The Public Accounts Committee (PAC) has criticised the UK government over its lack of knowledge on the tax reliefs it provides, and called on it to account for all its “giveaways”.
The PAC claim that the 10 most expensive fiscal breaks cost the public purse around £117bn ($147bn, €129bn) a year – the equivalent of 5% of GDP.
“But the government’s own, scant evaluation shows that only one of the four reliefs costing more than £1bn a year has the intended effect on economic behaviour,” it added.
Pension relief is estimated to be one of the most expensive, as it was forecast to cost the UK approximately £38bn in 2018-19.
The committee has accused the government of not even assessing whether those tax breaks are incentivising people to save money or reducing dependence on state benefits.
The move follows the Treasury Select Committee’s announcement of an inquiry into the UK’s fiscal system and on what will be needed post-covid crisis.
Accountability
Meg Hillier, chair of the PAC, said: “Every budget we get tax breaks announced like baubles hung on a tree and they generate great headlines, but the truth is the government has little clue about the value of an enormous cost to the public purse.
“It sometimes fails to predict with any accuracy what tax breaks will cost, and there is often too little interest in whether it delivers what it intended to.
“Tax breaks are not freebies – they cost the public purse hundreds of billions of pounds in lost income. The government must know who they benefit and to what end.
“It’s all, still, taxpayer’s money and government must account for it.”
Don’t ‘play around the edges’
Andrew Tully, technical director at Canada Life, said that tax relief is usually given to defined benefit (DB) pension schemes, but if change needs to happen, defined contribution (DC) pensions should be included as well.
“The budget later in the year is where there will be more focus around spending plans for future years,” he said.
“The government may look again at pension tax relief, although the difficulty in implementing change in a simple, straightforward manner continues to be a significant issue.
“The vast majority of tax relief is given to DB schemes, so any changes need to cover both DB and DC.
“Making changes in the DC market only is simply playing around the edges. In addition, pensions are already hugely complicated, so any changes need to simplify matters to help people better understand the benefits of saving in a pension,” Tully added.
