To tax relieve or not to tax relieve, that is the question, writes Chris Sanger, global head of tax policy, EY
With the return of Parliament, we can expect tax to once again be making political headlines. Before the recess, there was a flurry of excitement around the issue of tax reliefs, with reports from two of Westminster’s big hitters: the National Audit Office (NAO), with a detailed analysis of the information available; and the Public Accounts Committee, with a more politically focused approach. Each addressed the question of how well government manages the various incentives delivered through the tax system.
Two very clear messages come from these reports: firstly, there are a lot of tax reliefs (the NAO suggests 1,128); and secondly, no one seems to know how well many of them work, with HMRC having cost estimates for only 180 reliefs.
Both reports home in on the issue of the governance of ‘tax expenditures’, meaning the tax reliefs granted to incentivise particular behaviours, such as the R&D tax credit and the patent box. The reports focus on how far the controls which would apply to more direct forms of government spending are absent for tax expenditures.
It is clear that this has touched something of a nerve in HMT and HMRC, in relation to who in Westminster is responsible for this aspect of the tax system. Getting its riposte in early, HMRC convinced the NAO to include its caveat that the ‘cost of a relief’ is not the same as what would be raised in its absence (see para 6 of the NAO’s Tax reliefs report, published in April 2014). Not to be outdone, HMT takes a paragraph of the report to challenge the NAO’s right to look at these issues at all, arguing that tax reliefs are a matter of policy and therefore beyond the watchdog’s remit (para 10 of the NAO report). Whilst these exchanges may provide entertaining spectator sport, they do raise important issues that spread beyond the reports’ focus on governance.
This question goes wider than the administration of the current system of reliefs. It goes to the heart of tax and economic policy making. Simply put, if we don’t know the effect that tax expenditures have, how do we know which tax expenditures to develop in pursuit of our wider policy objectives?
Given HMT’s insistence that tax reliefs are a matter of policy, perhaps we can look forward to it building better post-implementation evaluation capacity, in keeping with the commitment in Tax policy making: a new approach.
Failing that, perhaps the chairs of the House of Lords’ Economic Affairs Committee and the House of Commons’ Treasury Committee might join Rt Hon Margaret Hodge MP in taking a closer look at tax reliefs, focusing on their roles as policy measures.
With an election around the corner and promises from all political parties which are likely to involve delivery through the tax system, how to evaluate tax reliefs should not be left unresolved.
To tax relieve or not to tax relieve, that is the question, writes Chris Sanger, global head of tax policy, EY
With the return of Parliament, we can expect tax to once again be making political headlines. Before the recess, there was a flurry of excitement around the issue of tax reliefs, with reports from two of Westminster’s big hitters: the National Audit Office (NAO), with a detailed analysis of the information available; and the Public Accounts Committee, with a more politically focused approach. Each addressed the question of how well government manages the various incentives delivered through the tax system.
Two very clear messages come from these reports: firstly, there are a lot of tax reliefs (the NAO suggests 1,128); and secondly, no one seems to know how well many of them work, with HMRC having cost estimates for only 180 reliefs.
Both reports home in on the issue of the governance of ‘tax expenditures’, meaning the tax reliefs granted to incentivise particular behaviours, such as the R&D tax credit and the patent box. The reports focus on how far the controls which would apply to more direct forms of government spending are absent for tax expenditures.
It is clear that this has touched something of a nerve in HMT and HMRC, in relation to who in Westminster is responsible for this aspect of the tax system. Getting its riposte in early, HMRC convinced the NAO to include its caveat that the ‘cost of a relief’ is not the same as what would be raised in its absence (see para 6 of the NAO’s Tax reliefs report, published in April 2014). Not to be outdone, HMT takes a paragraph of the report to challenge the NAO’s right to look at these issues at all, arguing that tax reliefs are a matter of policy and therefore beyond the watchdog’s remit (para 10 of the NAO report). Whilst these exchanges may provide entertaining spectator sport, they do raise important issues that spread beyond the reports’ focus on governance.
This question goes wider than the administration of the current system of reliefs. It goes to the heart of tax and economic policy making. Simply put, if we don’t know the effect that tax expenditures have, how do we know which tax expenditures to develop in pursuit of our wider policy objectives?
Given HMT’s insistence that tax reliefs are a matter of policy, perhaps we can look forward to it building better post-implementation evaluation capacity, in keeping with the commitment in Tax policy making: a new approach.
Failing that, perhaps the chairs of the House of Lords’ Economic Affairs Committee and the House of Commons’ Treasury Committee might join Rt Hon Margaret Hodge MP in taking a closer look at tax reliefs, focusing on their roles as policy measures.
With an election around the corner and promises from all political parties which are likely to involve delivery through the tax system, how to evaluate tax reliefs should not be left unresolved.
