Memorandum submitted by the Public and
Commercial Services Union (PCS)
INTRODUCTION
1. The Public and Commercial Services Union
(PCS) is the largest civil service trade union, with a total membership
of 325,000 working in over 200 civil service departments, non-departmental
public bodies and related areas. We represent the majority of
staff and senior managers in Her Majesty's Revenue & Customs
(HMRC) with over 80,000 members.
2. PCS welcomes this timely inquiry into
the creation of Her Majesty's Revenue & Customs and would
be pleased to supplement this submission by further written or
oral evidence.
3. PCS submitted evidence to the Treasury
Committee in relation to its 2004 scrutiny of the merger proposal.
We expressed both our commitment to high quality public services
and the success of the new Department, and our concerns about
a range of issues including job cuts and the impact on services
to the public. Our view was that the creation of HMRC presented
an opportunity to establish: a "model" Government Department
delivering high quality services within communities; additional
Government revenue; a safer society; and good quality job opportunities.
4. Our experience after nearly two years
of the operation of HMRC is that this opportunity has not been
taken. We have grave concerns for the future of the Department
and its ability to undertake its defined role and meet its core
objectives, not least because of the Government's civil service
job cuts programme. This submission sets out our concerns and
identifies the opportunities that we believe are now available
to build a successful Department into the future.
5. PCS believes that the emphasis should
be on establishing the resources necessary to meet these objectives.
Where any genuine efficiency savings can be achieved within HMRC
as a whole, resources should be redeployed as necessary in an
effort to achieve further net improvements in services. We believe
that it makes more sense to employ HMRC staff on work that would
generate billions of pounds from uncollected tax and excise on
goods currently being smuggled illegally, rather than seek to
generate millions of pounds from job cuts, realising a huge net
increase in government income, making funds available for schools,
hospitals and other services.
JOB CUTS/WORKING
CONDITIONS
6. We believe that the ongoing Civil Service
"efficiency" programme, coupled with HMRC's plans for
change over the next five years, represents a serious threat to
the effective delivery of revenue and customs functions within
the UK.
7. On 16 November 2006 HMRC announced their
intention to consult on proposals to close over 200 offices across
the UK and to reduce the staffing complement in the Department
by a further 12,500 by April 2011. This is in addition to the
current exercise to shed 12,500 jobs under the Gershon review
by 31 March 2008. HMRC has shed over 7,000 posts in the last two
years, and intends to reduce staffing numbers by a total of 25,000
by 2011. The programme of office closures and job cuts will potentially
have a devastating impact on jobs, conditions and the delivery
of public services, particularly in areas where service delivery
is already impeded by inadequate staffing.
8. PCS argue that with the tax gap running
at an estimated £25 billion it is irresponsible to cut thousands
of the very staff who are responsible for preventing fraud, securing
the UK's borders, and collecting taxes.
9. Indeed, in one area of HMRC, local compliance,
the Department's own calculations reveal that shedding 600 staff
will save £74 million on the one hand whilst simultaneously
contributing to losses in tax yield of £204 million. Elsewhere
it is estimated that 5.7 million taxpayers may not be paying the
right amount of tax suggesting a net under collection of tax revenue
of £500 million. [4]
10. PCS supports the call for a public enquiry
into the question of the proper level of resources required to
deliver the key HMRC objectives of effective tax collection and
the detection and deterrence of crime (Early Day Motion 475 refers).
CONSULTANTS
11. The Gershon Report in 2004 recommended
that Departments should reduce the spend on external consultants
as well as being more transparent about their cost.
12. PCS are concerned that since its creation
in 2005 HMRC has failed to address the excessive use of consultants.
