Source · Select Committees · Treasury Committee
Recommendation 9
9
Rejected
Paragraph: 50
Five-yearly reviews identified as optimal system to remove outdated tax reliefs
Conclusion
We have taken evidence on several options for seeking to remove outdated tax reliefs from the statute book.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.
Government Response Summary
The government rejected the recommendation for a formal five-yearly review system for tax reliefs, stating it already keeps tax reliefs under review and that such a system would be an ineffective use of resources and create uncertainty for taxpayers.
Paragraph Reference:
50
Government Response
Rejected
HM Government
Rejected
The Government is already committed to simplifying the tax system and keeps all tax reliefs under review. In March, the Chancellor set out to the Treasury Committee his commitment to simplifying the tax system, and that he is taking personal responsibility for this work. The Chancellor has set a clear mandate to his officials to focus both on the simplicity of new tax policy design and on simplifying the existing tax rules and administration, asking for tax simplification to be considered ahead of every fiscal event. The Government therefore welcomes the Committee’s intention to monitor this but considers that most tax reliefs work well—in many cases specifically making tax simpler for citizens and businesses, and where issues exist review is already underway (e.g. Research and Development Tax Credits). The Government does not therefore feel a review of the kind recommended by the Committee would be an effective use of limited resources. While simplification is one of the Government’s key objectives, it needs to be balanced against other important objectives of tax reliefs, such as supporting growth and employment. A full review of all tax reliefs would impose significant uncertainty on the tax system, putting revenue at risk and altering business behaviour whilst they waited for such a review to conclude. It is worth noting that previous NAO and PAC reports on reliefs have focused on non-structural reliefs which are primarily designed to support government economic and social policy. Constant reviews would essentially be creating uncertainty for taxpayers, particularly for those industries which benefit from such reliefs such as Full Expensing, the Annual Investment Allowance, R&D Tax Credits, Draught Relief, Film Tax Relief, Video Game Relief and Theatre Tax Relief. Any sudden ambiguity around the operation of the reliefs, due to a widescale review, would unlikely be welcomed by the manufacturing sector, hospitality sector, the creative industries and many other sectors which utilise vital government reliefs. Improving the scrutiny of tax reliefs 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.