1.HM Revenue & Customs and Concentrix consistently failed to provide an acceptable standard of service to claimants and suspended and later reinstated payments to 29,500 people. Between November 2014 and September 2015, Concentrix consistently missed its performance targets. HM Revenue & Customs (HMRC) told us, in July 2016, that it had brought Concentrix’s service to an acceptable standard, despite Concentrix missing targets for answering calls and handling post from May 2016. This left claimants unable to get answers from Concentrix to their letters or calls and uncertain about their tax credits claim. Despite claimants facing these problems, HMRC chose to suspend 45,000 awards to claimants. This caused unnecessary hardship and distress, with HMRC later reinstating 29,500 awards to which people had been entitled. To improve the response from claimants and ensure such disruption does not happen again, HMRC told us it intends to make changes to the renewals process in 2017.
Recommendation: HMRC should set out, before the 2017 renewals process, what action it will take to improve both communication about its expectations of claimants and reduce the unnecessary terminating of awards which leads to real hardship for families.
2.Claimants may have lost out on other benefit payments as a result of these problems. HMRC has refunded claimants who were wrongly denied their tax credits, either as a lump sum or as regular payments. Some of these claimants, however, may have further lost out when tax credits refunds took them above income thresholds for other means-tested benefits, including Housing Benefit. HMRC said that it has clarified with the Department for Work & Pensions (DWP) that the repayment of tax credits as a lump sum should not affect eligibility for other means-tested benefits. It explained that the refunds are now flagged as lump sums in the information systems used by the DWP and local authorities to process other benefit payments. It acknowledged, however, that further discussions were needed to be certain that affected claimants receive all the money they are owed.
Recommendation: HMRC must ensure that all claimants who wrongly lost their tax credits have their awards fully reinstated, and are fully compensated for any impact on entitlement to other benefits. HMRC must report back to us the details of actions taken, any outstanding cases, and the costs of these actions by summer 2017.
3.The problems experienced with the 2016 renewals process were entirely predictable. HMRC and Concentrix bear joint responsibility for seriously mismanaging the process. HMRC and Concentrix are still blaming each other for the debacle surrounding the 2016 renewals process. Concentrix claims it expected HMRC to stagger the 2016 terminations over several weeks, as it had done in 2015. HMRC instead terminated all 45,000 awards in one week. As a result, Concentrix was overwhelmed by the number of claimants trying to get in touch to find out what had happened to their awards; in August 2016 it answered just 35% of calls in five minutes against a target of 90%. In contrast, HMRC claims that staggering the terminations would only have made a marginal difference and it would have been prepared to do so if Concentrix had only asked. The problems were entirely foreseeable, as Concentrix already had backlogs of unresolved cases before the renewals process and it was failing to meet customer service standards for responding to queries. Communication between the parties had clearly broken down and it was the claimants that suffered. HMRC has recognised that there are lessons to learn concerning the thorough testing of contingency arrangements and escalating issues to senior decision-makers more quickly.
Recommendation: In its response to this report, HMRC should set out the steps it has taken to share and address the lessons learned from managing the contract, including:
4.The payment-by-results model used for the contract was flawed and HMRC lacked the commercial capability to design the contract effectively. HMRC did not take sufficient account of the importance of customer service when designing the contract, ignoring issues with call-handling performance identified in its pilot. HMRC chose to pay Concentrix on a commission basis related to level of fraud and error it identified in tax credit claims. The model was not suitable for this type of service and HMRC now accepts that it got the balance wrong in focusing on the incentive to achieve savings rather than thinking about the service to claimants. Concentrix also feels that the contract was not designed to deliver what was actually required; it was neither generating the revenue that Concentrix had expected nor meeting the customer service standards that HMRC intended. Despite Concentrix missing its performance targets for customer service from the start, HMRC renegotiated the contract in October 2015 to try and make it more commercially viable for Concentrix. It almost trebled the level of commission paid to Concentrix from 3.9% to 11%, while also introducing different performance measures for customer service. HMRC acknowledges that its commercial function did not have the required skills and resources and says that it is revamping its commercial and contract division.
Recommendation: HMRC should set out how it plans to develop its commercial capability and what it is doing to implement its plan. It should work with the Government Commercial Function to take forward this recommendation.
5.The contract only delivered £193 million of savings against an original expectation of £1 billion. HMRC originally estimated that the contract would deliver £1 billion of savings, but estimated savings at November 2016 were £193 million. HMRC said that the investment of £32.5 million for a saving of £193 million represented a reasonable rate of return. Nevertheless, HMRC told us that it does not intend to involve the private sector to conduct tax credits compliance checks in the future. Concentrix said that HMRC’s original assumptions about the number of available tax credits cases for review were incorrect, with Concentrix making a loss of £20.5 million from the contract. HMRC does not yet know whether it can make more savings from using its own resources instead. It now has further capacity to conduct tax credits compliance checks after 250 Concentrix staff were transferred to HMRC as part of ending the contract.
Recommendation: Now that HMRC has brought this work back in-house, it must set out its plan for tax credit compliance including the associated error and fraud savings it expects to deliver from using its own resources and the 250 staff transferred from Concentrix. It must also show that it has learnt definite lessons to ensure the appalling level of customer service is not repeated by HMRC, which itself has not always delivered a good service to customers.
4 April 2017