The British tax office, Her Majesty’s Revenue and Customs (HMRC), has been warned by MPs on the influential Public Accounts Committee that its ambitious transformation programme is a high wire act that is only being made more difficult by the onslaught of change required by Brexit.
A new report out today examining HMRC’s performance over the past year claims that the transformation programme could result in catastrophic consequences, given its complexity, scale and depth.
In 2015, HMRC committed to a highly ambitious plan to transform the tax system by 2020. The department is currently running 15 transformation programmes concurrently, which include making tax digital for individuals and business, developing the new Customs Declaration Service system, supporting the introduction of Universal Credit and the closure of its national network of offices and relocation to 13 large regional centres.
HMRC told the committee that the programme as a whole was the right strategic approach, btu that the UK’s exit from the EU would lead to about 40 additional projects, or the equivalent of a 15% increase in workload.
As a result, HMRC said that it needs to re-prioritise and consider its capacity to deliver the 250 projects that underpin the transformation – citing the “significant volume of technological change” that underpins these.
Committee Chair, Meg Hillier MP, said:
HMRC’s transformation programme would have been less risky had it not attempted to do everything at the same time.
What was already a precarious high-wire act is now being battered by the winds of Brexit, with potentially catastrophic consequences.
HMRC accepts something has to give and it now faces difficult decisions on how best to use its limited resources—decisions that must give full consideration to the needs of all taxpayers.
In particular we are concerned about the effect on people simply trying to pay their fair share.
HMRC’s customer service has improved on the appalling levels of recent years but its claims about call-answering times don’t stack up. Any new deterioration would be wholly unacceptable.
These are serious, pressing challenges for HMRC, requiring swift and coordinated action in Government. As a matter of urgency the authority must set out a coherent plan and demonstrate it is fit for the future.
Diginomica/government has been documenting the challenges facing HMRC in recent months – most notably around the end of its lengthy outsourcing agreement, Aspire, the £1.3 billion plan to ‘Make Tax Digital’, and the pressures facing it to develop the new Customs Declaration Service to incorporate Brexit.
MPs have been warning that these programmes could face huge problems and that their failures could be a “disaster” and “catastrophic”.
In the Spending Review and Autumn Statement 2015, HMRC committed to deliver: £1.9 billion efficiency savings, reaching £717 million of annual efficiency savings in 2019–20; £920 million additional tax revenue; and reduced business costs by £400 million.
HMRC has said that it failed to deliver the target savings in the first year of the programme and would fall short of its £717 million target per year by 2019-20. It said that it “went through those programmes in some significant detail and reshaped some of them”.
HMRC told the committee that its latest estimate, underpinned by a number of assumptions particularly on demand management for its customer services, that it will deliver £707 million against the target of £717 million.
HMRC is also seeking around £240 million of annual efficiencies arising from change led by operations. HMRC told the committee that they will come from a combination of headcount reductions and investments in new telephony systems and robotics. New back-end IT systems and automation of processes will also contribute towards the savings.
However, despite savings being made, HMRC said that in retrospect it would have been more sensible to have implemented projects in sequence rather than have 15 big transformation programmes on the go at the same time. The risks would have been lower had the projects also been implemented over a greater span of time.
The department said that it does “not believe it is credible…to continue with the transformation programme as it is” in light of the extra workload from Brexit, implementation of policies announced in fiscal events and the extent of technological change built into the transformation programme.
As a result, HMRC is undertaking a “reprioritisation exercise” and expects to advise ministers by the end of the current financial year on the projects that may have to be slowed down or stopped. HMRC said that it has already deferred some of its digital investment in the child benefit system and has made some savings in its estate programme
An ambitious transformation programme at the best of times – when we know government doesn’t have the best track record on delivering such things, at scale. Throw Brexit into the mix, and I smell a recipe for disaster.
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