Bobby Dean MP pushes for review of billions lost through tax reliefs

Bobby Dean MP has scrutinized leading tax experts on the fairness and effectiveness of the UK’s tax relief system during a recent Treasury Committee hearing.

Tax reliefs are tax breaks designed to encourage certain types of investment or behaviour. Often they can be a good thing for the economy overall.However, the number and complexity of reliefs on the books has been criticised as opening loopholes exploited by big businesses.

A National Audit Office (NAO) estimated that tax reliefs cost the Treasury around £200 billion a year in lost receipts, almost as big as the budget of the NHS. Yet, unlike other departmental spending, they are not regularly reviewed for their effectiveness.

During his questioning Bobby Dean MP highlighted that take up of some tax reliefs “is correlated much more strongly of how big your financial department is, rather than how much innovation that you're doing.”

It follows a question raised by Bobby earlier in the year where he pressed government ministers to assess the scale of tax reliefs:
“About 350 reliefs have been assessed, but my understanding is that more than 1,200 tax reliefs are on the books, amounting to hundreds of billions of foregone revenue for the Treasury. Given that the Treasury examined the spending of all Departments in detail over the summer, I wondered whether it was considering applying the same level of scrutiny to itself.”

Auto generated video transcript:
Bobby Dean MP:
The issue seems to be not necessarily individual reliefs in on themselves, because we can go away and evaluate all of them, and maybe some of them would end up on the scrap heap, but many of them probably end up finding justification sales.

But it seems to be the complexity of the system, the number that we have in play, and then who that ends up serving.

So just one example is the patent box release, which has been spoken about a lot, and it seems that 95% have been claimed by the largest companies.

Places like London, Oxford and Cambridge Life Sciences Hub have very low take-up of this particular relief.

And I guess what that suggests to me is that the relief is correlated much more strongly of how big your financial department is, rather than how much innovation that you're doing.

And so would it be in HMRC's interest to simplify and rationalise all the reliefs that are out there, or would that actually open it up to a much wider number of claims and end up costing the exchequer more money?

Do we think that there is a scope for huge rationalisation?

Dr Arun Advani, Professor of Economics, The University of Warwick:

Yeah, I mean, I'll leave patent box to Helen, because she's definitely expert on that one.

She might explode having to deal with it, though.

But, I mean, I think one thing you point out there is just, in terms of context of review, I mean, we just, we mentioned earlier the comprehensive spending review that happened over the summer.

But it's not comprehensive in the sense that tax expenditures are a type of expenditure that we don't evaluate, right?

We don't have a formal process by which they all have to be looked at, and HMRC has to go cap in hand to the Treasury and say, I want these reliefs.

Can I afford it?

And we're trading that off against some other thing that we want in schools or we want in Helen.

Our review is for everybody but the Treasury.

And so it is a very odd position, just kind of constitutionally, that we're not looking at that in the round.

Now, I'm not picking on any particular relief and saying this is the one that should go, and maybe they all are perfect.

But at least there should be some process by which somebody has to justify that.

And that would then, I mean, clearly put HMRC in a position where they wouldn't be able to essentially get away with spending only £600,000 evaluating those things.

Any other department, when it wants to ask for money, has to have some evidence base for why this is worth spending.

In a world in which there was some actual review of these reliefs, we might discover they're all great or what the right tweaks are and they should survive in some form.

But they'd have to be spent some money on trying to prove that, to show that.

Here's the impact.

Whatever level, you know, some will be costed better than others.

Dame Meg Hillier MP:

It was hard to get evidence on some of these things.

But there's no process at all by which that's happening right now.

And I would observe that Dame Harry and I have both looked at this a lot.

over a decade in a previous role I had and Dame Harry in various guises.

And there's a reluctance at HMRC to actually, to even publish them.

So hats off to Dame Harry and the previous committee for getting that list because it took a lot to get it out.

Because they did not want to have to face the reality of having to evaluate them.

Because you don't get any political thanks for evaluating tax reliefs, I suspect.

Dr Arun Advani, Professor of Economics, The University of Warwick:

I think it's exactly that point.

And, you know, genuinely credit to you for getting it to this point.

And it is now, I mean, to Harry, for getting it to this point.

But it is the case that now we've got here the next step that this committee hopefully will push them on.

And the PAC and other committees will push them on.

Is actually can we have some process by which these things are actually formally reviewed the way that all other spending is reviewed.

Because without that we're never going to get us.

You know, that's the, going back to John's earlier point.

Where does the political pressure come from to try to fix some of these problems?

Well, it comes from in other departments.

The thing that tries to force efficiencies in other departments is you have to make trade-offs.

And you have to work out what you can spend.

And there's nothing like 

Helen Miller, Director, Institute for Fiscal Studies (IFS);

I should come in.

I was going to say, I mean, I agree with that.

I mean, I think there's lots of parts of the system where you can just see what's happened.

Things have been layered on and on over time.

And at every point in time, the budget is approached as a kind of a let's, what else can we layer on?

We want a new incentive to add without ever thinking about the stock.

So, you know, an area that I've thought lots about is thinking about small businesses and the various incentives that are going on there.

So, you know, the reduced rates of capital gains tax through the business asset disposal relief, what was entrepreneurs relief, the lower rate of corporation tax on small companies, a whole network of VC schemes.

I have to carry a little list around to remember which they all are.

Like, nobody ever sat down, I think, and thought about, like, of all these different schemes, how are they supposed to be interacting?

Why do we have these different schemes?

What are they doing?

And we still talk about other schemes.

So, I think, again, stepping back and think about what do you want to do?

At which point in the lifestyle of business do you want to incentivise something?

Why do you have these various schemes?

Before you even start with thinking about a new scheme.

And that's just one.

I think there's lots of examples of that where things have been layered on over time.

Or the historical accidents.

Like, VAT is a completely different example.

We have loads of bits of, like, these VAT zero rates that are a hangover from a system we had before VAT, but they've kind of carried over and we just can't get rid of.

So, I think it's partly about being really careful whenever anything new is introduced to first think about what could we reduce, simplify, remove before we just layer something else