House of Commons - Administration and effectiveness of HM Revenue and Customs

Administration and effectiveness of HM Revenue and Customs - Treasury Contents

5 Service standards

94. Much of the evidence received by the Sub-Committee focused on the service standards being delivered by HMRC. This evidence suggests there is widespread concern, particularly among tax professionals, about current standards and the knock-on impact on individuals and businesses. These issues have been raised with the Sub-Committee before, for example during its 2007 inquiry into The Efficiency Programme in the Chancellor's Departments.[96]

95. HMRC's customer service figures suggest that, as of September 2010, 72.5% of customers were satisfied with HMRC's performance. This represents a slight fall (0.3 percentage points) compared to the baseline of June 2008 and a considerable fall (3.5 pp) compared to March 2010. The figure was higher (79.5%) among small and medium-sized businesses (SMEs) and considerably lower (64.7%) among tax agents.[97]

96. There was scepticism in some of our evidence about the credibility of HMRC's service standards and targets. Indeed, some representative bodies have developed their own surveys.[98] Our predecessors recommended in 2007 that new standards needed to be developed in consultation with users.[99] In their evidence to this inquiry the ICAEW concluded that this had not occurred.[100] John Seddon, of Vanguard Consulting, argued that HMRC has focused on reducing transaction costs, rather than looking at the process from an "end-to-end" consumer perspective.[101]

97. Witnesses from the professional bodies were primarily concerned about the amount of time it can take to get an accurate response from HMRC, either by post or over the telephone. Paul Aplin, the Chair of the Institute of Chartered Accountants England and Wales's Technical Committee, told of his experiences as practitioner in the South West:

Five or six years ago, if we wanted a relatively simple thing done, like a PAYE coding changed, it was one telephone call, the coding would be changed that day, and it was a very simple and efficient process. If I want that simple thing done today it can take me literally months [...][102]

The Chartered Institute of Taxation described customer experience of HMRC as being "at an all time low",[103] whilst its Low Incomes Tax Reform Group was damning:

From the perspective of unrepresented taxpayers on low and modest incomes, HMRC is now too often seen as an organisation that is unable to collect the right amount of tax, increasingly difficult to contact by phone, letter or in person, yet unforgiving of customer error and relentless in its pursuit of small debts.[104]

98. HMRC have acknowledged that their performance in providing services to the public has been unacceptable. Its Chairman, Mike Clasper CBE, told us that the most recent problems had largely been caused by the exceptional nature of the PAYE reconciliations process in 2010:

I am not happy with the service that we have been providing and none of us is; none of the top team is. Basically, our contact centres have been overwhelmed by the number of calls that were created by [...] dealing with eight years in one.[105]

99. We welcome HMRC senior management's acknowledgement that the Department's customer service performance has been unacceptable. We are not convinced, however, that the problems can solely be accounted for by the problems with PAYE in 2009-10. The evidence received by us and our predecessors suggest that poor service standards have been an issue for many years and have not been fully reflected in HMRC's customer service measures.

100. We reiterate our predecessor's 2007 recommendation that HMRC work closely with the professional bodies, tax charities and businesses to develop a series of performance indicators that credibly reflect customers' end-to-end experience of dealing with HMRC and that these indicators are regularly published as part of the transparency section of its five-year business plan. We are disappointed that our predecessor's recommendation was not acted upon and expect to see meaningful progress within the next twelve months.

101. The evidence we received raised five issues in particular: the performance of contact centres, the time taken to respond to post, the displacement of costs from HMRC onto businesses and individuals, the need for face-to-face contact or robust alternatives and HMRC's drive towards online communication. In this chapter we examine each issue in turn, before drawing some overall conclusions and looking ahead.

Contact centres

102. The performance of HMRC's contact centres was raised in evidence on several occasions. We identified three related issues in the evidence we received: the amount of time taken to get through to HMRC contact centres; the consistency of advice provided by the contact centres and the cost of such calls to taxpayers—especially to those without landline telephones.

GETTING THROUGH

103. Our predecessors examined contact centre performance in their last report on the Administration and Expenditure of the Chancellor's Departments 2008-09. They concluded that contact centre response rates, though improving, remained at unacceptably low levels.[106]

104. The performance of HMRC's contact centres was examined in detail by the National Audit Office and the Committee of Public Accounts (PAC) in the first half of 2010. Both reports were critical. The PAC concluded:

The Department's performance in responding to calls has been poor. In 2008-09, the Department answered only 57% of the 103 million calls to its main helplines, compared to an industry standard of 95%; callers waited on average two minutes, and nearly four minutes in peak periods to speak to an advisor; and yet contact centre staff spent only 38% of their time handling calls against an industry benchmark of 60%.[107]

The Report noted that the Department was taking steps to improve its performance, but called on it to be more ambitious in this regard.

