Conclusions and recommendations
Management of Resource Reductions
1. The
Sub-Committee is taking further oral evidence on HMRC's compliance
record and we will report on this separately. However, assessing
HMRC's operational performance at ensuring compliance is complex.
Tax receipts are affected by numerous factors—including
changes to the law, economic performance, cultural attitudes to
compliance and HMRC enforcement activity. We recommend that the
Government commission a study to attempt to separate out the impact
of these factors over time. (Paragraph 13)
2. In the 2011 Budget
the Government announced that HMRC's existing administrative burden
reduction targets would be expanded to include wider taxpayer
compliance costs. We welcomed this in our report on the Budget,
but would like greater clarity from the Department about how this
work will be done, what the new targets are and how they will
be measured. (Paragraph 16)
3. The possible displacing
of costs from HMRC onto taxpayers has been a long-running concern
for tax agents, businesses and individuals. Not enough is known
about the impact of resource reductions at HMRC on the administrative
burdens faced by businesses and individuals. It would be counterproductive
if 'efficiencies' achieved at HMRC resulted in greater costs being
placed on the wider economy. Such a result would impede growth.
Government will be reluctant to take effective measures to address
this issue in the absence of robust evidence about its extent.
We urge the representative bodies who made these claims to us
to come forward with quantitative evidence about the extent of
this problem. (Paragraph 18)
4. We welcome the
fact that HMRC is updating the 2006 KPMG study on the burdens
imposed by the tax system to take account of changes over time
and urge it to broaden the study to examine the wider "hassle"
costs imposed by complying with tax law. This work may be costly.
We seek assurances from Government that the findings of the updated
study will be acted upon. (Paragraph 19)
5. It is important
that HMRC staff who are planning or implementing process changes
have some personal understanding of the possible impact on the
wider public. We recommend that HMRC staff, particularly senior
staff, spend time visiting businesses, tax charities and tax practices
to see the impact of process changes on the ground. (Paragraph
20)
6. We recommend that
the Government look again at the profiling of the savings HMRC
is expected to make alongside the efficiencies that are expected
to deliver them to ensure the two are commensurate and allow a
degree of contingency in the case of unexpected problems with
implementation. Technological improvements and process changes
within HMRC have and will continue to deliver genuine efficiency
savings. However, there have been credible suggestions that HMRC
has in the past made savings by reducing staff numbers before
the enabling efficiencies have been fully realised—with
resulting impacts on performance and costs. (Paragraph 22)
7. The Department's
effectiveness depends not only on the quality and effectiveness
of its public-facing and processing staff, but also on having
a cadre of staff at all levels who have long experience in tax
matters. There is some evidence that the workforce change programme
may have led to a disproportionate loss of experienced people
at HMRC. We recommend that HMRC examine how it implements job
cuts, with the aim of preserving the professional expertise in
tax it needs to deliver an effective service, and report back
on the changes that have been made as a result of this process.
(Paragraph 27)
8. HMRC's task is
made harder by the increasing complexity of the tax system and
deficiencies in the underlying legislation. The Government has
already announced a package of reforms to the way tax policy is
made. Following the O'Donnell Review of 2004 HM Treasury has had
lead responsibility for making tax policy, whilst HMRC is responsible
for "policy maintenance". The time has come to review
how those arrangements are operating with a view to ensuring the
practical impact of new tax legislation is adequately considered
even before the consultation stage begins. (Paragraph 29)
9. While for most
departments the Spending Review settlement reversed the increases
which they received in the years leading up to 2009-10, the HMRC
settlement continued and increased the magnitude of the spending
cuts which they had already experienced in the previous five years.
