Administration and effectiveness of HM Revenue and Customs - Treasury Contents


3  Staffing and management

40. This Chapter examines a number of concerns that were raised with the Sub-Committee around the staffing and management of HMRC. It addresses low levels of staff engagement (the measure used within the Civil Service to evaluate staff morale and related issues), the culture within the organisation and the impact of changes at the top.

Staff engagement

41. Poor staff engagement at HMRC has been a source of major concern for the Sub-Committee, HMRC management and ministers. In 2009 our predecessors raised concerns in two reports: Administration and Expenditure of the Chancellor's Departments 2007-08 and Evaluating the Efficiency Programme. They linked poor morale to uncertainty about the future among staff, a lack of understanding as to why efficiency targets had been chosen and increasing pressure as a result of having fewer resources to do the job.[40] A year later, in March 2010, they concluded:

We are deeply concerned about employee engagement at HMRC and its effect on performance. We accept that the relatively new senior management team is aware of the issue, and takes its implications seriously. Nonetheless, we are deeply troubled by the apparent absence of any detailed plan to ameliorate the situation. We recommend that HMRC's management re-double their efforts to re-engage with their workforce, and publish a clear and detailed plan to provide focus and direction to their actions. We will continue to monitor this issue closely.[41]

42. Staff engagement figures continue to be poor. The Cabinet Office's autumn 2010 people survey ranked HMRC bottom of the entire Civil Service with an overall positive score of 34% (a composite score made up of responses to key questions)—a 2 percentage point fall on the previous year.[42] HMRC point out that the reduction (which reverses a previous improvement) may be in part due to the negative coverage of the PAYE reconciliations on staff morale—an impact likely to be particularly felt in some of the lowest scoring areas, such as "engagement".[43]

43. In its Response to the Committee's 2010 Report the Government said improving staff engagement is a key strategic objective for the Department and a corporate action plan was being developed within HMRC to achieve this. We understand that the action plan is now in place and will be updated following the autumn 2011 People Survey.[44] The Department's 2010-11 business plan set a target of 60% engagement by March 2012 and above average performance by 2014.[45] We note, however, that the longer-term Structural Reform Plan published in autumn 2010 does not include specific indicators relating to staff engagement (although it contains a commitment to continue publishing staff survey results).[46]

44. The Chairman of HMRC, Mike Clasper CBE, accepted that staff engagement was a major concern, but argued that there was a significant difference between the attitude of staff towards their work and towards the organisation more generally:

Our staff are committed to the purpose; if you go out there, or even if you look at the data, you see people who believe they are doing a very important thing for the country. They are committed to get the money in so that we can fund the nation's public services. The second thing—this is the one that suggests a sort of dichotomy—is that in general they like their work and they want to stay. Normally, that doesn't come with the next two things, which are that they don't feel a positive sense of direction in the department and they don't like change.[47]

Dame Lesley agreed:

I would like to make a plug for my staff, in saying that the great thing we have to build on in HMRC is their passion for their work, their pride in their work and their determination to give good service to their customers. They are not engaged with HMRC as a department, as a brand, and that is a huge part of their work as we go forward as one single department. In my conversations with the trade unions on this subject, some of the things we have already done, like removing barriers from people, moving from one line of business to another, being able to up-skill them and redeploy them, and starting to paint a picture of hope for careers and better investment and targeting investment, and opportunities for jobs, are some of the things we have to do.[48]

45. ARC agreed that "despite the staff survey" staff were "keen in their work", a statement supported by the 72% of respondents to the survey who agreed or strongly agreed with the statement that they were interested in their work. [49] However, the overall average of positive responses relating to "My Work" was 49%, 22 percentage points lower than the CSb (Civil Service benchmark), driven down by very low scores relating to amount of control staff felt they had over their work. Several of our witnesses observed a "command and control" culture within HMRC that may account for some of these figures. We discuss this further below.