105. The demands placed on HMRC's contact centres vary throughout the year, following the tax and benefits cycle. A written parliamentary answer in October 2010 showed that the percentage of calls answered ranged from 92.6% of 3.8 million calls in November 2009 to 41.1% of 13.8 million calls in May 2010.[108]

106. HMRC provided us with the average percentage of calls answered in each year since HMRC's creation. These show improvement on the 2005-06 average of only 37% of calls answered to reach 70.9% of calls answered by 2007-08. However, performance fell back in 2008-09 to 57.5% of calls answered, before improving again in 2009-10 to 75.8% of calls. According to HMRC's Annual Report and Accounts, performance fell back again to 48% in 2010-11.[109] The Department is committed to achieving the industry benchmark of 90% of calls answered in a day by March 2012.[110]

107. The PAC recommended that the Department should be more ambitious in its target, and aim to match industry best practice of 95% of calls answered. In its response, the Department argued that:

The significant peaks and troughs in demand for the Department's services make it difficult for the Department to reach best practice of 95% without a significant increase in resources. Above 90%, the marginal cost of each percentage point improvement would be significant and inefficiency would increase, with advisers spending more time waiting for calls. The Department believes that its aspiration to answer 90% of call attempts, as soon as possible, represents the right balance between ensuring value for money and providing an appropriate customer experience. However, achieving this aspiration will depend on the balance of priorities across the whole of the Department's business and the resource levels available to achieve these.[111]

108. HMRC's performance at responding to telephone calls has been patchy at best and unacceptable at worst. Based on past performance we do not have confidence that the Department will be able to achieve its target of 90% of calls answered in a day by March 2012. We recognise that there had been improvement in performance prior to the recent rise in contact due to the PAYE-related issues in 2010. However, even with that improvement, the Department was falling well short of the target, whilst the fall in performance in 2010-11 suggests there is insufficient capacity to deal with unexpected surges in demand. Given that it has been HMRC's strategy to push so many taxpayers and tax credit claimants into communication by phone it is important that performance in this area improves rapidly. We will return to this issue regularly, and will assess the Department's performance against its target in 2012.

GETTING THE RIGHT ANSWER

109. A common theme in our the evidence we received was that it had become harder to deal with a tax issue—particularly a complex issue—in a single call to HMRC. For example, the Society of Trust and Estate Practitioners told us:

It appears that in order to cut costs HMRC is putting greater reliance on relatively junior, inexperienced staff to answer front line queries. Taxpayers with more complex affairs are therefore finding it difficult to obtain information and guidance from HMRC on issues in an acceptable time frame.[112]

The tax advice charity Taxaid agreed:

A general point we have experienced is that HMRC skills of front-line staff are probably about the same, or possibly a bit worse, than 5 years ago—and definitely worse than 10-15 years ago when staff facing the public had much more hands on knowledge and experience of tax. Since processing and customer contact have been separated, the decline has been marked.[113]

Whilst the Low Incomes Tax Reform Group told us:

from the perspective of unrepresented taxpayers and also tax credit claimants [...] You can ring up and get the right answer but, equally, you can get the wrong answer. [...] In one call that we took just this week, somebody had been told by a call centre operator that they should be keeping records for seven years, an individual not in business. No, the right answer is 22 months after the end of the tax year in question; certainly not seven years. There is a lot of misinformation going out.[114]

110. Dame Lesley Strathie accepted that there would be cases where advice was incorrect or incomplete. She observed that HMRC dealt with "1 billion transactions a year" and "never on any day is everything going to work for everybody in that sort of volume".[115] However, she defended the quality of advice provided by contact centre staff and said that customer service satisfaction scores exceeded industry standards:

What that tells us is that the great British public will suffer quite a lot, in return for the service they get when they get through to speak to our staff, because the satisfaction level when they do speak to our staff is very high. I think it is about 87%.[116]

111. There was significant concern among our witnesses that it has become increasingly difficult to resolve a complex tax issue in a single phone call to HMRC. We recommend that HMRC examine its processes for escalating complex queries to ensure this is done quickly and appropriately. We also understand that the Department is running a pilot aimed at ensuring contact centre staff dealing with tax credits and benefits are better able to answer more complex queries first time around. The pilot is to be reviewed over summer 2011. If this pilot is successful HMRC should look at expanding it to all areas of tax.

