Pension tax relief costs around £38bn, but the government has not assessed whether it encourages people to save and how effective it is, the Public Accounts Committee (Pac) has warned.
In a report published today, Pac suggests the government “knows too little” about the tax reliefs it provides.
The committee has called for a review of UK pensions tax relief. It has recommended HM Revenue and Customs should assess the groups and sectors benefiting from all significant reliefs and publicly report the results during 2021.
For pension reliefs, it has urged HMRC “to publish data showing who is benefiting, split by: income; groups with protected characteristics such as gender, age, ethnicity; people working in the public and private sectors; and people in defined contribution and defined benefit schemes”.
“We were dissatisfied at the fact that none of the 10 largest tax reliefs had been properly externally reviewed by HMRC,” the report states.
HMRC said cost was “only one factor” it considers when selecting which reliefs to evaluate. It also told Pac that it needs to be mindful of which tax reliefs “politicians might be interested in reforming” as there was little point in spending money on evaluating a tax relief in an area where there was no appetite for reform.
According to the Pac report, the 10 most expensive UK tax reliefs cost the public purse £117bn a year.
“But the government’s own, scant evaluation shows that only one of the four reliefs costing more than £1bn a year has the intended effect on economic behaviour,” it says.
Pension reliefs are among the most expensive, with a forecast cost of £38bn in 2018-19.
The report outlines the government has not assessed whether the provision has encouraged more people to save, reduces dependence on state retirement benefits or whether “it just enables those already saving comfortably to save more”.
Pac chair Meg Hillier says: “Every Budget we get tax breaks announced like baubles hung on a tree and they generate great headlines but the truth is the government has little clue about the value of an enormous cost to the public purse.
“It sometimes fails to predict with any accuracy what tax breaks will cost, and there is often too little interest in whether it delivers what it intended to.
“Tax breaks are not freebies – they cost the public purse hundreds of billions of pounds in lost income. The government must know who they benefit and to what end. It’s all, still taxpayer’s money and government must account for it.”
Pac says the impact of Covid-19 on public finances means that it is “ever-more important” that tax reliefs are demonstrably cost-effective.