8.HMRC (the Department) needs to transform its whole organisation to achieve its aim of becoming one of the most digitally advanced tax administrations in the world, while also making significant changes in parallel. By 2021, it expects to employ 16% fewer staff who will mostly be working in 13 regional centres. This will require a substantial rationalisation of the HMRC estate resulting in the closure of 137 of its existing locations (90%). Most of HMRC’s processes will be automated, and a higher proportion of its staff will undertake specialist work to challenge those taxpayers who seek to avoid or evade their tax liabilities. HMRC expects its digitisation of the tax system to promote and enable better compliance, which in due course will be reflected in a reduction in the size of the tax gap.
9.Under its spending review settlement, HMRC is committed to realising £98 million of savings through a reduction by approximately a third in the number of those staff that deal with customer services. HMRC expects that, as it introduces more online services, a channel shift will occur resulting in a reduction in the demand for phone calls as more people will be able to meet their needs through online services. We pointed out that in the past customer services had suffered when HMRC had cut staff before any significant reduction in the number of telephone calls had been realised. The Department recognised this risk. It told us that 6.2 million people had opened a personal tax account and were able to interact to some degree with HMRC online. However HMRC accepted that it was possible that being more transparent, and providing more information to taxpayers in a digital way, would stimulate more demand for HMRC services, including those provided by phone.
10.When HMRC made some 5,600 staff reductions in 2014–15 customer service for personal taxpayers collapsed and HMRC had to recruit 2,400 additional staff in the following year to stabilise services. We asked HMRC about its contingency plans to ensure customer service levels did not deteriorate, as they had in the past, if its assumptions about reductions in demand for telephone services proved to be unrealistic. We also raised a number of factors that could damage HMRC’s capability to deliver its transformation programme and manage the risks when its Aspire contract ends. HMRC’s Chief Digital and Information Officer recently left the Department to join the private sector. The prospect of Brexit also increases the level of uncertainty and challenge that HMRC faces in managing its change programme. HMRC told us that it expected Brexit to have an impact on: customs and excise duties; social security; administration of the VAT regime, state aid; information exchange with other EU countries; ongoing litigation; and on businesses and their relationship with the Department. HMRC noted that if demand did not reduce in the way it expected it would have to ensure that adequate levels of staff were in place to meet taxpayers’ needs.
11.In the last Parliament, HMRC had made over-optimistic assumptions about how much change it could make all at once, which led to significant deterioration in the quality of its customer services for some 18 months. Our recent report highlighted that taxpayers spent more than 4 million hours waiting for HMRC to answer the telephone in 2015–16. We challenged the Department as to whether it had enough evidence, particularly estimates of the cost to individual taxpayers interacting with the tax system, to support its assumptions as it pushes on with its planned changes. HMRC told us that it did not yet have an estimate of the costs to individual taxpayers of complying with their tax requirements. It only had estimates of the impact on businesses, currently estimated to be £11.5 billion a year, with the Department committed to a target to reduce it by £400 million a year by the end of this Parliament.
12.HMRC acknowledged that customer time was not a free good. It said it would look at whether it could quantify the cost of customer time. The Department considered that it should focus on providing customers with a “good basic level of service” and with further options for how they could interact with HMRC “in a simple and transparent way”. The Department told us that it had reduced average waiting times to below five minutes and aimed to get the average to below three minutes. HMRC explained that a key indicator it used to gauge customers’ experiences was their level of satisfaction with the services HMRC provides, rather than monitoring the direct financial costs incurred by customers. In the case of digital accounts the monitoring of satisfaction levels takes place in real time as there is an exit survey as customers leave.
13.In 2015–16, HMRC received 80,400 customer complaints, compared to 74,400 in 2014–15. We asked why the number of complaints had increased, particularly as the Department for Work and Pensions, which is also telephony based, had managed to reduce its number of complaints. HMRC could not explain the increase and accepted that it may have some lessons to learn from DWP’s approach. We expressed our concern that 85.3% of the 1,808 complaints that were escalated to the Adjudicator’s Office in 2014–15 were subsequently upheld in full or in part. HMRC acknowledged that its handling of complaints was not good enough noting that there was something wrong with the system if complaints could go through two different processes in HMRC and yet HMRC’s decisions were being overturned by the tax adjudicator.
14.In 2014, HMRC signed a contract with Concentrix, a private sector company, to provide additional capacity to tackle fraud and error in the tax credit system on a payments-by-results basis. We raised concerns about the contract and the treatment of claimants in June 2016 and were given assurances by HMRC in July that things were improving. In September 2016 HMRC announced the it would not renew its contract with Concentrix. In November 2016 HMRC announced the contract had been terminated early. The operation of this contract has caused unnecessary distress and hardship to HMRC’s tax credit customers. HMRC told us that in the third week of August the basic levels of customer service provided by Concentrix “deteriorated significantly” to the point where less than 10% of phone calls were being answered within five minutes. From mid-August onwards there had been a “fundamental failure of basic customer service”. HMRC told us that Concentrix simply had not put enough people on the phones to cope with the high volume of calls it received after it had written to a large number of claimants about their claims. HMRC told us that this increase in call volumes had been entirely predictable. HMRC told us that it was now dealing with all claimants directly.
15.HMRC considered that there were a number of lessons to be learnt from this experience concerning: the sensitivity and prioritisation of customers in the delivery of public services; the need for more thorough assurance about contingency planning; a question about the speed of escalation, so that people know how quickly issues get to decision makers who can resolve them; a question about whether third parties can fully understand the subtleties of delivering a public service; and whether an incentive contract was the right kind of mechanism in this case.
16.Subsequently HMRC announced that, as of 13 November 2016, it had cleared all of the 181,000 incomplete cases that it took over from Concentrix and had completed around 28,500 of the roughly 32,500 requests for review of Concentrix decisions (known as mandatory reconsiderations). HMRC also noted that as a result of the contract ending, around 250 Concentrix staff had transferred to HMRC. We expect to return to this subject in the New Year when the results of an investigation into this matter being undertaken by the National Audit Office are available.
24 , para 2.3
29 Committee of Public Accounts, , Thirteenth Report of Session 2016–17, HC 78, July 2016, Conclusions and Recommendations, paragraph 2
34 ; C&AG Report, para 2.19
35 Committee of Public Accounts, , Thirteenth Report of the Session 2016–17, HC 78, incorporating HC 79, 27 July 2016
42 HM Revenue & Customs, HC 338, July 2016
43 ; Department for Work & Pensions, , HC 331, July 2016
45 and HM Revenue & Customs, , HC 338, July 2016, Fig. 13
46 Public Accounts Committee Oral evidence: Quality of Service to Personal Taxpayers, HC 78 of Session 2016–17, 13 June 2016, , , dated 26 July 2016, published on 8 September 2016
48 , Financial Secretary to the Treasury, HCWS251, 14 November 2016
49 and , 24 October 2016, published on Work and Pensions Select Committee website 28 October
54 , Financial Secretary to the Treasury, HCWS251, 14 November 2016
30 November 2016