Their spend for the financial year 2005-06 as released in a Freedom
of Information request was over £106 million. It is likely
there is also a hidden spend on consultants/contractors contained
within the ASPIRE contract that has been subject to a separate
public accounts committee report. In the same period HMRC reported
savings of £105 million on running costs on the basis of
having cut 4,000 jobs by April 2006. [5]
13. Arbitrary constraints on staffing levels
have led HMRC to adopt creative accounting methods to meet work
schedules. The Department is therefore employing consultants/contractors
to meet work obligations while experienced in-house staff are
being declared surplus to requirements or released on early retirement
programmes. In some cases these consultants are paid five times
the daily rate civil servants are paid. Setting aside the profligate
waste of public money, PCS are concerned that this is clearly
outside the recommendation given in the recent National Audit
Office report[6]
which said "public bodies should start with the presumption
that their own staff are best fitted for their requirements."
STAFF EMPLOYED
ON SHORT
TERM CONTRACTS
14. HMRC have further sought to plug the
gaps emerging following the release of permanent staff by hiring
staff on rolling, limited fixed term contracts. The employment
of staff on fixed term contracts has grown in direct proportion
to the release of permanent staff. Thus at September 2005 there
were 4,400 staff on short term contracts in the Department. This
had increased to 5,369 by June 2006. During this same period the
Department had decreased in size from 95,766 to 92,691.
15. We strongly believe that HMRC will work
best if it values and invests in staff to establish a highly-trained,
skilled and committed workforce with good job security, conditions
and career development opportunities. This will enable HMRC to
draw upon the consequent goodwill and commitment of staff.
EFFICIENCIES
16. In an attempt to realise efficiencies
across HMRC, Lean processing techniques have been introduced.
Lean has been criticised by outside experts as "fundamentally
the wrong thing to do"[7]
and is currently at the centre of a highly damaging industrial
dispute between HMRC and PCS. The imposition of arbitrary targets
and individual work measurement carried out on an hourly basis
with the results shown on whiteboards has proved counterproductive
and demoralising for HMRC staff. The Large Processing Office's
own figures show that there is now a backlog of over one million
letters that are unactioned, some of which are over 12 months
old. Our view is that this indicates that the work is under resourced.
ON -LINE
SERVICES
17. The "E-Filing of Personal Tax Returns
Survey", a survey carried out by the leading accountancy
bodies in the UK, published its findings in December 2006. They
echoed concerns expressed by PCS that HMRC would not be able to
deliver a robust system given their track record, and that they
believed paper returns would still be required after 2008. The
2006 budget report claims Lord Carter's review of online services
will provide a yearly saving of £250 million to government
and taxpayers/agents. However, the Institute of Chartered Surveyors
state: "we are concerned that the bringing forward the filing
date will increase costs for both taxpayers and HMRC and that
these extra costs may dwarf any savings that arise from increased
use of electronic services."
18. PCS believe that there will still be
a continuing need for HMRC staff to be involved in dealing with
post despite HMRC's views that their online services will deliver
substantial job reductions.
TAX CREDITS
19. In their Tax Credit Office HMRC are
seeking to rely on a large number of staff on fixed term contracts,
with a resulting high turn-over of staff. In September 2005 there
were 17,654 Full Time Equivalent staff (FTE) working in centralised
processing, the unit that covers tax credits, which included 2,423
staff on fixed term appointments (FTAs). By June 2006 centralised
processing employed 18,191 staff, of which 3,369, or 18.5%, were
staff on short term, low paid fixed terms contracts. This has
led to a lack of time to train staff properly before they leave,
with staff mainly deployed to clear work-lists rather than properly
managing cases.
20. The NAO had to qualify their opinion
on the Trust Statement as they believe the levels of error and
fraud are unacceptably high and there is no evidence that they
would be lower for 2005-06. The accounts reported that between
£1.06 billion and £1.28 billion (8.8 to 10.6% by value)
being paid to claimants to which they were not entitled. It also
estimates that claimant error resulted in between £190 million
and £280 million (1.6 to 2.3% by value) of tax credits not
being paid to claimants when they were entitled to them.
21. The level of complaints increased in
the first full year of HMRC from 93,754 in 2004-05 rising to 106,783
for 2005-06. 47,921 in 2004-05 and 62,686 in 2005-06 were related
to tax credits.
