The Council on Economic Policies (CEP) and ODI Global recently co-hosted a roundtable to discuss tax expenditure policy in the UK, as well as support by high-income economies to low-income countries to improve tax expenditure policy making. The roundtable featured the release of the Tax Expenditures Country Report (TECR) for the UK, authored by Professor Adrian Sinfield, as part of the series of country reports by CEP and the German Institute of Development and Sustainability (IDOS).
VIDEOS: If you missed the online event or could not join in person, you can watch them on YouTube
Panel Discussion 1: Tax Expenditure Policy in the UK | Watch HERE
Panel Discussion 2: Tax Expenditure Reform and Finance for Development | Watch HERE
Panel Discussion 1 | Tax Expenditure Policy in the UK
Moderator: Sierd Hadley – Senior Research Fellow, Development and Public Finance, ODI Global
Speakers:
- Adrian Sinfield – Emeritus Professor of Social Policy and University Fellow, University of Edinburgh
- David Phillips – Associate Director, IFS
- Louise Bladen – Director, HMRC Value for Money Audit, National Audit Office
- Andy Summers – Associate Professor of Law and Director of the Centre for Analysis of Taxation (CenTax), London School of Economics
Panel Discussion 2 | Tax Expenditure Reform and Finance for Development
Moderator: Peter Hurst – Senior Technical Adviser, TAXDEV Kenya and Uganda
Speakers:
- Alistair Lobo – Tax and Economic Growth Lead, Foreign, Commonwealth and Development Office
- Sheila Nuwamanya – Principal Economist, Research and VAT, Ministry of Finance, Planning and Economic Development, Uganda
- Lucie Niyigena – Tax Policy Analyst, Ministry of Finance and Economic Planning, Rwanda (Tax Policy Directorate)
- Christopher Hoy – Economist, Poverty and Equity, World Bank
Background
Tax expenditures (TEs) – often called tax reliefs, tax subsidies, tax breaks or tax benefits – provide preferential tax treatments that lower government revenue and the tax liability of the beneficiary. Their impact is sizeable: according to the Global Tax Expenditures Database (GTED) the global average revenue forgone is 3.8 percent of GDP and 23.0 percent of tax revenue over the 1990-2022 period. Several G20 countries such as Australia, Canada and the United States forgo more than 6 percent of GDP in government revenues through tax expenditures.
Besides their widespread use and magnitude, the lack of transparency in the field is often striking: according to the latest version of the GTED half of the 218 jurisdictions surveyed worldwide do not publish any official report on TEs. Moreover, the Global Tax Expenditures Transparency Index (GTETI) shows that, even when information on TEs is published, the quality, regularity and scope of disclosure varies, and is often very limited.
In the UK, ministers introduce and amend tax reliefs. They are a joint responsibility: HM Treasury takes strategic oversight while HM Revenue and Customs (HMRC) administers them, including their monitoring, maintenance and evaluation. TEs in the UK result in a considerable release of fiscal resources by central government, little known and off-budget. The official estimated cost adds up to 7.6 per cent of GDP in 2023-24, equivalent to a quarter of total tax revenue collected.
Since 2020 significantly fuller listings of tax expenditures with many more estimated costs and explanations have been released annually. Yet there is still significant room for improvement when it comes to the transparency and scrutiny of TEs. The GTETI – the first comparative assessment of TE reporting, which provides a systematic framework to rank countries according to the regularity, quality, and scope of their TE reports – currently shows that the UK ranks 39th out of 105 assessed countries, scoring 51.3 out of 100.
TE evaluation is another key area where a significant gap needs to be filled. Evaluating the cost-effectiveness of TEs is vital to identify which provisions are value for money and which ones should be reformed or simply eliminated. According to a 2024 report by the National Audit Office (NAO), HMRC has completed only 36 evaluations of the 341 identified tax reliefs since 2015 and only two since producing its evaluation plan for tax reliefs in 2021. Besides cost-effectiveness, TE evaluation is also essential to identify and measure the undesired effects that TEs might trigger, for example, on inequality. Many TEs are “upside-down” policies because their value depends on taxpayers’ marginal tax rates. Hence higher-income earners (at higher marginal tax rates) get a larger benefit than lower-income taxpayers. A recent report published by the NAO showed that, “taxpayers can use a range of tax reliefs to reduce their tax liabilities. For personal taxes, there are around 200 ‘non-structural’ reliefs, designed to reduce the tax burden on particular groups or sectors, encourage a particular behaviour or serve a social purpose. For the majority of these reliefs, HMRC has published either no estimate of the tax cost to the Exchequer of the relief, or only older, single-year estimates, though its coverage is improving.”.
CEP and the German Institute of Development and Sustainability (IDOS), launched last year the series Tax Expenditures Country Reports (TECRs), which consists of country-specific reports that follow a standardized structure and provide a deep dive into national TE regimes. Each TECR is focused on topics such as TE transparency, the fiscal cost of TEs, TE benchmarking, TE evaluations and the political economy surrounding TE policy making. The TECR for the UK, authored by Professor Adrian Sinfield, will be officially launched during this event and will kick-off a panel discussion on domestic TE policy in the UK.
After this first session, the event will broaden the scope of the discussions to focus on TE policy in low- and middle-income countries. Tax policy reform in general, and the rationalization of TEs in particular, can significantly contribute to domestic resource mobilization (DRM). Like several other high-income countries, the UK – through the Foreign, Commonwealth & Development Office (FCDO) – has been supporting DRM efforts in low- and middle- income countries through Official Development Assistance (ODA). In particular, the UK Government established a Public Finance Centre of Expertise as part of UK International Development through the FCDO which provides specialized expertise including the Centre for Tax Analysis in Developing Countries (TaxDev) initiative (implemented by ODI Global and the Institute for Fiscal Studies (IFS)). The second panel will highlight experience of TE reform in TaxDev country partnerships and explore challenges and opportunities for strengthening TE governance and its implications for development.
Contact: Should you have questions about the event, please reach out to Agustin Redonda ([email protected]) or Hazel Granger ([email protected])
Venue: ODI Global, 4 Millbank, SW1P 3JA London, UK