The UK’s Public Accounts Committee (Pac) and National Audit Office (NAO) have taken aim at the government, claiming that HM Revenue & Customs (HMRC) “does not understand the impact of the largest tax reliefs”.
Responding to the Pac report on the management of tax reliefs, the government said that a review into the impact of pensions tax relief is not needed, as it has already been assesed through other consultations.
These include looking at the administration of pensions tax relief, transitional agreement changes and variations to income thresholds for the tapered annual allowance.
The government said: “These investigations included gathering views and evidence from stakeholders to understand the regime’s impacts and the impacts of possible changes.
“The evidence provided directly influenced policy development. For example, responses to the 2015 wide-ranging consultation on pensions tax relief indicated there was no clear consensus for reform at that time; and so, at budget 2016, the then-government announced it would not make fundamental reform to pensions tax reliefs at that stage.
“The government will continue to engage with stakeholders to understand the regime’s impacts and gather evidence through consultations such as those listed above but does not think it is the right time now for a formal evaluation.”
Will some reliefs get the chop?
Rachael Griffin, tax and financial planning expert at Quilter, said that the pressure from the Pac and NAO came from a lack of evidence that demonstrated the current reliefs offer value for money, because some seem to cost more than expected or fail to incentivise the intended behaviours.
“Rishi Sunak, the chancellor, has already moved to cap entrepreneurs’ relief at £1m ($1.3m, €1.1m) on the basis that it was believed few people launching a new business from scratch were actually incentivised by the tax break. The government will now examine the tax system and identify other areas which are worthy of scrutiny.”
In light of the current backdrop, Griffin doesn’t rule out the possibility of some tax reliefs being changed or cut altogether.
She continued: “HMRC have been set a relatively short timetable and will begin reporting back on some of their findings before the end of the year. This could signal reliefs which are in the chancellor’s crosshairs and, given the current scale of government expenditure, it would be no surprise if he sought to amend or abolish some reliefs as a cost saving measure.
“However, it is important the government don’t allow their enthusiasm for fiscal prudence to cloud their judgement. Reforming tax reliefs may save them money in the short term, but it is critical to make careful decisions to avoid any damaging long-term impacts.
“Another formal review of pension tax relief has been deemed unnecessary. A number of investigations have been conducted into the system of incentives for retirement saving already, and we never seem to be far away from speculation that the chancellor may pare back its generosity,” she added.
