Government rejects Treasury Committee bid for greater scrutiny of reliefs

The Government was responding formally to the Treasury Committee’s report on Tax Reliefs, published in July, through a letter published on Wednesday 18 October.

Replying for the Government, Financial Secretary Victoria Atkins told the committee that the number and range of tax relief evaluations published by HMRC has increased in recent years. Whilst agreeing with the committee’s intentions, she continued, “I am of the view that that this ongoing activity already delivers the majority of the Committee’s desired outcomes and that going further in the manner suggested would not always be the best use of resource and also have unintended consequences—whether that be the time of officials or the costs to external organisations and taxpayers”.

The Government has rejected all of the committee’s substantive recommendations.

Commenting, Harriett Baldwin MP, Chair of the Treasury Committee said:

“Our tax system is too complicated.  It is disheartening to learn that the taxman has no plans to even measure the cost of benefit of hundreds of different tax reliefs – something that would help ministers simplify the tax system and target growth.”

Recommendations and responses

Committee recommendation: A comprehensive and systematic review of existing tax reliefs to look for opportunities for simplification

Government response: The Government is already committed to simplifying the tax system and keeps all tax reliefs under review. A full review of all tax reliefs would impose significant uncertainty on the tax system, putting revenue at risk and altering business behaviour whilst they waited for such a review to conclude.

Committee recommendation: HMRC publish full costings of all tax reliefs

Government response: HMRC already publishes an extensive range of costings and impact evaluations for tax reliefs and will look to expand on these wherever possible without adding significant new reporting burdens. However costing all tax reliefs is not possible without collecting significant additional data from taxpayers — putting considerable further administrative burdens on them and limiting overall simplification and admin burden reduction efforts.

Committee recommendation: The Government should seek and favour external consultation on potential abuse of reliefs at both policy design and post-implementation monitoring phases.

Government response: The Government takes abuse of tax reliefs extremely seriously. As part of the policy making process, the Government actively seeks views from external stakeholders, including tax experts and industry, to help understand how proposals will work in practice and opportunities for improvement.

Committee recommendation: Non-structural tax reliefs, those designed to promote certain behaviour, should be classed as public spending and scrutinised as such

Government response: Tax and spend are qualitatively different. In a spending context, value is concerned with allocating public resources from a pre-determined budget. Tax reliefs on the other hand represent a reduction in the overall tax take. Classification of tax reliefs is the responsibility of the independent Office for National Statistics.

Committee recommendation: The Government should conduct five-year reviews of individual tax reliefs and commit to remove those reliefs that no longer serve their policy goal or are vulnerable to abuse.

Government response: Any regular time-based assessment of whether reliefs should continue to exist creates inherent instability and uncertainty in the latter years of that cycle for all taxpayers claiming or considering claiming a relief.