COST OF CALLS

112. The PAC report observed that the average wait to speak to an adviser was two minutes—rising to four minutes during peak periods.[117] We received evidence suggesting that HMRC could reduce the costs to taxpayers of calling their helplines by switching from using 0845 numbers to using 0345 numbers instead.[118] Dame Lesley said that HMRC was in the process of reviewing and reducing the number of telephone numbers. She committed to examine the issue in more detail. Subsequently HMRC wrote to us, accepting that:

changing to 0345 numbers would benefit some, perhaps many, customers, primarily those telephoning from "pay as you go" mobile phones. However not all customers would benefit and some would, on the basis of current tariffs, incur additional costs when compared to 0845.

There would also be significant additional costs for the Department associated with a change during the current HMRC telephony contract (which expires in June 2013). Initial "ball park" estimates suggest that these costs could be in the range £5m-£15m depending on the implementation timescale and contractual negotiations.[119]

113. We welcome the fact that HMRC is reducing the number of telephone numbers it operates. However, at a time when calls are not being answered quickly, it cannot be acceptable that those without landline telephones—often less well off members of society—may be being charged more as a result of the use of 0845 numbers. We recommend that HMRC investigate alternatives to 0845 numbers, including 0345 and freephone numbers, as part of the process of agreeing its next telephony contract and ask the Department to brief us on its key aims in negotiating that contract. As an interim measure we recommend the Department examine whether a non-0845 number could be provided for tax credit claimants and publicised through tax charities.

Post

114. We have received a substantial number of letters from the public expressing concern and even disbelief about the time taken by HMRC to respond to post. Cases of replies being received only after two or three months, in each case from a different geographic location, are not uncommon. HMRC's record in responding to post was also mentioned in a number of submissions and in evidence to us. Paul Aplin told us:

We regularly wait two to three months for a reply to a letter and when we ring to chase, the answer we regularly now get is, "We can't find the letter". If you chase below two months the answer is, "It hasn't come to us yet". If you wait too long the answer is, "We can't find it"; so you have to write again and go through the process again.[120]

The Institute of Chartered Accountants of Scotland said staff had to be redeployed within HMRC to address post backlogs once they reached crisis levels, leading to shortfalls elsewhere.[121] Submissions by individuals referred to two months as being a standard wait for a reply, whilst Tax Help for Older People put the figure at three months and described correspondence with HMRC as being "a communication channel of last resort".[122]

115. At our request HMRC provided graphs showing performance on post turnaround and post accuracy. These suggest that, as of November 2010, approximately 60% of post received by HMRC was being "turned around" within 15 days and 90% had been turned around within 40 days. Performance generally was fairly consistent except for 2009 when, in March, turnaround within 15 days fell to less than 40%, and performance generally was more inconsistent than previous and subsequent years.[123] However, it was not clear from the figures whether 'turnaround' included the sending of holding replies, and no record appears to be kept of follow-up correspondence.

116. Delays in responding to post do not only cause frustration and inconvenience to taxpayers. The Association of Taxation Technicians and Chartered Institute of Taxation both made reference to HMRC's Debt Management Unit attempting to recover incorrect amounts of tax because relevant mail had not been opened.[124] Moreover, as the Institute of Chartered Accountants of Scotland noted, delays increase the inefficiency in the system, as taxpayers and agents who have not received a response to their letter call already busy contact centres to chase progress.[125]

117. HMRC is piloting a system of scanning post electronically, allowing it to be passed to relevant offices without having to be physically moved from one location to another. This may alleviate some delays, but the essential question of whether there are enough people available to respond to the post in a comprehensive way will remain.[126]

118. We recognise that the time taken to respond to an item of mail is not always a good indicator of performance. A complex technical query could be expected to take some weeks, whereas a routine change of details should be dealt with much quicker. A quick but incomplete reply will often be worse for both taxpayer and HMRC than a more considered response. However, the evidence we have received, correspondence from the public and the coverage in the professional press suggest that long delays in responding to post at HMRC are endemic. This is unacceptable. Such delays increase demand elsewhere in the system, as taxpayers and tax credit claimants chase progress, increasing costs for the public and HMRC alike.