46. There has been some improvement in the staff survey results relating to organisational purpose and aims, with greater awareness of HMRC's objectives and how individuals fit into achieving those. However, these improvements are small, and though the positive scores in this area exceed 60%, they remain between 15 and 20 percentage points below the CSb.

47. The Department came out best in relation to "My Team" and "My Line Manager". Scores in this area are 74% and 57% positive respectively—3 percentage points and 7 percentage points below the CSb and with scores improving more or less across the board. Conversely the worst results came under the headings of "Engagement" and "Leadership and Managing Change". Under engagement, only 15% felt proud when they tell others that they worked for HMRC, a full 40 percentage points lower than the Civil Service benchmark, whilst only 12% would recommend it as a great place to work. Under leadership and managing change, HMRC on average scored 17% positive responses, 20 percentage points below the Civil Service benchmark. Only 9% of employees who responded to the survey believed that change in HMRC was usually for the better, whilst 12% responded positively to the suggestion that "HMRC as a whole is managed well". Results in this area fell between 15 and 29 percentage points below the CSb.

48. The poor scores in these areas are a cause for concern as HMRC goes into another period of restructuring. ARC told us "HMRC is going into a massive restructuring exercise with a relatively poor capability and a demoralised workforce that does not trust senior managers to deliver change". They pointed out that the staff survey revealed that "61 per cent of staff have no confidence in the decisions made by HMRC's senior managers" explaining that: "The figures suggest a likely frailty in staff willingness to support changes without significant improvements in the way they are involved in the change process." [50]

49. Mike Clasper accepted that HMRC had managed change poorly and "we need better leadership". However he saw a positive direction of travel:

Looking forward, we have to continue changing. There is no way we can deal with the financial state of the country and the fact that our customers are changing all the time; economic issues and tax policy—we have to deal with change. I think one of the two most important things we have to do, going forward, is to deliver that sense of direction and opportunity that we have not been doing as well as we should have been. The great advantage is that we now have a spending review and a financial plan that fits the direction of travel. The second thing is to have much better linkage between the top of the organisation and the bottom.[51]

50. Staff engagement at HMRC was a major concern of our predecessors throughout the last Parliament. The management team have achieved some small improvements in relation to organisational purpose whilst staff remain dedicated to their work despite the considerable pressures on them and the organisation, some of which originates from outside the Department. However, this cannot conceal the overall picture. Relatively positive staff attitudes towards immediate colleagues and superiors stand in stark contrast with overwhelmingly negative attitudes towards organisational change and the management of the Department. It appears likely that the poor handling of the recent PAYE reconciliations and relentless negative publicity has further harmed engagement and morale. This widespread disengagement is a serious problem for a Department about to undergo further restructuring, and which was described by one witness as "stretched almost to breaking point".[52]

51. The evidence we heard identified two broad causes behind the poor staff survey results: the impact of constant restructuring and staff reductions, and a perceived "command and control" culture.

JOB LOSSES

52. As discussed in the previous chapter, efficiency savings were one of the key aims of the merger of the Inland Revenue and HM Customs and Excise. The combined organisation has reduced staff numbers in each year since the merger, from 92,888 full-time equivalents in 2005-06, to 69,300 in 2009-10—an overall reduction of a quarter. The largest reduction, 11,860 posts (14% of the workforce), occurred between April 2009 and April 2010.[53]

53. The unions representing HMRC workers blamed poor staff morale on these job cuts. Graham Black of ARC told us:

I think there is a much better idea of the strategy of the Department going forward and what they want to achieve, but frankly any series of managers in the position that the current incumbents are in would find it a very, very difficult job. You have a department that will effectively have halved in size over that period [from the merger to the end of the current Spending Review period]. It is very difficult to get a highly motivated and high morale department when you're dealing with that year in, year out; no escape; no times when it gets stabilised; no times when significant things seem to get better. It has a pretty corrosive impact on the department, and senior managers have struggled to come up with an answer to that.[54]