VAT FRAUD
22. The Government suffered its first fall
in VAT revenues since the advent of the tax in 1973. PCS believes
the fall in revenues is remarkable given that the economy has
had two severe recessions since the early 1970s that did not cause
VAT revenues to drop. In large part this has been due to a rise
in "carousel" or MTIC (missing trader intra-community)
fraud. MTIC fraud occurs when a trader imports goods free of VAT,
then sells them on with the 17.5% VAT added and disappears with
the VAT money. A more sophisticated version is when the cargo
is sold along a chain of traders, some of whom may be innocent,
and re-exported with the exporter reclaiming the VAT—a double
loss for Revenue & Customs. The cargo can then re-enter Britain
and go around the same chain of traders several times, hence the
term "carousel".
23. The Government's own estimates reckon
that VAT fraud is responsible for a £3 billion shortfall
in revenue. European estimates put the figure closer to £8
billion. The Office for National Statistics have admitted that
the problem was so large that it was overstating the true size
of British exports since carousel frauds can show up several times
as exports.
24. HMRC claim that 1,500 staff are now
dedicated to combating the fraud. We would argue that with VAT
fraud running at over £3 billion the area remains inadequately
resourced. HMRC have in fact merely shifted staff from other areas
of VAT work to respond to the crisis in VAT fraud. In the main
the resources that have been diverted are from VAT assurance work.
We are concerned that merely diverting staff from other areas
of work to cover VAT fraud investigations is creating problems
elsewhere in VAT work and across the Department. Taking staff
away from VAT assurance work has led to a significant reduction
in the VAT being examined. The reduction in VAT assurance work
is drastically reducing the number of visits and checks being
carried out, thereby further undermining the deterrent effect.
25. Whilst HMRC may purport to claim that
MTIC losses are being reduced and VAT fraud being tackled, the
approach the Department has taken to shifting staff between work
areas fails to address the real problem that VAT is under resourced.
CUSTOMS COVER
26. PCS have consistently expressed concern
about the inadequacy of resources to provide Customs cover at
ports and airports in the UK. Our concerns support Lord Carlile's
comments made to MPs in March 2003, repeated more recently, that
Customs officers are spread too thinly, and that security at small
ports, airports and coves should be tighter. He said: "We
have to remember that lethal material could be brought into this
country on a small yacht into a small harbour anywhere around
the coastline." The Maritime, Aviation and Intelligence Team
(MAIT) were the only such intelligence team in any law enforcement
agency, and were looked on as the leaders in this field by other
agencies who called on MAIT for intelligence and support. The
MAIT have now been specifically directed away from uncanalised
work. With no equivalent law unit there is effectively nobody
proactively looking for intelligence in relation to anything other
than the very major canalised ports and airports, and nobody identifying
and cultivating sources in these areas.
27. There is now no permanent customs cover
across hundreds of miles of UK coastline, notably in Devon and
Cornwall, where permanent Customs cover was removed in 2003, and
along the Welsh coastline, where there are no uniformed front
line Customs officers from Cardiff to Holyhead or from Holyhead
to Liverpool. There is clear evidence that this has led to an
increase in smuggling of drugs and firearms as well as people,
cigarettes and alcohol. The Department's Annual Report shows that
only 21 tobacco gangs were disrupted in 2005-06 as compared to
87 in 2002-03, with lost revenue from tobacco fraud running at
over £3 billion.
28. We are concerned that inadequate resources
deployed at the UK's borders are having a direct impact on the
availability of illegal drugs, with prices for class A drugs at
the lowest ever recorded. In Middlesborough a bag of heroin can
be bought for £5, and for £40 a gram in towns such as
Gloucester and Penzance, with cocaine available in Birmingham
and Liverpool for £35 a gram, and a tablet of ecstasy for
75p in Cardiff.
29. In April 2006 1,264 HMRC investigation
and detection staff transferred to the newly formed Serious and
Organised Crime Agency (SOCA), which we believe has left a gaping
hole in HMRC's ability to be able to resource and adequately detect
and deter smuggling in the intermediate drugs market.