119. We recommend that HMRC draw up minimum service standards for dealing with post in a timely and accurate fashion in consultation with the professional bodies, tax charities and businesses representatives. Such standards should recognise the distinction between simple and complex queries, and look at the progress of correspondence end-to-end rather than in relation to individual items of post. We recommend that the Department publishes an indicative timetable for achieving those standards and keeps us regularly updated on progress towards meeting them.

Face-to-face contact

120. HMRC's programme of local office closures is well documented. Between 2006 and 2008 HMRC conducted a series of reviews aiming towards consolidating its estate and re-locating its staff. By December 2008 the reviews had concluded that 258 premises would be vacated whilst 235 would be retained.[127] The Public and Commercial Services Union put the figure of offices closed to date at around 200 and noted that opening hours have also been reduced.[128]

121. Concerns were raised with us that the closure of local offices would impact primarily on the disadvantaged and elderly. For example, Tax Help for Older People told us:

This lack of accessible information is compounded by the programme of closure, contraction or amalgamation of Enquiry Centres (ECs), leaving huge numbers, particularly those disadvantaged by disability or transport difficulties, without practicable recourse to face-to-face help and advice. Even when there is an EC close at hand, the complexities of telephoning for an appointment and then getting past the barrier of a floorwalker whose primary task is to direct you to a telephone or computer militate against our constituency.[129]

122. Richard Murphy, of Taxresearch LLP, raised the issue of the social impact of closing offices. He argued:

Any revenue raising department has not only to raise tax, but also be seen to do so fairly, appropriately, helpfully, and justly, and in the process it must properly differentiate those who are seeking to pay the right amount of tax in the right place at the right time (tax compliant behaviour) and those who are seeking to either avoid or evade their obligations. This requires a very visible presence in the community because it can rightly be argued that tax is the consideration in the social contract between people and their government, and that contract must be seen to have impact in the places where people live.[130]

123. HMRC stressed that they were retaining a face-to-face presence in many places across the country, but the closure of local inquiry centres were justified on the grounds of value for money and declining use. Mike Clasper told us:

What we are trying to do is follow where the taxpayer is going. This is an apples for apples comparison. In 2006-07, in inquiry centres face to face, versus where we are today, on the number of people coming into those places, the footfall had declined 40%. Although there are still lots of people going into those inquiry centres, and Lesley has already explained the efforts we will need, outreach and so on, the number is going down and down and down every year. [...] I think we are trying to follow the customer, not drive the customer.[131]

The Minister agreed:

[...] there is one inquiry centre where HMRC has been paying £162,000 a year in rent and that inquiry centre gets, on average, four appointments a week. There are another two examples where the rent is £26,000 and £34,000 a year and they are getting, on average, one appointment a week each. It is clearly not sensible to pursue that but we can be, and I think HMRC can be and is being, more imaginative in the sense that there doesn't necessarily need to be a separate HMRC office incurring all those costs. HMRC can make use of job centres or council offices and so on and be much more creative in the way that is done.[132]

124. The Low Incomes Tax Reform Group have suggested that enquiry centres can be poorly advertised and difficult to find and suggested that falling footfall may be as much about lack of access as lack of demand for the services they provide.[133] Robin Williamson, for example, observed that whilst the number of people using HMRC's enquiry centres had declined over the previous three years, the number of people using Tax Help for Older People's services had "virtually doubled".[134]

125. We urge HMRC to examine how far declining use of Enquiry Centres is due to factors such as inconvenient opening hours or lack of advertising. More broadly, we recommend that the Government examine whether withdrawing its physical presence from an area has a medium—or long-term impact on local compliance.

126. Some witnesses speaking for unrepresented taxpayers accepted that continuing a full network of centres was unsustainable given the current spending settlement. They had a number of suggestions of how a face-to-face presence could be maintained in more efficient ways, some of which HMRC have taken up. These included: introducing well-advertised part-time opening hours that fit with people's other commitments, sharing premises with other centres of advice such as Citizens Advice Bureau and the Department of Work and Pensions, or expanding mobile advice centres.[135] We welcome the fact that HMRC's Change Plan commits to "providing targeted help for vulnerable customers who most need face-to-face support", but we do not believe face-to-face support should solely be available to the vulnerable. The Department has a strategic approach focused on delivering contact through contact centres and online. Face-to-face contact must be an integral part of that strategy, not an exception. We recognise that savings must be made; the tax charities and other bodies who submitted evidence to us had a number of imaginative suggestions for how face-to-face services could be delivered more cost effectively. We recommend that HMRC look closely at alternative ways of providing wide coverage of face-to-face advice such as co-location with other public offices, convenient part-time opening hours and mobile advice centres.

