The House of Commons Public Accounts Committee (PAC) has published a report that looks at Management of Tax Reliefs. In it the PAC argues that the Government knows too little about the tax reliefs it provides: whether they work, or offer value for money, or even how much they actually cost.
Despite PAC’s repeated examination of this topic since 2013, the Treasury and HMRC have made unacceptably slow progress in improving their management of tax reliefs, says the committee. The report summary says 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” and that “[t]here 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, warns the committee.
The committee says that: “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.”
The committee makes a series of recommendations in the report.
The committee (whose Chair is Labour MP Meg Hillier pictured below thanks to Parliament UK) is concerned that HMRC does not understand the impact of any of the largest tax reliefs, including reliefs on pensions which were forecast to cost £38 billion in 2018–19. It recommends that within three months, HMRC establish and publish the criteria it will use to determine which reliefs to evaluate, and within 12 months, HMRC should have evaluated the impact of pension tax reliefs. HMRC should report back to the committee to update on progress in these regards, within three months, and 12 months respectively.
HMRC and the Treasury are insufficiently curious about the impact of some key tax reliefs on different groups, finds the committee. It recommends that HMRC should assess the groups and sectors benefiting from all significant reliefs and publicly report the results during 2021. For pension reliefs, HMRC should publish data showing who is benefiting, split by: income; groups with protected characteristics such as gender, age, ethnicity; people working in the public and private sectors; and people in defined contribution and defined benefit schemes.
The PAC is concerned that exchequer departments are not transparent with Parliament on which tax reliefs need to change taxpayer behaviour for government objectives to be achieved. The MPs suggest HMRC should, within three months, publish a list of all new and existing reliefs with objectives that include changing behaviour, and specify the objectives of each. The MPs also recommend that for any new or amended tax reliefs the Treasury should identify in the Budget’s supporting documents whether they are intended to change taxpayer behaviour and how the Government will measure whether that objective has been met.
HMRC cannot explain why the cost of some tax reliefs is considerably greater than government forecasts presented to Parliament, finds the report. It recommends that the tax authority should, as part of its next annual statistical publication on tax reliefs due in October 2020, identify all significant cost variances within tax reliefs, and report the reasons for those variances, explaining whether variations in cost are proportionate to the impact of the relief.
The PAC concludes that HMRC and the Treasury do not publish enough information on the value for money of tax reliefs to enable Parliament to hold government to account. This leads MPs to recommend HMRC should ensure that the results of internal, as well as external, evaluations are published, and are easily accessible to Parliament and the public. The report also calls for the Treasury to, in 2021, prepare its first annual report setting out the results of its value for money assessments of tax reliefs.
HMRC and the Treasury are far too slow in identifying and responding to some of the most serious problems identified with reliefs, including cases of abuse, the PAC argues. The report says both Departments should, within three months, write to the Committee to explain how they will accelerate their response when reliefs are costing much more than expected, are subject to abuse, or are not achieving their objectives.
The Chartered Institute of Taxation was one of several organisations that submitted written evidence to the inquiry. In the part of the report on evaluating the impact of tax reliefs , the committee cites the CIOT’s evidence in support of their call for greater monitoring of the impact of tax reliefs. Specifically they quote CIOT’s concern about ‘the almost total lack of attention, at least so far as is visible to the outside world, as to how effective those measures prove over time’. The report also mentions CIOT’s contention that a key part of HMRC’s policy maintenance responsibility should be making sure that tax reliefs are achieving their objectives at reasonable cost. The CIOT argued in written evidence that this should be undertaken as part of a programme of regular reviews which monitors their take up, the cost of the relief, and whether it is having the desired impact on behaviours.
The report also talks about identifying who benefits from tax reliefs. The PAC are concerned that the lack of available information on some large reliefs means that it is not possible for HMRC and the Treasury to know whether all of those who were expected to benefit have been able to do so and whether a relief is working. Specifically they refer to evidence from two pension providers that around 1.75 million low-paid and part-time workers, auto-enrolled into employer pensions, are missing out on tax relief on their pension contributions. Around three quarters of these workers are women. (This is an issue the CIOT’s Low Incomes Tax Reform Group has been working with the pensions sector to highlight.)
The report states that the committee asked the exchequer departments when they would act on the issue of workers not receiving pension tax relief. The Treasury responded that the Government recognises the different impacts of the two systems of paying pension tax relief on pension contributions for workers earning below the personal allowance. It referred to the Government’s announcement in Budget 2020 that a call for evidence would be published in spring 2020 on this subject. The call was due to ask for views on how to address the different pension outcomes for lower earners, depending on whether their employer’s pension scheme used the net pay or relief at source method of tax relief on their pension contributions. The Treasury told MPs that in the light of COVID-19 the Government was considering the publication of this and other Government documents on a case by case basis. It planned to provide more information on the timeframe for publication of this call for evidence in due course. (As it happened the call for evidence was launched on Tuesday of this week, the day after the PAC’s report was published.)
The CIOT issued a press release in response to the report (here) in which CIOT Tax Policy Director John Cullinane called for a programme of systematic review of tax reliefs to be put in place urgently, to ensure all reliefs are delivering value-for-money. In response to the media’s coverage of the report, a government spokesman said all tax reliefs were kept under review to ensure they struck the right balance between making tax administration as straightforward as possible with being effectively targeted. They said: “HMRC and HMT [Treasury] are constantly working to improve the transparency of reliefs and the National Audit Office has recognised the improvements in increasing oversight,” said the spokesman. “HMRC has further committed to expanding the coverage of the cost estimates we publish to provide more information on the cost of reliefs while strengthening the approach to evaluations.”