Select committee inquiry
Tax Reliefs
Closed
What the inquiry looked at
“In this inquiry, the Treasury Committee will examine the tax reliefs available to both individuals and businesses, with a focus on the overall impact of tax reliefs on the UK economy. Read the call for evidence to find out more about the inquiry”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of Twentieth Report - Tax Reliefs ↗
Our tax system is too complicated.
Tax reliefs reduce the amount of tax payable by a person or company if they meet certain conditions. There are over 1,000 tax reliefs in force in the UK tax system. These reliefs reduce tax revenues significantly, but less than half have official published costings.
Ongoing scrutiny of their effectiveness is inadequate.
Tax reliefs make the system more complex for taxpayers and open up opportunities for abuse. Governments tend to introduce new reliefs, but rarely remove those which are redundant, making these problems progressively worse. This works against the Government’s stated aim, which we support, of simplifying the tax system.
To promote a simpler, better value and more effective tax system which is less prone to abuse we recommend:
• a comprehensive and systematic review of existing tax reliefs to look for opportunities for simplification, • HM Revenue and Customs publish full costings of all tax reliefs, • greater public consultation on new and existing tax reliefs, • non-structural tax reliefs, those designed to promote certain behaviour, should be classed as public spending and scrutinised as such, and • 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.
What the government said
The government responded on 18 October 2023. The deadline was 26 September 2023.
Summary written by Accountability Index from the government's response.
The Government agrees with the Committee's focus on simplification, limiting abuse and ensuring reliefs achieve their policy goals, but considers existing activity already delivers 'the majority of the Committee's desired outcomes' and sets out specific concerns about several recommendations.
- On a review of existing reliefs, the Government says it keeps all tax reliefs under review and does not feel the recommended review "would be an effective use of limited resources", citing uncertainty for taxpayers and risk to revenue.
- On cost data, the Government shares the view that publication is essential and says HMRC "will look to expand on these wherever possible" without disproportionate new reporting burdens. It does not commit to publishing costs for all reliefs, noting the information is mostly unavailable.
- On reclassifying reliefs as expenditure, the Government considers existing Parliamentary scrutiny, the Joint Tax Relief Framework and TIINs "already sufficient", and says classification is the responsibility of the independent Office for National Statistics.
- On abuse and five-yearly reviews, the Government says it "considers that it already meets this recommendation" on abuse, and has concerns that five-yearly reviews would create uncertainty for taxpayers.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 21 July 2022 to its close on 16 January 2024. The dashed mark is the deadline Parliament records for the government's response.
- Oral evidence 4 sessions
- Report 26 Jul 2023
- Government response 18 Oct 2023
- Correspondence 7 letters
What it recommended 6 recommendations · 4 conclusions
1Complexity of the tax system exacerbated by the ever-expanding suite of tax reliefs.
Concluded (the committee's words)
The tax system is too complicated. The huge and seemingly ever-expanding suite of tax reliefs is an important factor in that complexity. We welcome, and will monitor, the Treasury’s commitment to simplifying the tax system. That simplification cannot merely focus on proposed new policies.
2Undertake comprehensive review of existing tax reliefs for simplification and ease of adherence.
Recommended (the committee's words)
We recommend that the Government undertake a comprehensive and systematic review of existing tax reliefs to look for opportunities for simplification. In doing so, they should in particular look for ways of making it easier for taxpayers to adhere to the rules.
3Lack of adequate data and scrutiny for tax reliefs hinders policymaking and accountability.
Concluded (the committee's words)
Tax reliefs account for considerable reduction in tax revenue. They require adequate data to be collected and published to inform proper policymaking or accountability. However, the evidence shows that this is not happening. The disparity between scrutiny of tax reliefs and that of equivalent direct public expenditure is stark.
4Publish cost data for all tax reliefs from the 2025/26 tax year onwards
Recommended (the committee's words)
There are 1,180 tax reliefs, but HMRC only publishes estimated cost data for 365, leaving 815 uncosted. We recommend HMRC publish cost data for all tax reliefs from the 2025/26 tax year onwards.
5Reclassify tax reliefs as Government expenditure to enable value for money assessments
Recommended (the committee's words)
We recommend the Treasury reclassify tax reliefs as Government expenditure. This would subject reliefs to established value for money assessment, leading to improved scrutiny and ultimately better policy.
6Ensure relevant departments take responsibility for budgeting non-structural tax reliefs with Treasury oversight
Recommended (the committee's words)
We recommend that Government consider how to ensure that the relevant delivery department takes more responsibility for the budgeting for each non-structural tax relief, those designed to promote particular behaviours, in conjunction with the Treasury. This would be intended to promote increased Ministerial accountability and subject such reliefs to levels of Treasury oversight and spending control characteristic of departmental spending.
