CAMPAIGNERS welcomed a Labour plan to crack down on tax avoidance yesterday — but said “tinkering around the edges” was not enough to deal with an estimated £25 billion in annual losses.

The party announced a raft of measures yesterday which would impose significant fines on tax cheats, going well beyond lacklustre coalition efforts.

Shadow chancellor Ed Balls said the policy, initially flagged up by Labour leader Ed Miliband on Thursday, would include forcing people caught using aggressive tax avoidance schemes to pay not just the tax they owe, but up to the same amount in sanctions as well.

A new general anti-abuse rule (Gaar) was brought into force by Chancellor George Osborne in July last year amid anger over a string of revelations regarding the use of avoidance schemes by public figures to minimise their bills.

However Labour, which has estimated that its proposal would raise £2.5bn for the NHS by closing tax loopholes, said Mr Osborne’s policy is too weak as offenders are required only to pay the tax they have avoided.                                                                                            

Mr Balls argued that there was still no disincentive to those who tried to play the system.

“That is why Labour will bring in a tough penalty regime for the Gaar, with fines of up to 100 per cent of the value of the tax which was avoided,” he said.

“Tackling tax avoidance is a key part of our economic plan. A fair and robust tax system is vital if we are to bring down the deficit, safeguard our National Health Service and maintain public support for the dynamic open economy we need.”

Tax campaigner Richard Murphy backed the Labour plan, which he had sought to include in the Gaar as a member of the panel that helped draw it up.

“Without such a regime, the Gaar is a toothless tiger providing, at best, HMRC with the chance to ask those found in default to play by the rules in future,” he said.

“With significant penalties attached, the Gaar becomes a more potent threat and, regrettably, in the face of ongoing tax abuse, HMRC needs as many of those as it can get.”

But anti-poverty charity War on Want’s senior economic justice campaigner, Owen Espley, said that while the Labour fines policy was welcome it would “barely touch the surface of this entrenched problem.”

He said: “The government estimates Gaar will recover less than £100 million a year.

“Yet UK tax avoidance is estimated to be around £25bn. 

“It is not tinkering at the edges, but an overhaul of the system that is needed.

“Multinationals continue to pay low effective tax rates, while there is no end in sight for the attack on public services, including cuts in HMRC staff who collect taxes.”