Online communication

127. HMRC has put a great deal of resources in recent years into expanding its online presence. Their written evidence stressed the value of encouraging taxpayers and other users to use online methods to administer their tax affairs:

we will migrate "willing and able" customers to online channels; releasing more of our contact centre resource to dealing with tax credits customers, where telephone contact is the most effective channel.[136]

Dame Lesley was clear about where the Department's priorities lie in terms of communication:

The Government strategy is digital; not the telephone. It is that we move as much of our service online and then we provide assistance for people who can't use online.[137]

In particular HMRC has been developing, alongside the Department for Business and Innovation and Skills, a 'one-click' system for registering businesses and a 'dashboard' through which businesses can view all their tax liabilities in place.[138]

128. The increasing provision of online services by HMRC is desirable and, as the ACCA said in their evidence, the demand for such services is "irresistible".[139] HMRC told us that:

Services that we have put online have had a high take-up rate. Current rates for online filing are 75% in Self Assessment, 37% in Corporation Tax, 98% in PAYE for employers End of Year returns and 71% in VAT compared to rates of 23%, 2%, 65% and 5% respectively in 2005-06.[140]

129. Paul Aplin of the ICAEW told us that HMRC had made significant efforts to engage with professional bodies in implementing some of its moves online, with positive results. He indicated that there was a noticeable difference in the success of IT projects that had followed the principles outlined in Lord Carter of Coles' Review of HMRC's Online Services and those that had not.[141]

130. However, HMRC's movement online has not been without its problems and its critics. The online tax credits portal has been shut down since a large-scale fraud in 2005.[142] The Forum for Private Business argued that many online processes are too complex for their members to use and gave an example of a relatively simple change to information on HMRC's website that they were told could take up to six months.[143] A survey of business people by the Institute of Directors found that only 16% considered it easy or very easy to find the information they needed on the HMRC website, although the IoD acknowledged that improvements had been made.[144]

131. The principal criticism we had from our witnesses was the speed with which online options are replacing, rather than complementing, alternatives, running the risk of excluding those without reliable interest access. One element of this was access to information. Robin Williamson, of the Chartered Institute of Taxation's Low Incomes Tax Reform Group, told us:

More and more information put out by HMRC is online, less and less on paper. That instantly excludes a great many often poorer, often older people, who are not comfortable using the internet or have never used a computer—people with disabilities can't—and people who live in areas that are remote and have unreliable broadband access.[145]

Tax Help for Older People described the replacement as "unacceptable"—observing that more than 60% of people over the age of 65 have never used the internet. They went on:

Re-introducing some basic written information may appear at first sight to be money-consuming, not saving, but taxpayers who can fulfil their obligations in an informed way do not make expensive demands on HMRC by either phoning contact centres repeatedly, completing forms incorrectly or failing to take appropriate action at various times. Preventive action by providing clear, simple and accessible information saves money.[146]

132. Ending the production of advice and guidance leaflets may save money in the short term. However, it will force those who do not have access to the internet to turn to the telephone or enquiry centres for advice, and may lead to an increase in mistakes which are costly for HMRC to rectify. HMRC should examine reintroducing selected, well targeted, leaflets aimed at groups such as the elderly who are most likely to lack internet access.

133. A similar trend can be seen in relation to online filing for businesses. Again, the concern was not that HMRC was putting more information online, or allowing businesses to file online. Both of these things were welcomed by witnesses. The concern was with the speed with which HMRC has moved from providing a service online to requiring (mandating) it. For example, HMRC requires all Company Tax Returns for periods ending from 31 March 2011 to be filed online, yet figures in a report commissioned by HMRC in 2008 suggest 9% of businesses do not have access to a computer, let alone broadband internet.[147]

134. From HMRC's perspective mandating online filing substantially increases take-up of what is, for them, the most efficient means of filing and eliminates the need to run parallel systems. Nor can we lose sight of the fact that many businesses will prefer online filing. However, mandation excludes those without easy access to the requisite IT. Even where exemptions are permitted, taking advantage of them may add an additional layer of worry and complexity to the process of paying tax—and in so doing may increase the risk of individuals becoming non-compliant through a lack of opportunity and the costs in terms of both time and money. As the Chartered Institute of Taxation said in their evidence:

