Administration and effectiveness of HMRC – written evidence

Written evidence 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 over 300,000 members. We represent 60,000 staff in Her Majesty’s Revenue and Customs (HMRC).

2. PCS welcomes this timely inquiry into the effectiveness of HMRC. We are happy to supplement this submission with any further written evidence and welcome the opportunity to provide oral evidence to the committee.

Job Cuts and office closures

3. PCS has always accepted the need to work with the employer on ways to improve ef ficiency in the civil service. However, cuts in HMRC budgets have already had a detrimental effect on its ability to deliver .

4. At the time of its creation, HMRC employe d just over 104,000 staff. Over the last five years the department has reduced its staffing c omplement to just over 75,000. In addition, HMRC has closed more than 200 local tax offices, and is in the process of closing or radically reducing the opening hours of 200 walk-in tax enquiry centres.

5. We always accepted that a degree of rationalisation was necessary to streamline the two previous departments and reduce costs, PCS is concerned about the clear correlation that exists between the job cuts and office closure programme and the ability of HMRC to collect and administer tax effectively.

6. We welcome the announcement that £917m will be diverted into extra jobs in enforcement and compliance. However, this re-investment comes after efficiencies equivalent to 25% of HMRC’s budget. The cuts over the course of the Spending Review period will total a further £ 3 bn so the £917m investment has to be seen in this context.

7. W hilst any re-investment in HMRC to tackle tax evasion and avoidance is welcomed, the amount of monies involved are inadequate and will not be sufficient to clos e the tax gap.

8. Job cuts are counterproductive and as we stated in our evidence to the committee in March 2009, will do nothing to ease a worsening national economic situation. When the average tax yield of a member of staff working in tax compliance is £640,000 each year after staff costs it would be more economical to devote significant resources to this area than to have to cut these staff.

9. Instead, t he loss of 25 ,000 staff and the closure of over 200 offices since its formation has left HMRC severely denuded of resources in areas where experienced staff based in local communities are needed to collect revenue , enforce and encourage tax compliance and foster public confidence in tax collection and administration.

10. Cutting a further 11,5 00 (FTE) staff by the end of this Spe nding Review period will exacerbate an already unsustainable staffing and resourcing problem. Income to the Treasury can only be put further at risk in the vent of further job cuts.

11. Any f urther cuts will be made at the expense of basic services in "admin" functions. Already c uts to the Estates and Support Services (ESS) budget has led ESS to consider reductions to the requirements for the cleaning of offices, which will ha ve a knock-on effect to the health and safety of staff. Cuts in the c ommercial budget have led to the withdrawal of pool cars necessary for staff to visit customers, and to cover the work of remote offices which have already been closed. A recruitment ban has meant shortfalls in the security guarding teams at larger sites, leading to problems in security cover.

12. PCS believe that the delivery of high quality public services go hand-in-hand with good working conditions to produce a highly motivated workforce, increased productivity, lower absence rates and a greater emphasis on innovation and development but staff morale in HMRC, and the confidence that staff have in the department’s senior leadership, has significantly worsened with each successive year of its existence. Low morale is a direct product of job insecurity, chronic underfunding across the org anisation, increasing workloads .

13. HMRC’s reductions effort has fe lt haphazard and ill-conceived. The department’s drive to close offices, and to manage its estate, has often resulted in the arbitrary selection of staff for early departures, or left staff so demoralised that they have chosen to leave. I t has subsequently released staff with the skills, knowledge and experience that it now needs to replace in order to re-engage in tax compliance and enforcement work . HMRC has not yet finished closing offices with the consequential impact on jobs and communities. For example Wick in the far north of Scotland is under threat of closure despite there being no other HMRC presence north of Inverness. PCS believes a good case can be made for retaining the Wick office to police all enforcement and compliance functions in a huge area.

14. PCS call for an honest appraisal of the work that need s to be done to ensure that taxes and duties are properly assessed throughout the UK . PCS contend that a risk assessment would show that it is big business and multi-national corporations that should be targeted by HMRC, and that this is one area where suffici ent staff, trained in this work need to be deployed.

15. We understand that HMRC will look to expand its IT capability across its compliance centres, which deal with single issue, non complex cases and high volume interventions. W e caution against swapping people for computers. Increasing the reliance on technology without supplementing this with appropriately trained staff to take on the work of the cases it produces follows the pattern of the last five years and is in part responsible for the service crisis in many areas of HMRC.

Compliance

16. HMRC is looking to extend and develop wider coverage of its compliance operation whilst further shrinking its geographical footprint . We are concerned that HMRC plan to make all staff desk based, conducting compliance operations only over the phone and by letter rather than through face to face work with businesses and t ax payers .

17. The deterrent factor could soon be lost as people quickly recognise which areas of the UK are not policed. I t is an easy task for a company to change its principal place of business to an area such as the south west , where there is much less chance of a visit from a tax officer than the urban centre s. T he company does not necessarily have to be based there to avoid a b ooks and records examination.

18. H undreds of highly experienced compliance staff have left HMRC, with many staff currently involved in compliance work approaching retirement age.

