, improving communication with taxpayers and ensuring that payment deadlines are followed up consistently. Better technology may also help HMRC identify debts that are likely to become difficult to recover.

The challenge is to make enforcement both more efficient and more proportionate. Excessively slow action risks allowing debts to accumulate, but poorly targeted enforcement could create unnecessary difficulties for businesses and individuals who are trying to meet their obligations.

Would collecting the debt eliminate tax rises?

The central claim behind the headline is that recovering £43.8 billion could remove the need for further tax increases. It is an appealing argument, but the public finances are more complicated.

First, the £43.8 billion is an accumulated stock of tax debt, not a guaranteed annual source of revenue. Once a debt is paid, that payment cannot automatically be repeated the following year. Government spending, by contrast, includes recurring commitments such as salaries, pensions, healthcare and education.

Second, some of the outstanding debt is unlikely to be collected. The NAO’s assessment makes clear that a substantial proportion may never reach the Treasury. Even a highly effective collection programme would therefore recover less than the total headline figure.

Third, the government’s decisions on taxation depend on its wider financial position. Ministers must consider the level of public spending, borrowing costs, economic growth and the revenue expected from different taxes. Recovering overdue money could ease pressure on the budget, but it would not automatically make every proposed tax increase unnecessary.

That does not make the issue unimportant. Every additional pound recovered could reduce the amount of money the government needs to borrow or provide more room for public services and other priorities.

The key question is how much additional revenue can realistically be collected, how quickly it can be recovered and whether the improvement can be sustained.

What taxpayers should expect next

The latest figures are likely to intensify calls for greater transparency over HMRC’s performance. Taxpayers have a legitimate interest in knowing how much money is owed, how much is recovered, how much is written off and what steps are being taken to prevent new debts from accumulating.

Ministers should also explain how enforcement policies affect different groups. A large company deliberately avoiding payment presents a different challenge from a small business experiencing temporary financial difficulties. A system that treats these circumstances intelligently could improve collection while maintaining public confidence.

The government could also publish clearer measures of progress, including the proportion of new debts recovered promptly and the amount of older debt successfully collected. These indicators would help the public understand whether reforms are producing tangible results.

Ultimately, the £43.8 billion figure is a reminder that raising revenue is not only about deciding how much tax people should pay. It is also about ensuring that existing rules are enforced fairly and that those who owe money meet their responsibilities wherever possible.

Britain’s tax system depends on public confidence. Workers and businesses are more likely to accept their obligations when they believe the rules apply consistently and that deliberate non-payment is not rewarded.

Recovering outstanding tax should therefore be a priority, but it should not be presented as a guaranteed substitute for every future tax increase. The government’s task is to improve collection, reduce avoidable debt and make decisions about taxation based on realistic forecasts rather than the assumption that every unpaid pound can be recovered.

The £43.8 billion owed to HMRC represents a substantial challenge and a potential opportunity. How effectively the department tackles that debt will help determine how much additional revenue the Treasury can obtain without placing further pressure on compliant taxpayers.