HMRC need to make it easier to comply. The increasing mandation of online filing causes us concerns. While more online filing does offer real efficiencies, it does bring problems (e.g. there have been delays in iXBRL corporation tax software for all but the smallest and largest companies). HMRC also need to maintain alternatives to online filing for those without access to secure broadband services.[148]

135. HMRC has been relatively successful at enabling taxpayers to pay many of their taxes online. However, requiring online filing prematurely runs the risks of excluding those without reliable high-speed internet access, dissuading those who are not computer literate from being tax compliant and overloading systems that have not had time to bed in. HMRC should always ensure it has robust, well-advertised alternatives in place for those who cannot submit online and publish a statement of its commitment to continue to provide a robust free filing service for basic tax return filing.

USE OF EMAIL

136. A possible response to the delays in responding to post would be for HMRC to accept much more correspondence via email. This proposal was put forward by the ICAEW, ICAS and CIOT in their evidence and Dame Lesley Strathie told us that, in her experience, there was much for demand for email rather than face-to-face advice.[149] Whilst we would welcome any moves towards greater use of email or secure messaging by HMRC, we accept there are genuine concerns on the grounds of security. Without proper planning, greater use of email may also achieve little more than transferring the bulk of the correspondence backlog from one medium to another. We recommend that the Department make a clear statement of their intent in relation to email and secure messaging.

Service standards and the efficiency programme

137. In the light of this evidence, we asked witnesses what they thought of HMRC's claim that there had been no overall negative impact on performance as a result of the Department making £1.1 billion of efficiency savings.[150] Chas Roy-Chowdhury, of the ACCA, told us that this claim was "nonsense".[151] Paul Aplin from ICAEW told us: "For five years those of us at the coalface have been seeing service standards decline". He went on to explain "I think the department has more than it can handle and it has had its resource cut by 5% a year, year on year".[152] However, he did not feel that HMRC had been deliberately misleading in saying that these savings had not had a negative impact. "I do not think they are lying. I think they just have a rather different perception from the perception those of us at the coalface have."[153] We also asked representatives from the unions for their opinion on HMRC's statement on savings and performance. Simon Boniface of the Public and Commercial Services (PCS) union "would confidently say" that the statement was untrue.[154]

138. Responding to these views, Dame Lesley Strathie told us "performance in terms of the Department's core business is to collect the revenue and pay out the benefits and credits". She conceded that in some other areas performance was not satisfactory, telling us that "customer service and employee engagement are the two things that we are not proud of and we know that we have to do a lot better".[155] Mike Clasper, HMRC's non-executive Chairman, didn't feel that the customer service problems were directly related to the resources available.[156] We pressed Mr Clasper on whether he would tell Government if the Department was not being given the resources it needed to operate effectively. He told us that HMRC management had said to the Government "we were passionate that there is a tax gap we can close and that if we were at 25% reduction we would not have been able to close the tax gap any further, but with this [£917 million] reinvestment that we have talked about we will close the gap by £7 billion a year."[157]

139. There was near unanimity among our witnesses that the efficiency savings at HMRC have been partly responsible for the decline in service standards and, therefore, that HMRC's claim to have delivered £1.1 billion of savings "without overall negative impact on performance" lacked credibility.

Looking ahead

LARGE BUSINESSES

140. Although the majority of evidence we received was critical of HMRC's service standards, feedback was largely positive in relation to the Department's Large Business Service. Richard Baron, of the Institute of Directors, told us:

what has been done at the large end, introducing these personal customer managers who will co-ordinate the work of the different bits of HMRC who will have to interact with a large group, does seem to have been a big success story—to the extent that they have now extended it still further down the line into what they call the large and complex group who are outside the ambit of the large business service.[158]

This has been achieved despite reductions in headcount in the service.[159] HMRC in their evidence trumpeted the success of the Unit in raising the tax yield from their Large Business Service from £3.6 billion in 2005-06 to £6.3 billion in 2009-10. The Sub-Committee is in the process of taking further evidence on the unit's effectiveness at delivering compliance. The features of the Large Business Service that appear to have led to high customer satisfaction ratings are personal contact with an individual responsible for a case and the ability of a single contact point to co-ordinate HMRC activity across departments. Whilst it is not feasible for every individual or small business to have access to that level of service, these are features that HMRC should be trying to replicate as closely as possible in its contact centres through effective channels of escalation and responsibility.

