14 Nov 2013 02:33pm

HMRC needs more investment, not less

The last few years have been “grim” for anyone involved in tax administration, thanks in no small part to HMRC cutbacks and its “them and us” approach, says leading tax expert Paul Aplin

But he has high hopes now that the current leadership will oversee a cultural change throughout the department. As Aplin told his audience at last night’s Philip Hardman lecture, “I believe we do now have a team at the top that gets the issues”.

When HMRC was created back in 2005, its first chairman David Varney said, “For those who want to file their returns and pay their taxes, our job is to make it as easy as possible. For those who are lost or do not understand, we have to help them.”

The way in which those aspirations were pursued, Aplin said, did not go entirely to plan. And he questioned whether the real scope for efficiency savings (for which read cost savings) was as great as may have been anticipated.

“Headcount reductions have sometimes been made ahead of new processes being proved effective and often predicated on the idea that digitalisation would automatically lead to cost savings,” he said.

“In industry it would have been done differently: design a new process, test it, parallel run it with the old process and only then make the change and reduce the head count.”

As a result, staff levels fell from 97,073 in April 2005 to 66,992 in November 2010, and by 2015 the department will lose another 15,000 people. “That’s a headcount reduction of over 40% in a decade,” he added. “I’d say that was too fast.”

At the same time, HMRC was implementing IT systems – including the self-assessment and end of year P35 processes – that were often inadequately tested and lacked capacity to cope with predictable peak loads. “HMRC is still stuck with a reputation for poor IT because of these failings, despite having made huge progress in recent years,” he said.

HMRC’s service standards fell along with its headcount, leading to unacceptable post and call handling times, too few technically trained staff, too many processing errors and poor morale, Aplin continued.

“These things have dogged HMRC. When we’ve seen improvement in one area, something else seems to have gone wrong in another. You can’t solve the core problem by shifting ever reducing numbers of people from an area that’s currently under control to one that isn’t. That’s simply borrowing from Peter to pay Paul.

“I’ve lost count of the number of times I’ve been told that things are about to improve, that we’re at the bottom of the J-Curve or, more graphically, that the swamp has been drained.”

The British taxpaying public generally complies with its tax responsibilities voluntarily because it trusts government departments to deal with it fairly and efficiently. Undermining that confidence and trust – and with it the willingness to comply voluntarily – through shoddy service standards could have a very serious effect on HMRC’s ability to close the tax gap.

Having said that, he said, things are beginning to change for the better. He pointed to the Joint Initiative on Service Delivery that has led, among other changes, to senior HMRC officials spending time in tax practitioners’ offices and practitioners in post processing and call centres, redeployment of staff and reallocation of budget, the replacement of 0845 numbers with 0300 numbers and publication of call centre statistics.

But there is a lot more to be done, he argued, not least getting every HMRC employee to ask instinctively “Is this the way to treat a customer?” Small businesses need more support and a representative on HMRC’s board. But most of all, the department is crying out for more investment, not less.

“Politicians of all parties need to get to grips with the fact that if we’re to have a better tax system, HMRC currently needs more investment, not less.

“Without proper resource,” he added, “I see no realistic prospect of HMRC’s customers, seeing the kind of tax administration – the better tax system – they deserve.”

Julia Irvine


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