54. In their written evidence HMRC accept that "uncertainty about job security" and "reduced development and promotion opportunities" have impacted on staff morale.[55] It is noticeable that the Department's approach to addressing staff engagement "aims to provide a solution that looks beyond the issues currently experienced by staff, such as the workforce change agenda, and addresses core staff motivators and levers for change."[56]

55. Any organisation facing the constant job losses that HMRC has faced over the last five years would experience problems with staff engagement. The Spending Review settlement means that some areas are likely to experience greater stability, even expansion, whilst other parts of the Department continue to be reduced in size. Ensuring that engagement does not fall still further in these latter areas will be an enormous challenge for HMRC managers.

ORGANISATIONAL CULTURE

56. A second contributory factor identified by our witnesses was a 'command and control' approach to management within HMRC. Martin Lewis, a former HMRC employee, sent us compelling, but disturbing, evidence about his experience of the culture within HMRC:

Middle managers are discouraged from reporting back to the top "bad news" or news that projects and initiatives are becoming unmanageable or are going awry. Such reports are regarded as "negativity" and will damn career progress.

Thus at the top senior managers are largely unaware of the difficulties, problems, and obstacles that the bulk of the organisation faces. They know little of the scale of unanswered phone calls, and the unopened letters, the data quality of tax payers' records and perhaps most importantly the nature and quality of the service provided on a daily basis to the taxpaying public.

The role of middle managers is to struggle vainly and to provide the appearance that their targets have been met. They are not expected to provide reasons why targets are not met, they are just expected to get on and meet them.[57]

57. Chas Roy-Chowdhury of ACCA told us he believed that the organisation was too set it in its existing ways: "I think, culturally, there is a problem because there is a process-driven attitude and they do not want to think outside the box".[58]

58. The unions supported Mr Lewis' views. PCS pointed to figures in the staff survey, suggesting that only 21% of staff within HMRC felt it was safe to challenge the way things are done—18 percentage points (pp) lower than the Civil Service benchmark (CSb).[59] Graham Black told us: "we certainly recognise the sort of cultural issues that were being raised there, and they go right through. We have SCS members, senior civil servants, who feel it is not a comfortable place to challenge accepted practice."[60]

59. Particularly interesting in this regard is the dichotomy in the staff survey results between the perceived willingness of direct line managers to listen to the ideas of staff (70% positive result, 7 pp below the CSb), and the percentages who believe they are involved in decisions affecting their work (28%, 22 pp below CSb) or who believe they have a choice in deciding how they do their work (40%, 30 pp below CSb).[61]

60. HMRC management has introduced a series of initiatives that are designed to improve staff's willingness to engage and raise their concerns. These include opportunities to phone or e-mail problems to staff forums or senior management. However, Martin Lewis suggests that these have become "tightly managed events", with issues rarely being fully addressed.[62] We are not in a position to comment, but note there was no improvement in staff's willingness to challenge in the autumn 2010 survey compared to the previous survey.[63]

61. The implications of such a culture are deeply concerning. As ARC put it in written evidence:

There is a presumption that projects sponsored at the highest levels will not fail, but it is difficult to see how success can be maximised without proper early consultation with affected parties.[64]

62. The unions also identified the level of scrutiny that staff are subjected to as a major part of the problem. Simon Boniface, of PCS, said that "some of the micro-management, is just unnecessary". Staff felt that management did not trust them and subjected them to excessive internal bureaucracy and scrutiny.[65] Both unions agreed that senior management should:

take a deep breath, accept the fact that you were not going to micro-manage people for a period of time; put a bit of trust in them; empower them to do the job; see if they deliver for you; and then if they do, you can stay with that approach and you do not need to command and control.[66]

ARC submitted a detailed series of proposals along these lines on how morale could be improved.[67]

63. HMRC's Chairman accepted that the organisation needed "much better linkage" between the top of the organisation and the bottom. He said that some areas of HMRC had as many as thirteen management layers, and that it was their aim to reduce this to seven or eight.[68]

64. The evidence we have received about the management culture within HMRC, supported by the staff survey results, is very disturbing. There is a perception that the Department is run on the principles of close control and management scrutiny, with little opportunity for individuals to develop autonomy and exercise their skills. Whilst there is a need for consistency in dealing with people's tax affairs and appropriate performance management, a culture such as the one described to us is likely to harm staff morale and lead to disengagement and poor performance.

