Tax reliefs cost the equivalent of the NHS annual budget
The Resolution Foundation said the figures showed the need for greater scrutiny of these reliefs. They equate to more than £6,000 per household in the country, but 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). In contrast, the tax reliefs on Isas look relatively small, at £2.9bn. This may be because most Isas still go into cash, where interest rates are low and the tax saving not significant.
The Foundation said tax reliefs aren’t scrutinised for their efficacy in the same way that other tax cuts or spending increases. It pointed out that Entrepreneurs’ Relief has cost over £20bn over the last decade and argued it has little impact in encouraging entrepreneurship. It also said some very large gains go 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.
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.” The Foundation also said that there are now over 1,000 tax reliefs and the system is due for some simplification.
Sarah Coles, personal finance analyst at Hargreaves Lansdown said the statistics showed how much people are saving by using tax wrappers: “We know that putting money into an ISA or pension stops us paying more tax than we need to, but it’s easy to forget just how much we’re saving. These figures show that between them, they slash our tax bill by a jaw-dropping £27.2 billion. And that’s just in income tax – stocks and shares ISAs are saving us a small fortune in capital gains tax too.”
“When you’re making a real effort to put money aside, it’s incredibly frustrating to have to watch the taxman swoop in and take a generous slice. By using a tax wrapper like an ISA or pension, you can keep his grubby mitts off your money, hang onto that slice for yourself, and reap the full rewards of all your efforts.”