1 Accountability for tax reliefs
1. On the basis of a Report by the Comptroller and
Auditor General, we took evidence from HM Revenue & Customs
(HMRC) and HM Treasury (the Departments) on tax reliefs.[1]
This is a wide-ranging topic and we see it is as our role to examine
the effectiveness of tax expenditures—the tax reliefs that
are most similar to spending programmes. In our role of considering
value for money, it is for the Committee of Public Accounts to
review the costs and impact of a relief against its policy intent,
and to consider the cost of abuse.[2]
2. At the end of 2013 there were 1,128 tax reliefs
in the UK. HMRC publishes data on around 400 each year. It has
estimated the value of around 180 of these reliefs, 46 of which
it has categorised as tax expenditures, in its published tables.
HMRC does not categorise all the reliefs on which it publishes
data, but has estimated that there may be around 150 tax expenditures,
overall, across its tax streams.[3]
3. Some reliefs are pure policy decisions. Other
reliefs, known as tax expenditures, are intended to encourage
behavioural change. HMRC told us it took a 'purist' view of tax
expenditures, compared to other countries. It explained that this
meant it tried to capture the widest possible range of reliefs,
within its definition of tax expenditure. Therefore, it included
zero-rate and reduced-rate VAT within this category. However,
the Departments acknowledged there was no clear definition of
tax expenditures. HM Treasury told us that the objectives of tax
policies could be broad, and it was rare to have detailed objectives
for reliefs. The lack of clarity in defining tax expenditures
added to the difficulties in determining their objectives, and
in examining their effectiveness. As the cumulative cost of tax
reliefs is billions of pounds a year, the absence of examinations
into their effectiveness, in achieving any detailed objectives,
is of huge concern.[4]
4. In 2010 HM Treasury committed, in Tax policy
making: a new approach, to developing a framework for new
reliefs. This framework has still not been introduced. The framework
was intended to ensure reliefs were considered carefully, and
enacted only when there was a strong and proven case. HM Treasury
told us it had put other measures in place, aimed at improving
tax reliefs instead. It had increased the length of the consultation
period for new legislation, and had introduced Tax Impact and
Information Notes (TIINs). These were designed to consider a broader
range of tax policy changes, than the previous impact assessment
regime.[5]
5. Tax expenditures cost £101 billion in 2012-13.
The Departments told us that each year they publish data on the
costs of tax expenditures and structural reliefs. The Departments
felt that this data gave people, and Parliament, the opportunity
to make representations.[6]
6. The data published by HMRC did not compare the
actual costs of tax reliefs with forecast costs. When a revised
form of film tax relief was introduced in 1997, officials had
forecast it would cost £30 million in the first three years.
However, its costs rose significantly, and reached nearly £700
million by 2005-06. It took ten years, at a total cost of over
£2 billion, before HM Treasury and HMRC amended the relief
to bring down the costs. A significant proportion of the costs
incurred in film tax relief had not fulfilled the purpose of the
relief, or the intention of Parliament. HMRC told us that it had
taken a series of steps, from 1997 to 2007, in which it had put
in place various restrictions for the relief, and that it had
introduced each restriction after considering the policy perspective.
However, it had not been Parliament's intention that the excessive
cost of film tax relief should have been allowed to continue for
so long. [7]
7. Such cost increases would not be tolerated in
the same way if film tax relief had been provided as a grant programme.
Other government departments are required to abide by the rules
of Managing Public Money when administering a spending
programme, but formal requirements do not exist for HM Treasury
and HMRC in relation to tax reliefs.[8]
The Departments are responsible for managing the tax system as
a whole, and for implementing policy decisions, yet no individual
accounting officer is assigned responsibility for managing tax
expenditures, as would be the case for public spending. HM Treasury
told us that no such an arrangement had been made before, because
tax expenditures had always been regarded as different to spending
programmes. HM Treasury acknowledged that, in principle, it could
design a system where all reliefs were managed in the same way
as public spending, with a dedicated accounting officer responsible
for tax expenditures. HM Treasury said it is a decision for both
Government and Parliament, whether or not to design such a system.[9]
1 C&AG's Report, Tax reliefs, Session 2013-14,
HC 1256, 7 April 2014 Back
2
Qq 1-2, 8-9, 136 Back
3
Q 3; C&AG's Report, paragraphs 14, 24, 1.7 Back
4
Qq 4-9 Back
5
Q 57; C&AG's Report, paragraphs 23 & 2.10, Figure 16 Back
6
Qq 2, 34 Back
7
Qq 12-13, 16-20 Back
8
Qq 8, 16-17, 58-61 Back
9
Qq 9, 16, 45-46, 59 Back
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