By Agustin Redonda (Council on Economic Policies) and Adrian Sinfield (University of Edinburgh).
—
Earlier this year, the first in-person conference of the Social Policy Association’s Tax and Social Policy Group at the London School of Economics brought together academics, policymakers, and civil society representatives to explore the deep and often overlooked influence of tax policy on wealth inequality. The discussions focused on how tax systems, intentionally or not, preserve (and sometimes even exacerbate) historical inequalities, for instance, by creating a myriad of advantages for the wealthiest while limiting fiscal space for the provisions of public goods and services.
Several key aspects of the operation of tax systems were discussed in this regard, including the existence of a so called “wealth defence industry” (a network of professionals, institutions, and services dedicated to helping wealthy individuals and families protect, preserve, and grow their assets while minimising their exposure to taxation and regulation). Interestingly, one dimension stood out: tax expenditures (TEs) – often referred to as tax reliefs – i.e., tax provisions providing preferential tax treatment to certain groups of taxpayers or activities.
TEs can be powerful policy tools and are used widely around the globe. Governments use them to pursue different policy goals such as creating employment, supporting specific sectors and greening the economy. Yet, they’re costly as they trigger significant revenue losses, and are rarely subjected to the same levels of scrutiny, monitoring, and evaluation as their direct spending counterparts. As highlighted by recent data from the Global Tax Expenditures Database (GTED) and the Global Tax Expenditures Transparency Index (GTETI), this is a global issue: whereas global revenue forgone lies at around 4% of GDP and 25% of tax revenue, half of all jurisdictions publish no official TE report, and even in countries that do, their quality and scope are often strikingly limited.
Governments worldwide implement TEs to achieve valuable policy goals such as attracting investment, creating jobs, boosting R&D and greening the economy. Yet, besides stated policy objectives, they can trigger a significant fiscal cost and face a striking lack of scrutiny. They can also be highly regressive and very often disproportionally benefit wealthy individuals. This was one of the main topics covered during the event in January. The discussion around the regressive impact of pension related tax reliefs and their huge cost for public coffers, for instance, triggered a heated debate back. Interestingly, this topic still high-up in the political agenda and public debate as some commentators have been calling for a reform of pension subsidies as the debate around the fiscal deficit starts to gain momentum ahead of the Autumn Budget.
In the UK, official figures estimate the cost of TEs at more than 7.5% of GDP in 2023–24. Yet these provisions are only visible in the public budget if explicitly specified. The UK ranks 39th out of 105 countries in the GTETI, and (as in most of the countries worldwide) evaluation gaps are somehow worrisome. According to a 2024 report by the National Audit Office (NAO), only 36 of the 341 identified tax reliefs have been evaluated since 2015. In addition, many TEs are highly regressive in design, disproportionately benefiting the better off, as discussed by another (more recent) NAO report.
Against this backdrop, the Council on Economic Policies (CEP) and ODI Global is convening this new event Tax Expenditures: Challenges and Opportunities in the UK and Beyond to pursue these topics further. The meeting will mark the launch of the UK Tax Expenditures Country Report (TECR), authored by Professor Emeritus Adrian Sinfield, which provides a detailed assessment of the country’s TE regime, and discusses different aspects including governance, transparency, fiscal cost (revenue forgone), redistribution as well as TE evaluation.
The conversation will then expand to a global perspective, exploring lessons from low- and middle-income countries where TE reform can be a crucial lever for domestic resource mobilization (DRM). Hazel Granger (Senior Research Fellow at ODI Global) will kick-off the second session by highlighting the experience of TE reform in the Centre for Tax Analysis in Developing Countries (TaxDev) country partnerships, and explore challenges and opportunities for strengthening TE governance and its implications for development.
Both sessions will end with a panel discussion where we expect to be joined by policy makers and renowned experts from the UK and beyond – stay tuned for further news about the line-up.
The event will be broader than the one organized in January as it will move beyond the impact of TEs for wealth inequality to discuss TE policy making from a holistic approach, covering several areas that are vital across the different stages in the TE Policy Cycle both nationally and internationally. At the same time, it will be narrower as it will not look into the interconnections between (broader) tax policy and inequality, but rather focus on a specific subset of tax policy: TEs. In any case, as in January at the LSE event, we expect that the regressive impact of TEs (including tax reliefs for pensions) and other topics underscoring the interconnections between TEs and inequality will be at the core of the forthcoming event as well.
—
Image credit: liushuquan from Pixabay.