Background to the report
The government can use tax measures to encourage economic growth by providing tax relief to incentivise certain sectors or activities. Tax reliefs reduce the tax an individual or business owes, and some reliefs make payments back to taxpayers.Jump to downloads
Some ‘non-structural’ tax reliefs reflect specific policy choices by ministers to support particular groups or sectors (for example the housing market), while others are designed to incentivise behaviour.
As at December 2023, the UK had 341 non-structural tax reliefs intended to achieve social or economic objectives.
Scope of the report
This report focuses on reliefs intended to promote economic growth, within the wider system of tax reliefs.
We examined whether HM Treasury and HM Revenue and Customs (HMRC) have an effective system in place to manage and respond to risks affecting tax reliefs with economic objectives in a timely and proportionate way.
The report considers:
- to what extent HMRC has improved its assessment of the costs of non-structural reliefs
- whether HMRC has proportionate and timely monitoring and evaluation of whether objectives are being achieved
- whether HMRC assesses and monitors the risk that tax reliefs are misused and acts sufficiently quickly to respond where abuse arises
- whether HM Treasury and HMRC learn and apply lessons from experience to minimise the risk of abuse and meet objectives in an administratively efficient way
Tax reliefs remain an important policy tool for the government to achieve its economic and social objectives.
However, the number and cost of these reliefs makes administration a significant task, and there are too many examples where these reliefs either do not achieve their economic objectives or are subject to significant error and fraud, costing the Exchequer billions of pounds.
HM Treasury and HMRC have increased the monitoring, evaluation and reporting of non-structural reliefs, but there is still some way to go. Large reliefs, particularly those aimed at economic or behavioural change, require close attention. We have seen examples of tax reliefs where the costs have increased quickly, and far beyond expectations, but it has taken a number of years to identify this, understand why, and then to make changes where there are concerns.
Cost increases are not necessarily a sign of failure, as they could be the result of genuine increased uptake and delivery of benefits. However, the government cannot know the cause if it has not carried out adequate compliance work to ensure only legitimate claimants received the relief, and evaluation activity to establish that the relief secures the desired outcome. It is important that the government investigates and responds to increases in costs of reliefs and evaluations promptly.
It is encouraging that there are now more examples of changes where evaluations have found that tax reliefs are not achieving their economic objectives. HMRC has made important commitments to improve how it evaluates non-structural tax reliefs, but it still needs to achieve greater and more timely coverage.
HM Treasury and HMRC must ensure that hard lessons are learned from the Research and Development (R&D) small and medium-sized enterprise (SME) relief, and that they take the steps needed to prevent such a large failure arising again.
- Report - Tax measures to encourage economic growth (.pdf — 434 KB)
- Summary - Tax measures to encourage economic growth (.pdf — 157 KB)
- ePub - Tax measures to encourage economic growth (.epub — 2 MB)
- ISBN: 978-1-78604-530-0 [Buy a hard copy of this report]
- HC: 445, 2023-24
View press release (31 Jan 2024)