19. HMRC’s small and medium enterprise (SME) team has conceded that it will have to temporarily promote 50 VAT officers to H igher O fficer grade in order to attemp t to deliver this year’s target, leaving outstanding work in some areas that cannot be dealt with.

20. V ital skills cannot be instantly replaced. It takes a minimum of four years to train staff to Grade 7 standard and two to HO , s o potentially HMRC will not be producing trained compliance officers until the end of the spending review perio d . Having trained officers in place by year four of the CSR will be central to HMRC’s ability to deliver the £ 7 billion increased tax yield per year . Our experience has been that t he tension created by having to deliver against more stretching targets with l ess people means training slip s down the agenda.

21. There is a growing imbalance between HMRC’s resources to tackle tax avoidance and the growing resources in the form of lawyers and accountants being deployed by large companies and rich individuals to avoid paying tax. PCS are concerned that the lower end, low yield value casework, will be left untouched while the department aims its strategy at evasion and avoidance, particularly at the higher end. This is partly because of the limited capability of the ‘caseflow’ IT technology, but also because the department do not currently have sufficient personnel.

High Net Worth Unit

22. PCS is concerned that since the disbandment of the Complex Personal Return Team in March 2009 many thousands of the top UK tax payers no longer have the services of a dedicated case owner and customer relationship manager. 35,000 taxpayers whose tax affairs were handled by this dedicated and highly trained team are now dealt with by the wider HMRC tax network which is so fragmented, and staffed in some areas by people with insufficient training, that HMRC are not adequately able to assess the risks or generally guarantee that the tax affairs of these individuals are being dealt with appropriately.

23. The new High Net Worth Unit (HNWU) now only deals with the super rich, who themselves have an army of professional advisers behind them. The HNWU are relatively few in number and do not have the same level of support. A recent skills and preference exercise has seen 80 of the 400 or so staff in this unit declared surplus and sidelined into research work.

Debt Management

24. During 2010/11 HMRC’s Debt Management and Banking business area (DMB) was allowed to maintain its staff headcount at the level it was at the end of 2009/10. It was allowed to recycle any savings achieved through natural wastage by recruiting additional staff into its Debt Management Telephone Centre (DMTC). However in the first 6 months of 2010/11 staffing in DMB fell from 8,113 to 7,738.

25. As of September 2010 the HMRC debt balance shown on its debt management systems was £20.668bn. There are differences between the method used to calculate this amount and the debt balance shown of the departmental accounts. These are explained in paragraph 1 of the NAO Report on the Management of Tax Debt published in November 2008.

26. In September 2010 the number of outstanding debt cases was 18.2 million. In September 2007 the number was 11.02 million. In the second quarter of 2010/11 the amount of written off or remitted tax debt was £1.149m.

27. DMB has moved to a campaigns approach of managing tax debt cases meaning local DMB offices undertaking cases on basis on the type of the debt rather than by geographical area. This approach has led to some major difficulties in recent months.

28. Earlier this year HMRC staff within Field Force, who undertake face to face debt recovery work, found that cases were not being referred through to them as quickly as they should because they are being held in the campaign offices.

29. PCS is unhappy that in many instances Debt Collection Agencies and HMRC staff are pursuing the same taxpayer for tax debts on different heads of duty. It seems wrong that a DCA could be pursuing a taxpayer for example for VAT and obtaining a commission and HMRC staff could be pursuing the same taxpayer PAYE.

30. PCS has raised its concerns with HMRC and they provided the following reply: "The DMB campaign strategy is that debts are not linked. It is only once a case goes to the Enforcement and Insolvency Service (EIS) [or referred for County Court Judgment] that debts are linked. The customer can be pursued separately by different parts of the DMB business for different HOD [heads of duty] debts simultaneously & this is in keeping with the strategy. This was the practice in the pilot and currently maintained for the 2010/11 programme i.e. that certain debts may go to DCA’s while other debts belonging to the same debtor may be handled differently e.g. may go for distraint action."

31. PCS believes that this practice is contrary to assurances given by the Government in late 2009. HMRC have now stated they will not meet the commitment the government made in their response to a report by the Public Accounts Committee (PAC 26th Report of 2008/09 – Management of Tax Debt) to incorporate VAT debts into the debt management computer system (IDMS) by the end of 2010. They plan to implement a partial solution during 2011.

32. HMRC has undertaken during 2010/11 to protect tax revenues by reducing the proportion of tax debts remaining:

a. By 8% at 30 days compared with 2008/09

b. By 13% at 90 days compared with 2008/09

[HMRC Departmental Strategic Objective 1.3]

33. To date HMRC has produced no statistics indicating what progress has been made towards this objective.

34. PCS remain concerned that HMRC intends to continue using automated voicemail and SMS text messages to collect debts. HMRC do include a reference to their website which can be used to check the veracity of the message. However PCS believes that this will not prevent potential fraudsters as it assumes that all taxpayers have access to the internet.

35. HMRC has given assurances that in dealing with debtors they comply with both the Credit Services Association Code of Practice and the Office of Fair Trading Debt Collection Guidance. These provide that debtors should not be pressured to sell property or to raise funds by further borrowing. PCS are aware that in many instances staff are encouraged to obtain debt repayments by credit card. We do note that Parliament did enact legislation to allow HMRC to collect debt repayments by this method.

