Source · Select Committees · Public Accounts Committee
Recommendation 7
7
We were dissatisfied at the fact that none of the ten largest tax reliefs had...
Conclusion
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
Government Response
Not Addressed
HM Government
Not Addressed
1: PAC conclusion: The Committee are concerned that HMRC does not understand the impact of any of the largest tax reliefs, including reliefs on pensions which were forecast to cost £38 billion in 2018–19. 1a: PAC recommendation: HMRC should: within 3 months, establish and publish the criteria it will use to determine which reliefs to evaluate. 1.1 The Government agrees with the Committee’s recommendation. Target implementation date: December 2020 1.2 Following the NAO’s report on the management of tax expenditures, Her Majesty’s Treasury (HMT) and Her Majesty’s Revenue & Customs (HMRC) have been developing a set of criteria to determine which reliefs to evaluate. Once these criteria are finalised and subject to Ministerial approval, HMRC will publish them. 1b: PAC recommendation: HMRC should within 12 months, have evaluated the impact of pension tax reliefs. 27 1.3 The Government disagrees with the Committee’s recommendation. 1.4 The Government has undertaken several consultations on aspects of pensions tax relief over the last few years, including: a. Pensions tax relief administration: call for evidence (July 2020) b. Public service pension schemes consultation: changes to the transitional arrangements to the 2015 schemes (July 2020) c. Changes to income thresholds for calculating the tapered annual allowance from 6 April 2020 (March 2020) d. Reducing the money purchase annual allowance: consultation (response: March 2017) e. Strengthening the incentive to save: consultation on pensions tax relief (response: March 2016) 1.5 These investigations included gathering views and evidence from stakeholders to understand the regime’s impacts and the impacts of possible changes. The evidence provided directly influenced policy development. For example, responses to the 2015 wide-ranging consultation on pensions tax relief indicated there was no clear consensus for reform at that time, and so at Budget 2016 the then government announced it would not make fundamental reform to pensions tax reliefs at that stage. 1.6 The government will continue to engage with stakeholders to understand the regime’s impacts and gather evidence through consultations such as those listed above but does not think it is the right time now for a formal evaluation.