It is not uncommon for politicians to compare managing the public finances to running a household budget. Hence the frequent statements about greater public borrowing equating to maxing out the nation’s credit card from Conservatives such as David Cameron and Rishi Sunak. Of course, this comparison is highly misleading – for a start, governments can raise money in tax and borrow more over a longer period of time.
But there is another way the comparison falls down. Households generally have an idea of their outgoings and how much money is being spent. But this isn’t the case for government – at least not when it comes to tax relief, the cost of which is often unclear. Tax reliefs are a key part of the tax system. If a person sells their home, they do not have to pay capital gains tax on any rise in value of their property. In 2022 to 2023, capital gains tax relief on the sale of a main residence is estimated to have cost £35bn. In the same year, income tax relief for registered pension schemes is estimated to have cost £27bn. There are also some less well-known reliefs. Did you know that rock used for cutting building stone with one or more flat sides is exempt from the aggregates levy? In 2022 to 2023, this cost £10m.