STAFF PAY
30. Over 82% of HMRC staff are employed
in the lowest three grades, earning basic salaries ranging from
£11,730 (the statutory national minimum wage) to a maximum
of £24,652 (or £28,510 in London). 15.5% have a maximum
salary of £14,783 (£18,765 in London), under the £15,000
threshold for repaying student loans, and 40% a maximum of £18,305
(£22,457 in London).
31. HMRC have been keen to introduce pay
and reward systems that rely on measuring and rewarding performance.
PCS strive for the establishment of a decent and fair pay system
within the Civil Service, which is ultimately not linked to individual
performance but delivers decent levels of basic pay. We believe
that this is consistent with the aims of retaining and motivating
staff and maintaining an expert workforce on the basis of which
further improvements in Departmental performance may be built
in the future.
OUTSOURCING
32. During 2006 two areas of HMRC work were
outsourced to Cap Gemini/Fujutsu under the ASPIRE contract. One
was the High Volume print function at Shoeburyness that produces
and distributes the VAT 100 (VAT return). Due to the new supplier
being unable to cope the print section at Shoeburyness is still
carrying out this work.
33. The IT support officer (ITSO) role formally
carried out by the staff in the Inland Revenue has transferred
to ASPIRE. The current customer satisfaction with the service
is far below that of pre transfer due to the inferior service
being provided. This will have a clear impact on customer service.
The new service centre is unable to manage technical issues and
these are still being dealt with HMRC staff.
34. PCS believe that these are two examples
of why outsourcing does not work in that they do not deliver the
services or economies promised by the supplier at the time of
transfer.
CONCLUSION
35. PCS is committed to achieving high quality
public services and we represent the staff who are the key resource
required to deliver customs and revenue services to the public.
The creation of HMRC continues to generate momentous change and
associated anxiety amongst staff.
36. Morale has reached a new low within
the Department as a result of threats to job security and working
conditions. We believe that working people employed by HMRC should,
as a matter of principle, be afforded decent working conditions
and be treated with dignity and respect. In other words, we do
not believe that Civil Servants should be immune from the standards
expected within a decent society, and should be afforded a positive
and rewarding experience at work. Ultimately there is a balance
to be struck between these considerations and the imperative to
maintain efficient public services.
37. We believe that our aspirations for
good working conditions for our members go hand-in-hand with the
delivery of high quality public services. Evidence shows that
good working conditions leads to a highly motivated workforce,
higher productivity, lower absence rates, lower turnover and a
greater emphasis on innovation and development.
38. We support new ways of working that
improve efficiency and provide a quality service to the taxpayer,
but not at the expense of our members' skills, health and safety,
and their right to be treated with respect at the workplace.
39. We enthusiastically support the objective
of effective, high quality public services. However, we believe
that the level of cuts proposed in HMRC up to 2011 will result
in lower Government revenue, higher levels of crime, a poorer
service to the public and effectively risks rendering HMRC unfit
for purpose.
40. The job cuts programme is already leading
to a resourcing crisis within the Department, resulting in HMRC
employing thousands of staff on short-term, temporary contracts
and using overtime (at an additional net cost to the Government)
in an effort to try to cope with backlogs of work. On one hand
the Department claims that it is meeting its job cuts quota, whilst
on the other being forced to adopt short-term quick (and costly)
fixes to mask staffing shortfalls.
41. We therefore believe that the job cuts/office
closure programme should be reversed, and instead investment made
in the frontline services and resources required to:
— address the huge UK tax gap;
— maintain good quality services within
communities;
— establish effective detection and
deterrence of crime in relation to UK border control; and
— build a safer and more secure society.
January 2007
4 HMRC 2005-06 Accounts: the Comptroller and Auditor
General's Standard Report, NAO, 7 July 2006. Back
5
"Releasing the resources to meet the challenges ahead: value
for money in the 2007 Comprehensive Spending Review", HM
Treasury, Cm 6889, July 2006. Back
6
"Central government's use of consultants", National
Audit Office, HC 128 2006-2007, 15 December 2006. Back
7
John Seddon Vanguard newsletter-May 2006. Back
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