65. It is particularly concerning that staff feel unable to escalate possible problems up the management chain or challenge established practice. In principle one of the benefits of close scrutiny should be that issues are anticipated and responded to. This does not appear to be the case, as the handling of the 2009-10 PAYE reconciliations shows. HMRC intends to reduce its layers of management to improve communication; however this will achieve little unless the underlying culture of the organisation is changed. We recommend that HMRC engage constructively with staff and unions to see how this can be achieved and report back to this Committee within the financial year.

Leadership

66. The destabilising impact of large-scale job losses has been accompanied by instability at the top of HMRC. After the events of 2007 the Department was restructured around lines of business and responsibilities at the top were rearranged, leading to the current system of a non-Executive Chair working alongside the Permanent Secretary and Chief Executive and Permanent Secretary for Tax. The organisation is about to undergo another process of structural change as a result of the Spending Review process.

67. As our predecessors noted, the 2009 Capability Re-review of HMRC provided a partial vindication of the restructuring. Success stories include the handling of personal data. The Department reported only one major incident of protected personal data loss in 2009-10, compared to five in 2008-09 and nine in 2007-08.[69] Nonetheless the Re-review still concluded that the Department faced a "huge transformational challenge" and identified numerous areas for potential improvement, with staff engagement requiring urgent attention.[70]

68. Whilst the restructuring of HMRC has resulted in some benefits, ARC stressed in their written evidence the destabilising impact of frequent structural change and changes of senior management—especially where that process has been poorly managed.[71] Mike Clasper implicitly acknowledged the importance of some of these concerns when he stressed the importance that he attached to having a new senior management team:

Lesley and I have built a new top team. That includes the non-executives but crucially it is the leadership group of HMRC. When I joined the department there were an awful lot of interims, temporaries, acting-up and so on. So I think we have a top team that I have a lot of confidence in.[72]

69. Dame Lesley and Mr Clasper both stressed the importance of the Department having a clear strategic direction, which had been developed over a number of years following the publication of Vision, Purpose and Way in 2008. We have already discussed how the way in which cost cutting and staff reductions have been managed had been criticised by some witnesses for a lack of strategic direction.[73] Mike Clasper accepted that the frequent changes at the top of the Department had impeded its ability to set a direction for the organisation:

when I joined the department, although there were individual elements of a strategy for the total department, basically an overarching strategy for the total department— one-HMRC strategy—was not in existence. We put that in place.[74]

This view was broadly accepted by ARC, as we saw earlier, although they were sceptical about whether the vision could be achieved given the pressures on the Department.[75]

70. HMRC has been through a period of instability at the top of the organisation that has led to a lack of strategic vision. The current management team has now been in place for two years. It has set out a vision of where they would like the organisation to be, but have yet to demonstrate substantial progress towards achieving those goals and do not yet have the confidence of staff. We intend to monitor progress in these areas closely during the Parliament.

Accountability

71. As we discussed in the introduction, the structure of HMRC was revised following the 2007 Capability Review and the Poynter Review. The Department replaced the complex structure that had been put in place at the time of the merger with a more streamlined one around lines of business. In place of an executive Chairman, the organisation is now headed by a non-executive Chairman, the Permanent Secretary and Chief Executive, and the Permanent Secretary for Tax, the senior tax professional in the Department. The Department remains a non-ministerial Department, accountable to Treasury ministers but not run by them.

