Recommendation 5

HM Government Rejected

The Government shares the Committee’s view that scrutiny of tax reliefs is vital to ensure effectiveness but considers that the considerable existing level of Parliament scrutiny already afforded to reliefs and the application of Green Book principles via the Joint Tax Relief Framework and TIINs are already sufficient to achieve this. Unlike many spending programmes, tax reliefs (both new and existing) are already subject to considerable Parliamentary scrutiny and the opportunity for external representation through the annual nature of the Finance Bill and its progress through Parliament. Tax proposals are technically covered within the scope of the Green Book, so reclassifying tax reliefs as spending is not necessary. The Joint Tax Relief Framework and TIINs ensure that reliefs are subject to Green Book principles of clear objectives, rigorous options generation, robust economic appraisal and careful evaluation. It is also important to note that 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. Tax changes do not involve alternative uses of a fixed budget, since they act dynamically on the economy as a whole. It would therefore not be appropriate to appraise their effects using the opportunity cost methods employed when comparing alternative uses of the budget. However, HMRC do estimate initial tax foregone and monitor its size after implementation. Finally, the classification of tax reliefs as government expenditure, or as a reduction in tax revenue, for fiscal purposes is the responsibility of the independent Office for National Statistics (ONS). The ONS use international statistical guidance when they make these classification assessments (the European System of Accounts 2010, based on the UN’s System of National Accounts 2008). It is worth noting that under ESA10 requirements, some tax reliefs are classified as government expenditure, such as payable tax credits like R&D tax credits.