The Hidden Face of Public Expenditure: trends in tax expenditures in Britain

Abstract

Tax expenditures (the cost in tax forgone through reliefs or exemptions from taxes) are effectively substitutes for public expenditure. The largest tax expenditures in Britain are comparable in scale to major public expenditure programmes. However, the government does not publish information about trends over time in tax expenditures. This article examines some of the political and fiscal considerations arising from the use of tax expenditures in Britain, including the important side effects and distributional impacts. The article then examines trends in a number of major tax expenditures as part of an examination of hypotheses about what expected trends would be under the Conservative government elected in 1979. It is shown that, with the exception of some ad hoc reductions, a tax reform approach of reducing tax expenditures to enable cuts in tax rates has been confined to corporate taxation.