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UK Should Keep A Closer Eye On Tax Breaks: NAO Report

by Jason Gorringe,, London

20 February 2020

The UK's National Audit Office has called for a more comprehensive review of the 1,190 tax relief measures available for taxpayers, which are estimated to have cost the UK revenues worth GBP155bn (USD201.7bn) in 2018-19.

The report says that while tax expenditures can be used to promote government objectives, tax expenditures make the tax system more complicated and less transparent. The NAO says they could pose risks to public finances because their costs can rise beyond expectations.

The NAO's new report, released on February 14, examines the effectiveness of HM Treasury's and HMRC's use of their resources in the management of tax expenditures. Government spending is governed by HM Treasury's Managing Public Money but there is no equivalent guidance for tax expenditures.

The NAO said that while both HM Revenue and Customs and HM Treasury have responded to its recommendations on increasing the oversight of tax expenditures, these steps are "very much still in development". The NAO said: "The large number of tax expenditures means it will take time to identify and embed good practices. Both departments need to make substantial progress and ensure sufficient coverage and rigour in the work they undertake on this matter."

Calling for broader institutional changes, the report concludes: "On their own these improvements will not be sufficient to address value-for-money concerns unless the departments formally establish their accountabilities for tax expenditures and enable greater transparency. Lessons can be learned from other countries that have established clear arrangements for evaluating and reporting on tax expenditures. We look to HM Treasury and HMRC to follow suit by clarifying arrangements for value for money and improving the evaluation and public reporting of tax expenditures."

John Cullinane, the Chartered Institute of Taxation's Tax Policy Director, welcomed the findings of the report, stating: "HMRC's monitoring of tax reliefs is not yet systematic or proportionate to their value or the risks they carry. There is a mismatch between the significant effort in government – and to an extent Parliament – that rightly goes into new tax measures, and the relative lack of attention to how effective those measures have been. This is particularly the case with tax expenditures, which do not usually get the NAO scrutiny that traditional government spending does. Taxpayers deserve better, especially when the sum of the estimated costs of tax expenditures in 2018-19 was GBP155bn."

TAGS: tax | United Kingdom | Tax

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