The Public Accounts Committee (PAC) has opened an inquiry into the UK’s management of ‘tax expenditures’, after a National Audit Office (NAO) report identified over 300 such tax interventions, at a cost of £155bn a year
These non-structural tax reliefs typically reflect a policy choice aimed at a specific group or sector, or are designed to incentivise certain behaviours, and include options such as tax credits for companies’ research and development costs, or income tax relief on pension contributions.
The largest tax expenditures currently are the reliefs on pension contributions, not charging VAT on food and new dwellings, and not charging capital gains tax on people’s main home.
The NAO report flagged up concerns about how effectively HMRC and the Treasury are managing this kind of relief, arguing there was no formal framework governing the administration or oversight of tax expenditures.
Now the PAC is to question officials from the Treasury and HMRC on management of tax reliefs, the number of reliefs and the government’s understanding of whether they represent value for money in sessions planned for later this month.
John Cullinane, CIOT tax policy director, said: ‘We greatly welcome the Public Accounts Committee taking up this important issue.
‘Governance of tax reliefs in the UK is not systematic or proportionate to their value or the risks they carry.
‘There is a mismatch between the significant effort in government and to an extent Parliament that rightly goes into new tax measures, and the relative lack of attention to how effective those measures prove over time. This is particularly the case with tax expenditures.
‘Unless HMRC and the Treasury actively monitor the use and impact of tax reliefs, and act promptly to analyse increases in their costs, we cannot assume that these reliefs will be value for money.’
The committee is inviting evidence from interested parties, with submissions to be made before 5 June.