The Treasury has never undertaken an evaluation of the effectiveness of a tax relief intended to boost entrepreneurship, and scrapping it could free up cash for squeezed public spending budgets including the NHS, a think-tank has said.
In a report examining the effectiveness of the entrepreneurs' relief, the Resolution Foundation said that ending it could provide £2.7bn while adversely affecting very few people.
The relief was introduced in 2008 and now allows people selling companies to pay half the normal rate of capital gains tax on up to £10m of gains.
Labour claimed when it introduced the relief that it would encourage entrepreneurship, a claim repeated by the coalition government from 2010 after it extended the amount that could be claimed.
But the foundation said the relief “has a good claim to being the worst of Britain's main tax reliefs” and was “expensive, ineffective, and regressive”.
No serious evaluation had been made by the Treasury of the relief’s effectiveness, the foundation said, and even among those who claimed it “far more say they were unaware of it either when founding their business or when disposing of it than say it influenced their decisions.
Total reliefs granted exceed the budget for the entire intelligence services and were highly concentrated among a few very wealthy individuals, according to the foundation.
Its analysis showed that in 2015-16, there were claims from 52,000 people for the relief, of whom 6,000 claimed more than £1m. This was equivalent to 12% of beneficiaries claiming 69% of the relief.
Resolution Foundation senior economic analyst Adam Corlett said the £2.7bn relief was “hugely expensive and overwhelmingly benefits a small number of wealthy individuals”.
“There has also been no serious evaluation of the relief, despite it costing £22bn over the past decade,” he added.
"As the Treasury wrestles with how to raise revenues to fund the prime minister's pledge of £20bn for the NHS, they should start by scrapping this expensive, regressive and ineffective tax relief.”
The Treasury declined to comment on the report.