The UK’s tax relief bill has grown to a record £164bn in 2018-19 – underlining the need for greater scrutiny of these reliefs – the Resolution Foundation said today (Thursday) in response to the latest annual HMRC tax statistics.
Resolution Foundation analysis shows that these reliefs, which amount to significantly more than the entire health budget, are the equivalent of almost £6,000 per household in the country. But these reliefs do not benefit all households equally.
The biggest single tax reliefs are zero/reduced VAT rates on the likes of food and energy (£53bn), followed by the Capital Gains Tax exemption for main properties (£27bn) and pensions income tax relief (£26bn).
The Foundation says that while there are often good reasons for tax reliefs, they are rarely scrutinised for their efficacy in the way that other tax cuts or spending increases are. It notes for example that Entrepreneurs’ Relief has cost over £20bn over the last decade – far more than originally forecast, and despite having no obvious impact in terms of encouraging entrepreneurship.
While some reliefs benefit almost all families, others see very large gains going to very small numbers of people. The Foundation notes that the average individual gain from agricultural or business property reliefs on Inheritance Tax was around £270,000, while the average gain from Entrepreneurs’ Relief was £50,000.
The Foundation is calling for a full review of tax reliefs to be an integral part of Spending Review process later this year. The need to re-examine these reliefs is particularly pressing as a looming demographic headwind and rising costs are set to put considerable pressure on the public finances. Recent RF analysis found that the cost of maintaining the current welfare state is set to grow by £36bn by 2030.
Given the limited scope for repeating the public spending cuts of the last decade, the Foundation says that the time has come for a major overhaul of the UK’s byzantine system of 1,000 tax reliefs.
Adam Corlett, Senior Economic Analyst at the Resolution Foundation, said:
“Government spending rightly comes under a lot of scrutiny for cost-effectiveness. But tax reliefs often escape even the most basic checks and debate. Today’s figures show that we spend £164 billion on tax reliefs – billions more than we spend on the health of the nation.
“Given the looming fiscal pressures our country faces, it is particularly hard to justify huge expenditures on Inheritance and Entrepreneurs’ reliefs, both of which overwhelmingly benefit small numbers of the very wealthiest households.
“Reviewing the value-for-money of these tax reliefs should be an integral part of the Spending Review process later this year.”
Notes to Editors
- The HMRC’s estimated cost of principal tax reliefs for 2018-19 are available here.
- The Foundation’s total figure excludes tax reliefs such as the personal allowance and capital allowances, which are integral parts of the tax system. The remaining ‘tax expenditures’ are based on categories first developed by the National Audit Office.
- Public sector ‘health’ expenditure in 2017-18 was £146bn, and is set to increase slightly in 2018-19.
- For more information contact Rob Holdsworth on 020 3372 2959 or 07921 236 972.