(Paragraph 37)
10. HMRC is in a unique
position as the Government's primary collector of revenue. Its
expenditure is dwarfed by the amount of revenue it collects. Whilst
this does not exempt it from the need to make efficiencies, it
means that Government needs to be cautious about making reductions
in resources that might have a negative impact on the Department's
performance and lead to reductions in revenue. (Paragraph 38)
11. We welcome the
fact that the Government has accepted the case for 'reinvestment'
where this will increase the tax yield, but note that in practice
the Spending Review package amounts to an overall reduction of
15% over the Spending Review period, being net of an additional
10% of expenditure which, although allowed, is ring-fenced for
specific purposes. (Paragraph 39)
Staffing and Management
12. 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". (Paragraph 50)
13. 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. (Paragraph 55)
14. 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. (Paragraph 64)
15. 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. (Paragraph 65)
16. 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. (Paragraph
70)
17. 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. (Paragraph 73)
The Future of PAYE
18. The
National Insurance and PAYE Service should ultimately make PAYE
work more effectively and ensure efficiencies across the Department.
However, the problems resulting from its flawed implementation
have done significant damage to the public perception of HMRC
and the tax system more generally. It is crucially important for
the credibility of the management team that the 2012 target for
clearing open cases is met and that improvements in overall performance
follow soon afterwards.
(Paragraph 83)
19. Data quality has
been a key weakness in the PAYE system to date. The success of
both the National Insurance and PAYE Service and Real-time Information
will depend to a large extent on how effectively HMRC can 'cleanse'
the data it receives and holds. (Paragraph 88)
20. We welcome the
move to introduce Real-time Information. We agree with the professional
bodies that the system must be tested thoroughly before full implementation,
with full consultation with users and close co-operation with
the Department for Work and Pensions at all stages. We note that
large employers will be required to use the new system in January
2013, which is before the system has been tested through one complete
tax year. (Paragraph 91)
21. The transfer of
information to HMRC via BACS is only part of the Real-time Information
project. HMRC must also be able to process the information in
a timely way, deal with the increase in customer contact that
will occur with the introduction of a new system and have in place
satisfactory arrangements for those who do not pay their employees
through BACS. (Paragraph 92)
22. HMRC has committed
to an ambitious timescale to deliver Real-time Information, driven
in part by the importance of the project in delivering the Universal
Credit. The history of large IT projects subject to policy-driven
timescales has been littered with failure. The timetable is made
more ambitious by the fact HMRC will still be resolving the legacy
of open cases and stabilising the National Insurance and PAYE
Service during the project's early stages. Introducing Real-time
Information before HMRC and the Government can be sure it will
work correctly would run unacceptable risks for the reputation
of the Department and the tax system. We recommend that HMRC and
DWP have contingency plans in place in case a delay becomes necessary.
Given the importance of the project we further recommend that
the preparations for Real-time Information in both HMRC and DWP
are subject to external audit as implementation proceeds, for
example through the National Audit Office, to ensure that they
are as robust as possible. We expect arrangements to be put in
place for the National Audit Office to report quarterly to Ministers,
this Committee, the Public Accounts Committee and other relevant
Committees to ensure Ministers in both Departments can be held
properly accountable for the progress of the project. (Paragraph
93)
Service Standards
23. 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. (Paragraph 99)
24. 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. (Paragraph 100)
25. 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. (Paragraph 108)
26. 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.
(Paragraph 111)
27. 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.
(Paragraph 113)
28. 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. (Paragraph
118)
29. 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. (Paragraph 119)
30. 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. (Paragraph 125)
31. 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. (Paragraph 126)
32. 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. (Paragraph 132)
33. 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. (Paragraph 135)
34. 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. (Paragraph 136)
35. 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. (Paragraph 139)
36. 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. (Paragraph 140)
37. 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.
(Paragraph 142)
38. 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. (Paragraph
143)
39. 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. (Paragraph
148)
40. The service standards
provided by HMRC cannot be treated as a separate issue from the
collection of tax revenue 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. (Paragraph 154)
Compliance
41. We
intend to examine HMRC's administrative and operational record
at ensuring tax compliance in future hearings. In this report
we highlight two issues that came to light during our early hearings.
