Margaret Hodge, the chair of the Parliamentary committee which scrutinises how the government spends its money, suggested yesterday that HMRC could regulate the sector and that the Charity Commission could be “a little quango on a bonfire”.

At a meeting of the Public Accounts Committee where the Committee MPs grilled two HMRC executives about the recent National Audit Office report on the value for money of charitable tax reliefs, Hodge asked: “Why does the HMRC not regulate charities?”

She suggested it would be better value for the taxpayer if this was the case, adding: “We could put a little quango on a bonfire here.”

But Lin Homer, chief executive of HMRC, said it was not HMRC's aspiration to take over other regulators, and that the Charity Commission has wider functions than tax affairs, such as registering new charities and providing guidance.

Hodge’s comments came just days before the National Audit Office is due to publish its report into the Cup Trust case and the effectiveness of the Charity Commission as a regulator – a report which is widely expected to be fairly critical of the Commission.

During yesterday's hearing, Committee member Guto Bebb MP asked to what extent HMRC relies on the Commission to validate charities and whether the Revenue felt the Commission has enough resource to fulfil its functions, claiming that it has just “four people checking whether charities are real”.

At this, Margaret Hodge interjected to say that the Committee is “about to look at that”.

David Richardson, HMRC's director of counter-avoidance, said HMRC had just signed a new memorandum of understanding with the Charity Commission, which covers the information that can be shared between the two regulators about the personal tax affairs of individual charity trustees.

Under the new memorandum, said Richardson, it would be appropriate for HMRC to tell the Charity Commission if they find out that a trustee has any history of tax avoidance.