Should HMRC Merely Administer Tax Law Or Actively Evaluate It?

We have what looks like a very odd demand from Parliament here, that HMRC should be the people who actively evaluate tax law rather than just the administrators of it. If this is to be so then what’s the point of Parliament itself? Indeed, given the whining we get from Parliament concerning what HMRC does often enough say about tax law then why would they want to have them as that independent arbitrator?

HMRC does not know whether a large number of tax reliefs deliver value for
money. HMRC currently provides 424 tax reliefs. The number of tax reliefs
continues to grow, increasing the complexity of the tax system. HMRC estimates
that 105 of these tax reliefs cost £416.8 billion in 2017–18. HMRC estimates that a
further 80 tax reliefs have nil or negligible cost. But HMRC does not report a cost
for the remaining 239 tax reliefs because in the large majority of cases it considers
the cost of collecting the data needed would be disproportionate, although it does
make internal estimates for some of these reliefs. Gaps in HMRC’s understanding
of costs means it cannot assess the value for money of many tax reliefs designed to
deliver particular policy objectives. It also limits the input HMRC can make into
HM Treasury’s decisions on the design and scale of existing and new reliefs.
Recommendation: HMRC should take more responsibility for ensuring tax reliefs
provide value for money. In particular, HMRC should set out, by April 2019, an
approach for improving its understanding of the cost for those tax reliefs where it
does not already have that information.

Well, OK. Sure, someone, somewhere, should be trying to work out whether tax reliefs are worth having. There is an interesting debate we can all have, us neoliberals tending to be on one side of it, the left on the other. Should we expand the tax base by not having tax reliefs and thereby enabling lower rates for all? Or should we try to pick winners – that thing government does so well – and grant privilege to certain at the cost of higher tax rates for all others?

But look again at what the detailed hope is.

Tax reliefs are designed to benefit the economy or support wider government
aims by reducing tax, for example, for particular groups, individuals or things.23 HM
Treasury is responsible for the design of tax reliefs, which HMRC administers.24 We
previously examined HMRC’s administration of tax reliefs in our 2016 report on HMRC’s
performance in 2015–16. We concluded that, despite repeated recommendations, HMRC
“still does not make tax reliefs sufficiently visible to support parliamentary scrutiny and
public debate about areas where the UK chooses not to collect tax.” We recommended that
HMRC include an analysis of tax reliefs and their costs in its annual report and make clear
why it collects data for a minority of tax reliefs.25 HMRC accepted our recommendation.26
It now includes a summary of the cost of tax reliefs in its annual report, and publishes
material showing the cost of individual reliefs, or stating the reason why it has not costed
a relief.27
12. HMRC’s total forecast of the costs of tax reliefs for 2017–18 is £416.8 billion. HMRC’s
annual report explains this estimate reflects the costs of 105 reliefs. HMRC assesses a
further 80 reliefs have either a nil or negligible cost. It has not published estimates of
the cost of the remaining 239 reliefs.28 HMRC told us that for 179 of these 239 reliefs,
information on the use of the relief is not required in tax returns and HMRC judges the
cost of collecting usage data would be disproportionate.29
13. We asked how HMRC knew whether tax reliefs provided value for money if it did not
know how much 239 reliefs cost.

The thing is, it’s not HMRC’s job – and we should be horrified if it were – to judge whether the tax system is worth it. That’s politics, not administration. Thus it’s the province of politicians, not administrators.

Take a tax, one that often enough has reliefs- tariffs upon imports. There are often enough quotas which gain lower tariff barriers. So, it’s a tax relief. The biggest are suffering from these is food and other agricultural products. OK, now we get the impartial and disinterested administrators of HMRC to evaluate all of this. Neither the tariffs nor the quotas for their relief are going to survive, are they? Because it is trivial to show that such aren’t “worth it,” that they cost more than any benefit they offer. After all, it’s trivially easy to prove that unilateral free trade is the only rational approach to the whole subject.

Or, say, tax reliefs for unions. Obviously, there are some of those. We want HMRC to decide whether those are worth it?

Well, no, no we don’t. Those are the proper province of politics. Thus it must be political beings who decide upon them.

Just to illustrate this, imagine that HMRC did in fact evaluate what politicians decide to do. “No, you idiots, that doesn’t work, isn’t worth it.” Can you imagine the screams from that very same committee?