CUSTOMER-CENTRIC CONTACT

141. HMRC has repeatedly stressed in its evidence to us the importance of its 'customer-centric' approach to managing contact with taxpayers and other users. Its written evidence stated:

To help us deliver our Vision, we have developed a customer-centric business strategy using our understanding of customer attitudes and behaviours to focus our efforts where they will have the biggest effect, tailoring our services—and the way we work—to the needs, abilities and motivations of our customers.

But it went on:

We aim to shift the behaviour of customers where we can in order to keep our and our customers' costs to a minimum, maximise revenues, and provide good customer service.[160]

142. A common complaint against HMRC has long been that it does not understand how its work impacts on the taxpayers that it deals with. Small businesses in particular have long taken the view that HMRC simply does not understand how they operate.[161] Individual taxpayers, particularly those making payments through PAYE, often believe that HMRC will automatically calculate their tax correctly, whilst in reality HMRC is reliant on the information provided by them and their employers.[162] HMRC's focus on customer research is to be welcomed insofar as it leads to a greater responsiveness to customer needs. To be effective this quantitative work needs to be supported by on the ground experience of how taxpayers operate. We reiterate our recommendation that HMRC staff at all levels should spend time in tax practices, charities and businesses better to understand the people they deal with and how changes at HMRC affect them. Examples of how this could be achieved include day visits, short secondments and work shadowing.

143. The ACCA said that HMRC's claims to be customer-centric would "ring hollow" to many in the light of the problems outlined above.[163] More fundamentally, a customer-centric strategy should be about responding to customers' needs, whilst much of the evidence we discussed above—particularly in relation to online mandation—suggests the strategy has actually been about redirecting the public to cheaper, more impersonal forms of communication. HMRC are right to base their customer-service strategy on research into what taxpayers want. However, we question whether a strategy focused around shifting customers' behaviour can truly be described as customer-centric. Where behaviour shifts are achieved voluntarily through the increased attractiveness of (for example) an online alternative the claim is credible. It is not credible, however, where contact options are narrowed down to the one HMRC would prefer customers to use. The evidence we have received suggests that both elements are present in HMRC's current approach.

DEMAND MANAGEMENT

144. A key component of HMRC's approach is a focus on demand management. Figures supplied to the Sub-Committee by HMRC suggest that around 40% of the calls made to HMRC are "potentially avoidable or could be migrated to a more cost effective channel." These include 7.34 million calls chasing progress and 6.17 million calls due to poor quality initial contact. Mike Clasper told us that 'chasing' meant relatively small increases in demand could have disproportionately large impacts on contact centres:

there can be relatively small increases in demand; we only have 10% more callers than we had last year, but the issue is they are not getting through, so they recall and they recall and they recall, and somebody ends up with a two hour 20 minute phone call and it is not acceptable.[164]

145. HMRC intends to expand its demand management programme and has undertaken to improve the design of forms and improve accountability for demand management targets within teams. In 2010-11 it estimated that the programme eliminated some 6 million unnecessary calls and diverted a further 7 million to automated messaging.[165]

146. The figures support those of our witnesses who argue that poor quality or inefficient contact at one point in the system leads to greater inefficiency and cost elsewhere.[166] HMRC admits that many of the problems in responding to calls to contact centres have arisen from the handling of the National Insurance and PAYE Service upgrade and the large number of calls generated, which vastly exceeded the number it expected.[167] Similarly, poorly worded information can lead to confusion among taxpayers or benefit claimants, thereby increasing calls. For example we heard that a letter telling people repaying overpayments of tax credits that their direct debit was being renewed was worded in such a way as to give the impression of being a new direct debit, leading to concerned calls from claimants.[168] As noted above, delays in responding to post have also increased the number of 'chasing' calls to HMRC.

147. HMRC accepted this point in their written evidence, saying that they were reviewing their external communications.[169]We pressed Dame Lesley Strathie on how HMRC intended to reduce unnecessary demand. She replied:

We have a programme of work to eradicate 13 million of what we would class as non-value calls because, generally speaking, they are people who do not trust us and want to ring up to check. There is no value to the customer, and there is no value to the organisation. It is how we move those through, improve face to face for the 25% of people who will always need some kind of help, with better messaging and telephones to direct people through electronically, and improving capability in our work force.[170]

148. Effective management of demand will require HMRC to have a good understanding of how changes made in one part of the organisation will impact upon others and, most importantly, the impact such changes will have on the public. The Department accepts that many of its current communications generate more contact and inefficiency. Improvements in external communication therefore have the potential to make savings vastly in excess of their cost. We recommend that the Department look at how it draws up its public communications and establishes links with tax charities and professional bodies to ensure all major communications and guidance are tested at a very early stage on focus groups before being made public.