7Monitor maintained tax reliefs for abuse indicators, including external consultation on policy design
Recommended (the committee's words)
Tax reliefs have been abused. The most straightforward way to reduce opportunities for such abuse is to simplify the tax system. Where tax reliefs are maintained, we recommend the Government monitor them for indications of abuse as part of ongoing review processes. The Government should seek and favour external consultation on potential abuse at both policy design and post-implementation monitoring phases.
8No routine process exists to identify and remove outdated tax reliefs from statute
Concluded (the committee's words)
Political pressure, including through lobbying, tends to promote both the creation of new tax reliefs and the retention of existing reliefs. Tax reliefs long detached from their original policy purpose clutter an ever more complex tax system. We are concerned that there is no routine within Government to identify and clean them from the statute book.
9Five-yearly reviews identified as optimal system to remove outdated tax reliefs
Concluded (the committee's words)
We have taken evidence on several options for seeking to remove outdated tax reliefs from the statute book. A “one in, one out” rule for tax reliefs would be a blunt instrument which could reduce flexibility in policy-making. Sunset clauses have their place, but tax relief expiry dates can act against the certainty important to promoting long-term investment. A formal, structured system of five-yearly reviews would provide enough time to judge the effectiveness of a tax relief and allow an opportunity to remove those reliefs no longer meeting their objectives.
10Institute five-yearly reviews with public consultation for tax reliefs, committing to remove ineffective ones
Recommended (the committee's words)
We recommend that the Government institutes a system of five-yearly reviews, incorporating public consultation, for tax reliefs. Where these reviews find tax reliefs which no longer achieve policy objectives, are vulnerable to abuse, or have estimated costs significantly higher than expectations, then the Government should commit to removing those reliefs.
Evidence
Oral evidence sessions 4
- 14 Jun 20234 witnesses: Andrew Griffith MP, Helen Dickinson, Joanna Key, Victoria Atkins MPparliament.uk ↗
- 17 May 20233 witnesses: Jane Whittaker, Jonathan Athow, Philippa Madelinparliament.uk ↗
- 1 Mar 20232 witnesses: Bill Dodwell, Kathryn Cearnsparliament.uk ↗
- 19 Dec 20223 witnesses: Dr Hosam Al Kaddour, Dr Jo Twist OBE, Mr Alex Dunnaganparliament.uk ↗
Who gave evidence 12 witnesses
- Andrew Griffith MPEconomic Secretary to the Treasury, HM Treasury
- Bill DodwellTax Director, Office of Tax Simplification
- Dr Hosam Al KaddourHead of Teaching and Learning in Accounting Department, University of Southampton
- Dr Jo Twist OBEChief Executive Officer, The Association for UK Interactive Entertainment (UKIE)
- Helen DickinsonDirector Business and International Tax, HM Treasury
- Jane WhittakerDirector for Knowledge, Analysis and Intelligence, HM Revenue and Customs
- Joanna KeyDirector General, Regeneration, Housing and Planning, Department for Levelling Up, Housing and Communities
- Jonathan AthowDirector General for Customer Strategy and Tax Design, HMRC
- Kathryn CearnsChair, Office of Tax Simplification
- Mr Alex DunnaganActing Director, TaxWatch
- Philippa MadelinDirector for Wealthy and Mid-Sized Business Compliance, HMRC
- Victoria Atkins MPFinancial Secretary, HM Treasury
Correspondence 7 letters
- 13 Jul 2023Correspondence from the Director General, Customer Strategy and Tax Design, HM Revenue and Customs, relating to oral evidence provided to the Committee on 17 May, dated 7 June
- 13 Jul 2023Correspondence from the Director General, Customer Strategy and Tax Design, HM Revenue and Customs, relating to tax relief evaluation, dated 31 May
- 12 Jul 2023Letter from the Financial Secretary and Economic Secretary to the Treasury to the Chair relating to Tax Reliefs, dated 30 JuneTo committee
- 12 Jul 2023Letter from the Chair to the Financial Secretary and Economic Secretary to the Treasury relating to Tax Reliefs, dated 21 JuneTo committee
- 29 Mar 2023Correspondence from the Chancellor of the Exchequer, relating to the Office of Tax Simplification, dated 20 March
- 13 Mar 2023Correspondence from the Office of Tax Simplification relating to the session on Tax Reliefs on 1 March, dated 7 March
- 13 Mar 2023Correspondence from the Chair to the Chancellor, relating to the Office of Tax Simplification, dated 2 March