(Paragraph 158)
42. The public needs
to be assured that cases involving large sums of money are being
settled correctly. Equally it is unfair on HMRC staff and damaging
to public confidence that the Department can be the subject of
repeated allegations it cannot refute, even if they are groundless.
We agree with the Committee of Public Accounts that HMRC should
consider how the accountability and transparency of the settlement
of large and complex tax cases might be improved. We are taking
further evidence on how this might be achieved. (Paragraph 163)
43. We seek confirmation
from HMRC that effective real-time lines of communication exist
between Debt Management and other areas of the Department. Effective
communication is especially important where private debt collectors
are involved. (Paragraph 165)
44. It is inevitable
that HMRC will have to pursue some taxpayers for outstanding debts
and it may have to be forceful in doing so. However, the tone
of some of the letters being sent out suggest the "potential
consequences" are inevitable unless payment is immediately
forthcoming. These letters appear to have been widely used without
sufficient thought to whom they were sent to, even being sent
to people who did not actually owe money. Such language is appropriate
only where there is strong evidence of persistent and deliberate
non-payment; it is completely inappropriate where the amount owed
is in dispute, where the amount may be zero, or where the recipient
is vulnerable. We recommend HMRC take steps to ensure such hard-hitting
correspondence is used in a more proportionate way, is better
tailored to individual case histories and contains information
on the specific debt in question. (Paragraph 168)
45. We note the Minister's
assurance that HMRC has no existing plans to sell debt and his
refusal to rule out the possibility of such plans in future. Any
moves in this direction would be a major change and should not
be contemplated without widespread consultation at an early stage.
(Paragraph 169)
Conclusions
46. The
evidence we have received in this inquiry has been disturbing.
HMRC's delivery of services to the general public has fallen to
unacceptable levels in several areas. Many factors have contributed
to this process: overly ambitious expectations for IT projects,
sustained cuts to resources, a management culture of "command
and control", increasingly complex tax legislation and the
legacy of the merger.
(Paragraph 170)
47. HMRC performs
a crucial role and operates under significant pressures. The Department
has faced and will continue to face substantial reductions in
resources, tax policy has not always been designed with full consideration
of the administrative impact and there will always be a degree
of public and media dissatisfaction with a revenue collection
agency, even if it is doing its job perfectly. The staff of HMRC
face a difficult challenge in responding to these pressures and
their continued professionalism and dedication are vital to ensuring
that the Department regains the reputation of its predecessors
as being among the most effective in Whitehall. (Paragraph 171)
48. The management
team at HMRC has been in place for two years. The broad view from
our witnesses was that the team had improved its understanding
of the issues facing HMRC and is committed to tackling them. However,
the Department's achievements have been obscured by high-profile
failings and staff do not have confidence in management. The Department
faces a difficult few years as it resolves the legacy of 'open
cases' in PAYE and introduces further ambitious IT upgrades. We
will monitor HMRC's performance closely during this Parliament
and expect the Department to deliver where substantial improvements
have been promised. (Paragraph 172)
49. Whilst genuine
efficiencies have been, and will continue to be, made, we are
concerned that HMRC's performance will continue to deteriorate
if further reductions in resources are badly managed. There was
near unanimity among our witnesses that the reductions made so
far have had a damaging impact. We are particularly worried as
there is no evidence that the methods that management will deploy
to find 'efficiencies' and 'cost savings' have changed in any
substantial way. We also believe there is a tension between the
drive for 'more automation' and 'centralisation' and the desire
to empower and boost the morale of staff who must deliver the
cost savings. (Paragraph 173)
50. HMRC collects
revenue for the Government of more than a hundred times the amount
it costs to run. Given the fiscal position, it would make little
sense for the Department to be cut back further if resource reductions
in addition to those plans already agreed would have the effect
of reducing receipts, displacing disproportionate costs onto the
wider economy or further eroding public confidence in the tax
system. Great care will be needed before any further savings are
planned or implemented.
(Paragraph 174)
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