The Chartered Institute of Taxation (CIOT) is urging new Chancellor Rishi Sunak to do more to monitor and evaluate £155 billion a year of the UK’s tax reliefs.
This follows the publication today of a report by the National Audit Office (NAO) examining the effectiveness of how the Treasury and HMRC use their resources with regards to tax expenditures. Tax expenditures mean non-structural tax reliefs where government opts to forego tax in order to pursue social or economic objectives, such as tax credits for companies’ R&D costs and income tax relief on pensions contributions.
John Cullinane, CIOT Tax Policy Director, said:
“We strongly welcome the NAO’s intervention in the debate about the effectiveness of tax reliefs and support its recommendations. We hope the new Chancellor takes heed of the NAO’s concerns, which are similar to those expressed in our Better Budgets report which called for proper and systematic review of tax changes including the growth in tax reliefs.
“HMRC’s monitoring of tax reliefs is not yet 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 have been. This is particularly the case with tax expenditures, which do not usually get the NAO scrutiny that traditional government spending does. Taxpayers deserve better, especially when the sum of the estimated costs of tax expenditures in 2018-19 was £155 billion."
The 2017 Better Budgets report – produced by CIOT in partnership with the Institute for Government and the Institute for Fiscal Studies – called on the Government to institutionalise evaluation of tax measures – that is provide for systematic post-legislative review of whether measures are achieving their objectives at an acceptable cost, with Parliament holding government to account for this. The report acknowledged that the political and technical nature of much of tax policy can inhibit effective upfront scrutiny. That places more weight on the importance of effective evaluation, but at the moment this is poorly done. The report identified a particular need for more effective evaluation of tax expenditures.
John Cullinane continued:
“Neither the Treasury nor HMRC keep track systematically of tax reliefs intended to change behaviour, or adequately report to Parliament and the public on whether tax reliefs are expensive or even work as expected. Departments generally do not test whether their aims for the reliefs are being achieved.
“Unless they monitor the use and impact of tax reliefs, and act promptly to analyse increases in their costs, HMRC and the Treasury’s administration of tax reliefs cannot be assumed to be value for money.
“We hope the Public Accounts Committee, once it is up and running in this Parliament, will take up this important issue.”
Notes for editors
1. Among the recommendation in the NAO’s ‘The management of tax expenditures’ report, the NAO said the Treasury should:
- establish a framework for designing and administering tax expenditures that is commensurate with the large number of UK expenditures
- Develop a robust methodology for assessing the value for money of different types of tax expenditures
- Consider specifying time-periods or triggers for evaluation and review when designing each tax expenditure
- Each year review whether the objectives of tax expenditures still align with government objectives
- Establish and document clear requirements for official to report concerns about the value for money of tax expenditures to ministers
And the report recommends HMRC:
- Further develop categorisation of tax expenditures
- Identify and use independent data sources, where available, to further test reasons for movements in the cost of high-priority tax expenditures
- Develop a more systematic approach to the evaluation of tax expenditures to provide greater coverage
- Develop an approach so that it understands and can report the differences between actual and forecast cost for tax expenditure it regards as high-priority in its published analysis
- Include trend data on the number of beneficiaries of tax expenditures in published analysis.
2. The NAO report says £155 billion is the sum of the estimated costs of ‘tax expenditure’ in 2018-19 (tax reliefs supporting government objectives).
3. The Better Budgets report argues that the current tax policy making process is not fit for purpose: to reduce taxpayer confusion, cut down costly errors and avoid embarrassing U-turns, the Government must change the way it makes tax and budget decisions. It was produced jointly by CIOT, IfG and IFS and can be read here.