36. HMRC staff handle debt collection in a professional manner. We believe that the debt collection function should remain in-house and that more staff would ensure that debts were collected.

PAYE

37. HMRC’s backlog of open PAYE cases has risen to 17.2 million. This is due to problems with the NPS computer system (and its predecessor), and to the lack of adequate resources invested due to the cuts. Approximately 350 HMRC staff from elsewhere have been deployed to deal with the backlog.

38. HMRC has stated that NPS, the new computer system, will have cleared up to 85% of the backlog by April 2012, but the system is very complex and has already demonstrated problems. NPS has failed to deliver the efficiencies and benefits that were predicted it would achieve this year and HMRC now contends that it will take a further eighteen months to sort out the backlog.

39. PCS has been informed that staff numbers in Processing will remain stable in 2010, but there are still 400 ‘O’ grade staff under threat and the staff who have been deployed to deal with the open case backlog face an uncertain future. PCS is aware that under current efficiency proposals, staff cuts will increase by a further 5-10%.

40. Any change to PAYE which involves the outsourcing or offshoring of work causes great concern regarding confidentiality and data protection.

Contact Centres

41. There is likely to be significant problems for contact centres in dealing with the demand generated by the clearing of ‘open’ and extra statutory concession (ESC) cases.

42. When HMRC ran the end of year reconciliation work for 2009/10 and 2008/09 they initially estimated that 35% of underpayments and 5% of overpayments would generate calls to the contact centres. The initial tests indicated that demand would be much lower than that but the estimates proved unreliable and Contact Centre Directorate (CCD) have now had to move an additional contact centre (Manchester) onto the ESC work.

43. ESC A19 is an extra statutory concession that allows tax payers to request to have their underpayment written off if they can demonstrate 3 things:

i) They provided HMRC with the correct information at the appropriate time

ii) HMRC failed to act on that information in a reasonable time (within 12 months of the end of the relevant tax year)

iii) They had a reasonable belief that their tax affairs were in order.

44. In a large number of cases for the 2008/09 and 2009/10 tax years, the extra statutory concession did not apply as 12 months had not passed since the end of the relevant tax year. When HMRC starts issuing notices relating to the open cases from previous years (purported to be as far back as 2004/05) it is likely to receive a deluge of calls about the ESC, particularly given how much press attention this issue has generated and how many websites and news outlets are actively advertising the extra statutory concession. Even if people aren't aware of the ESC they are still likely to call when they receive notification that they have under or over paid tax as far back as six years ago.

45. Demand is likely to escalate far beyond the already seriously understaffed contact centres. It has recently been announced that Litherland House, Bootle and Saxon House, Leicester would be moving from CustOps work to CCD to help deal with the expected demand in January - March resulting from the usual SA deadline peak and the annual coding cycle which begins in February. By adding demand at a time when contact centres on the taxes line of business are already in peak, HMRC is pushing CCD to breaking point.

46. CCD has had an external staff recruitment ban in place for the last 2 years. In total, approximately 2,700 people left or will leave CCD over 2 years (2009/10 and 2010/11). None of these will be replaced. This equates to approximately 25-30% of the staff within the directorate.

47. This has already impacted heavily on performance as reported in by the PAC and TSC. Data shows:

· Callers up 20% from 2009/10 to 2010/11

· Call attempts up 100% from 2009/10 to 2010/11

· Engaged and busy tones played up from 7 million to 39 million in 2010/11

48. The current CCD performance prediction for 2010/11 is for 40-50% of call attempts answered.

Conclusion

49. PCS submitted evidence to the Treasury Committee in 2004 as part of its scrutiny of the proposal to merge the Inland Revenue and Customs & Excise. Our view at that time was that it presented an opportunity to establish:

a. a ‘model’ government department delivering high quality services with communities;

b. additional government revenue;

c. a safer society;

d. and good quality job opportunities.

50. PCS believe that the current government still has the opportunity to meet these objectives. The £917 million re-investment package could present an opportunity to employ more staff on work that would generate billions of pounds from uncollected tax rather than continuing to seek millions of pounds from job cuts.

51. Sufficient resources are needed if the government are serious about meeting the terms of HMRC’s recently published vision - "to close the tax gap; to make our customers feel that the tax system for them and even-handed; and to be seen as a highly professional and efficient organisation." HMRC cannot deliver these aims when they are given £917 million on the one hand and have £3 billion taken away on the other.

52. This government could address the budget deficit by investing the necessary resources in HMRC to collect taxes due. This would minimise the impact on vital public services. Unrealistic budget constraints on HMRC will only result in arbitrary job cuts and inadequate means with which to achieve efficient tax collection and address the closure of the tax gap.

53. We believe it is time for cuts in HMRC to be halted before the problems that have built up become irreversible.

54. The continued failure of HMRC to secure the support of its staff will continue to pose a threat to quality public service and the ability of HMRC to deliver key targets. Our aspirations for decent working conditions for our members go hand-in-hand with the delivery of high quality public services and a properly resourced public sector.

November 2010