17 September 2015

George Bull

When new tax reliefs are proposed in Budget Day speeches, their projected cost has to be computed, verified and published by the Treasury. Once the reliefs are available, neither HMRC nor the Treasury can always say what they cost, to the profound irritation of the Public Accounts Committee. How can that be?

On the face of it, tracking the cost of tax reliefs ought to be a simple matter now that the UK tax system is completely digitised. After all, knowing the cost and value of what one pays for is just normal housekeeping isn’t it?

In selected areas – R&D Tax Relief for example, explored in more detail by my colleague Andrew Hubbard – the Treasury and HMRC can certainly produce the detail when they need to. But, as the PAC has demonstrated, time and again the tax authorities cannot demonstrate the cost of tax reliefs which were introduced to achieve specific policy objectives. How can that be? Not being able to evaluate the costs and benefits of specific policy measures is more than a simple housekeeping failure, it’s a major blunder. Of course I recognise that it will often be difficult to measure the benefits of tax policies with any precision, but not to be able to quantify the costs is inexcusable. To quote an old joke ‘we recognise that half the money spent on [insert subject here] is wasted. The problem is that we don’t know which half.’

The same inability to quantify costs and benefits also suggests a worrying lack of interest among legislators as to whether specific tax legislation is achieving its intended effect. 

With former PAC Chair Margaret Hodge now preparing to lead a cross-party group looking at responsible taxation, we hope that she’ll be looking at the responsibility of legislators as well as taxpayers.

How much do tax reliefs cost? Doesn’t Treasury know? Don’t legislators care?