Recommendation 7

We were dissatisfied at the fact that none of the ten largest tax reliefs had been properly externally reviewed by HMRC.10 We asked HMRC why it had not evaluated any of these reliefs, such as pension reliefs. HMRC explained that cost was only one factor it took into account in selecting which reliefs to evaluate. It told us that some large reliefs, such as VAT relief on food, were difficult to evaluate because they are in a sense structural reliefs. It explained that it also took into account how likely a tax relief was to achieve its intended impact. This was particularly the case for those reliefs which were designed to achieve a specific behavioural economic change, which HMRC considered were easier to evaluate because their effects could be more marginal.11 HMRC also told us that it needed to consider which tax reliefs “politicians might be interested in reforming” as there was little point in spending money on evaluating a tax relief in an area where there was no appetite to reform. HMRC told us that it was keen to move towards an increasingly systematic approach for deciding which tax reliefs to evaluate, prioritising the largest reliefs that seek to incentivise behaviours. It explained that it would also apply other criteria to this, including strategic fit, priority and urgency, and the likely impact of the research.12