Responding to today’s Public Accounts Committee report on Management of Tax Reliefs, CIOT Tax Policy Director John Cullinane has 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.
John Cullinane said:
“Much more needs to be done to monitor the use and impact of tax reliefs.
“We share the committee’s alarm that it remains far from clear as to whether tax reliefs ever deliver their economic and social aims despite their enormous impact on tax revenue. The frustrating lack of regular reviews of tax reliefs to gauge their success is also true for new taxes, major tax increases and frequently experienced expansions of the tax base.
“There is no formal framework governing the administration or oversight of tax expenditures. Our Better Budgets report was produced with the Institute for Government and Institute for Fiscal Studies in 2017. It called on the Government to institutionalise the evaluation of tax measures, including reliefs - that is provide for systematic review of whether measures are achieving their objectives at an acceptable cost, with Parliament holding government to account for this.
“The lack of scrutiny is not helped by many tax reliefs being the result of ‘rabbit out of a hat’ announcements by Chancellors on Budget Day with little or no prior consultation. Pensions relief, highlighted in the report, is a good example of this. Following the financial crisis, governments of all colours pared back on the previously generous system of relief, but did so by tinkering, and by surprise announcements, rather than by comprehensive public review. The recent Budget partially rowed back on one such change in order to address the specific problems faced by NHS consultants over their pension contributions, but this was an expensive, untargeted and again unconsulted-on way of dealing with the issue. And left the complexities resulting from the last decade of unexpected changes and restrictions largely intact.
“Reviews of tax reliefs should be under a regular programme and held publicly, with evidence gathered from those affected and analysis shared, rather than being tightly guarded within government. The need to ensure tax reliefs are delivering value-for-money is a long-standing issue that the COVID-19 epidemic has brought into sharper focus.
“We note approvingly that the Financial Secretary said recently in Parliament that HMRC are considering, at his request, a proposal for a more systematic evaluation programme for tax reliefs. We hope the PAC’s recommendations will be pushing at an open door.”
Notes for editors
1. 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. More here.
The Public Accounts Committee (PAC) report follows a report published in February this year by the National Audit Office (NAO) which raised concerns about the effectiveness of the Treasury’s and HMRC’s management of tax expenditures. It found that there is no formal framework governing the administration or oversight of tax expenditures, and that while the Treasury and HMRC have begun steps to increase their oversight of tax expenditures and more actively consider their value for money, these will not be sufficient on their own to address value for money concerns.
The NAO’s findings were similar to those expressed in the 2017 Better Budgets report, produced by CIOT along with the Institute for Government and Institute for Fiscal Studies. This report called for proper and systematic review of tax changes including the growth in tax reliefs.
2. There are two broad categories of tax reliefs: structural tax reliefs that are integral parts of the tax system - like the basic rate of income tax relief - and non-structural tax reliefs or “tax expenditures” where the government opts not to collect a portion of tax for social or economic objectives - like tax credits for companies’ research and development costs, or income tax relief on pension contributions. The UK tax system has over 300 ‘tax expenditures’ tax reliefs, which cost the Government an estimated £155 billion of foregone tax revenues in 2018-19. More here.
3. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier, 07740 477 374)More Articles by Chartered Institute of Taxation (CIOT) ...