Tax reliefs have an enormous impact on tax revenue but it is far from clear whether they deliver the economic and social objectives many are supposed to support. The full cost of tax reliefs that support government’s economic and social objectives is not known and could exceed £159 billion a year. We have long been concerned that tax reliefs are not sufficiently evaluated to ensure they are delivering what was intended when they were introduced. The impact of Covid-19 on public finances means that it is ever-more important that tax reliefs are demonstrably cost-effective. Despite our repeated examination of this topic since 2013, HM Treasury and HM Revenue & Customs (HMRC) have made unacceptably slow progress in improving their management of tax reliefs. It is staggering that they still have insufficient understanding of the cost and value for money of tax reliefs, as well as who benefits from them. Tax reliefs need rigorous challenge, as costs can be much higher than expected and their benefits are not always evident. HM Treasury and HMRC need to make a step change in their understanding and administration of reliefs. The current pressures on the public finances require an immediate and fast response. They must do more and focus on the largest and riskiest tax reliefs.
There is little incentive for the departments to investigate how tax reliefs are working unless they fall in an area of current policy development. This must change, and the departments should not need to wait for ministers’ say-so to administer reliefs properly. HMRC and HM Treasury need to markedly improve their reporting on the cost, beneficiaries, and impact of tax reliefs in order to give Parliament the information it needs to scrutinise the value for money of these schemes. We look to HM Treasury and HMRC to provide this information quickly.
Published: 20 July 2020