FUTURE PROSPECTS

149. The prospects of HMRC's customer service improving in the near future appear bleak. The Department is still wrestling with the fall-out from the implementation of NPS and does not expect to clear the backlog of open cases until 2012. HMRC's written evidence suggests the Department accepts and understands many of the issues. However, Mike Clasper admitted that, in relation to customer service, "we are not going to be in a great place until 2013."[171] Paul Aplin and Chas Roy-Chowdhury agreed that standards were likely to get worse before they got better, particularly if resources continued to be cut.[172]

150. The Department has recruited or redeployed an additional 1,000 contact centre staff to increase capacity ahead of the tax credit renewal deadline—echoing a similar move made in 2005-06.[173] We welcome this move and the Department's commitment to ensure that tax credit applicants do not lose out owing to continuing demand on the PAYE side. However, redeploying staff runs the risk of reduced performance elsewhere. Dame Lesley assured us that the redeployed resources came from other areas of the business "where that is shrinking".[174]

151. HMRC's poor performance in relation to customer service is concerning, not just because of the unacceptable delays and costs being placed on members of the public and businesses, but also its possible impact on the tax take. Several witnesses suggested links between the ease of complying with a tax regime and the compliance rate. Chas Roy-Chowdhury of the ACCA suggested that if it was not for the fact that Income Tax and VAT were collected more or less automatically, the Government would be facing a major revenue crisis because of the difficulties of communicating with HMRC.[175]

152. Similarly, reputational damage done to HMRC by the errors to PAYE codes in January 2010 and the subsequent reconciliation issues in late 2009-10 tied into a wider concern that a distant, underfunded and poorly performing HMRC could diminish respect for the institution and the tax system generally.[176] As the Low Incomes Tax Reform Group put it:

HMRC is now too often seen as an organisation that is unable to collect the right amount of tax, increasingly difficult to contact by phone, letter or in person, yet unforgiving of customer error and relentless in its pursuit of small debts. This image may have been exaggerated by parts of the press, but failings occur too frequently to be dismissed as 'isolated instances'.[177]

153. ICAS told us that "Other jurisdictions admire the way in which HMRC achieves its level of compliance and the UK citizenship's cultural attitude is something to be preserved and valued." Over 97% of the tax that is paid, is paid voluntarily.[178] The danger for HMRC is that by continuing to offer a poor service the UK taxpayer becomes increasingly disinclined to have contact with the Department and the culture of voluntary compliance is lost.[179]

154. The service standards provided by HMRC cannot be treated as a separate issue from the collection of tax revenues and the level of tax compliance. Current levels of voluntary compliance should not lead to complacency: any negative change in attitudes regarding paying taxes may take many years to filter through into reduced tax compliance and tax yields, at which stage it may be very hard to reverse. If a view of dealing with HMRC as being a frustrating, costly and time-consuming business were to become entrenched then there is a significant risk of public respect for the institution, and the tax system more generally, being lost.

96 Treasury Committee Eighth Report of Session 2006-07, The Efficiency Programme in the Chancellor's Departments, HC 483 Back

97 Ev 107 Back

98 For example the ICAEW has published three surveys of its Members' experiences. The sample sizes of these surveys are too small to be statistically robust, but their results support the statements made by ICAEW witnesses. www.icaew.com/.../taxrep-43-10-HMRC%20service%20standards%20-%20results%20of%20survey.ashx accessed 7 June 2011 Back

99 Treasury Committee, Eighth Report of Session 2006-07, The Efficiency Programme in the Chancellor's Departments, HC 483-I, paras. 109-110 Back

100 Ev 77-78 Back

101 Ev w49 Back

102 Q 77 Back

103 Ev w19 Back

104 Ev 92 Back

105 Q 142 Back

106 Treasury Committee, Seventh Report of Session 2009-10, Administration and Expenditure of the Chancellor's Departments, HC 156, para. 54 Back

107 Committee of Public Accounts, Twenty-fourth Report of Session 2009-10, HM Revenue and Customs: Handling Telephone Enquiries, p. 3 Back