72. Our predecessors expressed concerns that the new structure might lead to confused lines of accountability, particularly between the two Permanent Secretaries and in relation to the role of the Chairman.[76] We also pressed the Minister on his role in relation to the Department. He argued that it is right that HMRC should be a non-ministerial department in order to ensure that ministers do not become involved in taxpayers' affairs. However, he said he had a close relationship with HMRC and described his role as:

similar to what the Treasury Select Committee has to do, in that my role is to scrutinise. It is not to operate, direct, but it is to scrutinise and question and press and push and ensure that the concerns that we, as a Government, have about HMRC's performance are conveyed and that HMRC and the Treasury can work closely together in achieving the Government's objectives.[77]

Ministers are accountable in Parliament for the general administration of the Department, but have no decision-making role. We agree that ministers should not be involved in individual taxpayers' affairs. However, the limitations of the Minister's role were apparent when he discussed the impact of legacy issues such as the build up of open cases:

There is a big responsibility for management to try to address that, and it is probably easier for management to sort the problem out than it is for Ministers to sort it out. Maybe I should put it this way: Ministers can make the matter worse, but I am not sure that Ministers can make things better.[78]

73. HMRC has gone through significant changes at the top of the organisation since 2008. The new structure needs time before a proper evaluation of its effectiveness can be made, including whether the model of a non-ministerial department remains the appropriate one. The respective roles of the Minister, non-executive Chairman and Permanent Secretaries are something that we intend to return to later in the Parliament.


40   Treasury Committee, Seventh Report of Session 2009-10, Administration and Expenditure of the Chancellor's Departments 2008-09, HC 156; Treasury Committee, Thirteenth Report of Session 2008-09, Evaluating the Efficiency Programme, HC 520 Back

41   Administration and Expenditure of the Chancellor's Departments 2008-2009, para. 66 Back

42   Civil Service People Survey 2010, http://www.civilservice.gov.uk/about/improving/engagement/people-survey-2010.aspx  Back

43   Ev 97 Back

44   Government Response to Administration and Expenditure of the Chancellor's Departments 2008-09, Cmd 7917, p. 8 Back

45   HMRC Corporate Business Plan 2010/11, http://www.hmrc.gov.uk/about/bus-plan-2010-11.pdf accessed 26 May 2011 pp. 19-20 Back

46   HMRC Business Plan 2011-15, http://www.number10.gov.uk/wp-content/uploads/HMRC-Business-Plan1.pdf accessed 6 June 2011 Back

47   Q 134 Back

48   Q 308 Back

49   Q 58 Back

50   Ev 90 Back

51   Q 134 Back

52   Q 86  Back

53   Ev 102  Back

54   Q 58 Back

55   Ev 97 Back

56   Government Response, Administration and Expenditure of the Chancellor's Departments 2008-09, Cmd 7917, p. 8 Back

57   Ev w31 Back

58   Q 122 Back

59   HMRC Staff Survey, Autumn 2010, http://www.hmrc.gov.uk/research/ss-autumn2010.pdf, accessed 25 May 2011 Back

60   Q 70 Back

61   Autumn 2010 Staff Survey Back

62   Ev w32 Back

63   HMRC Staff Survey Back

64   Ev 121 Back

65   Q 68 Back

66   Q 68  Back

67   Ev 121 Back

68   Q 134 Back

69   Annuals Reports, Table 1 Back

70   Cabinet Office (2009), HMRC: Capability Re-Review, http://www.civilservice.gov.uk/Assets/HMRC%20Capability%20Review%20web_tcm6-35127.pdf, accessed 26 May 2011 Back

71   Ev 90 Back

72   Q 133 Back

73   See sections on cuts in anticipation and lose of experience above. Back

74   Q 133 Back

75   Q 58 Back

76   Treasury Committee, First Report of 2008-09 Session, Administration and Expenditure of the Chancellor's Departments 2007-08, HC 35, para. 82  Back

77   Q 368 Back

78   Q 386 Back


 
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Prepared 30 July 2011