Tax reliefs are a necessary part of any tax system and play a significant role in defining the scope of tax, HM Treasury has said in response to the Public Accounts Committee’s finding in June that scrutiny of the annual Finance Bill is “not a sufficiently robust way to provide assurance that tax reliefs are working as intended”.
The Treasury noted that while the committee did not make any recommendations it “plans to look” at how HMRC and the Treasury have addressed its concerns.
The Treasury wrote to the committee in July, stating that the government cannot accept that “tax expenditures” are in effect a form of public expenditure and should be subject to the same scrutiny as measurable public spending.
The committee had said: “We see it as our role to examine the effectiveness of tax expenditures – the tax reliefs that are most similar to spending programmes.” Its chairman, Margaret Hodge, said the government was spending £100bn every year on “reliefs designed to encourage behavioural change, whether promoting jobs and growth, or investment in the arts”.
But a Treasury minute published today noted that “the government regards ‘tax expenditures’ as tax reliefs and nothing else”.
The committee had concluded that there was “a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction”. Too often, reliefs provided opportunities for “abuse, avoidance and evasion”, it said.
The Treasury said the government was “transparent” about the costs of existing reliefs and the costs and likely impacts of new reliefs. “HMRC annually publishes information on the exchequer cost of around 180 existing tax reliefs on its website,” it said, adding that the Office for Budget Responsibility “impartially and independently” certifies the cost of all new tax reliefs or changes to existing reliefs.
“[HMRC and the Treasury] keep the costs of reliefs under review and act quickly where there are deviations from trends or there are indications of abuse, avoidance or unintended outcomes.”