The merger, in 2005, of Inland Revenue and Customs & Excise to form HMRC brought efficiencies and an overall improvement in tax compliance, but its practical implications had been seriously underestimated. Training suffered, leading to a temporary loss of deep expertise, and the integration process took much longer than expected. Subsequent political pressure, particularly from Margaret Hodge and the PAC, has caused a lack of confidence in HMRC’s decision-making. This has led to a system where errors are heavily scrutinised and resulted in a slow and cautious decision-making process that remains to this day.
Political pressure has resulted in HMRC adopting a slow and cautious decision-making process that remains to this day, writes Heather Self (Blick Rothenberg).
In March 2025, HMRC – formed by the merger of the Inland Revenue and Customs and Excise – was 20 years old. The CIOT and ICAEW held a conference (with cake! – zero-rated, of course) to mark the occasion.
The conference was opened by Lord Gus O’Donnell, Treasury Secretary at the time of the merger and the leader of the review which led to it. Of course, the merger was a brilliant idea and everything went extremely well – or did it? I was part of the subsequent panel, which comprised Lord Nick McPherson, Penelope Tuck, David Gauke and me. Nick McPherson succeeded Gus O’Donnell as Treasury Secretary, but at the time of the merger he was head of the Budget and Public Finance Directorate at the Treasury. Again, his view of the merger was an extremely positive one. (For reports of the conference, see here and here.) This article sets out my thoughts in slightly more detail than the five minutes or so I was allowed on the day.
Gus O’Donnell was very clear that external expertise, primarily from David Varney, had been a big factor in the success of the merger. Without intending any disrespect to the late Sir David, I think the merger failed to take advice from those who had been at the sharp end of practical implementation of a merger – not the Chairman or Chief Exec, but the senor leadership team a level or two below them who actually had to deal with the consequences.
At the time of the merger, I was Group Tax Director for Scottish Power (a FTSE 100 energy company) and sat on a Large Business Forum with other senior tax professionals, liaising with the Inland Revenue and Customs & Excise. I vividly remember Dave Hartnett and Chris Tailby announcing the forthcoming merger, in tones of great excitement and enthusiasm. Around the table, every one of us had personally lived through a major merger, such as those of EY and Astra Zeneca. We were all of the view that the practical implications of the HMRC merger had been seriously underestimated.
Three and a half years later, I joined HMRC in the Anti-Avoidance Group, as part of an experiment in recruiting people with outside expertise to help deal with some of the largest tax disputes. I found, as I expected, a department in which every single person knew whether they were an Inland Revenue or Customs & Excise person, and where a myriad of HR issues still remained to be resolved. Large mergers are really difficult, and they take much longer than two or three years to achieve real integration.
One particularly poor area was training. The old ‘Fully Trained Inspector’ programme in the Inland Revenue had been excellent, giving trainee inspectors a really thorough grounding in the law. I am less familiar with the Customs equivalent, but I am fairly sure it also gave people the technical skills they needed. After the merger, the training was redesigned from scratch (why?), with the result that everybody had to learn a bit about everything – and I think the requirement for deep expertise was overlooked, at least for a period (I do think it has improved again now).
For large businesses, the integration of the Large Business Service (LBS) made a lot of sense, and the role of the Customer Relationship Manager (CRM) was a strong one. But not long after the merger, the CRM became more of a management role, and in some cases a CRM with VAT expertise would be appointed to look after a large business whose main issues related to corporate tax. It seems to me that, again, the requirement for deep expertise was devalued.
But I think one of the biggest problems that HMRC faced post-merger was caused by politicians, and particularly Margaret Hodge and the Public Accounts Committee (PAC). The events of 2011, when Dave Hartnett was hauled before the PAC and harangued for decisions that he had taken on major disputes are, I think, seared in the corporate memory of HMRC, and have led to a profound lack of confidence in their decision-making which has persisted ever since. And it is worth noting that the key decisions criticised by the PAC were found by the Park review to be ‘reasonable and the overall outcome for the Exchequer was good’.
The problem is that no individual or organisation can ever make the right decisions every time – mistakes are inevitable. Of course, what should happen is that mistakes should be acknowledged, errors corrected and lessons learned. But if every error, or perceived error, leads to an inquisition, then naturally the reaction will be to add layer upon layer of process to try to prevent errors, leading to a sclerotic system in which very few decisions are made at all. Even worse, for any individual conducting an enquiry, the safest course of action is to keep asking questions or to consult yet another colleague, so that any potential blame is diverted. The consequence is that taxpayers find it harder and harder to resolve disputes, even (perhaps especially) if the right answer is that no additional tax is due.
Is it possible to fix this? I think that Exchequer Secretary James Murray’s appointment as Chair of HMRC may provide a key to unlocking the issue. As Chair, he should provide public and political support for the leadership of the organisation: of course he should provide constructive challenge, but he should also have their back and help them build confidence to become the efficient and effective tax authority that we need them to be.
The merger, in 2005, of Inland Revenue and Customs & Excise to form HMRC brought efficiencies and an overall improvement in tax compliance, but its practical implications had been seriously underestimated. Training suffered, leading to a temporary loss of deep expertise, and the integration process took much longer than expected. Subsequent political pressure, particularly from Margaret Hodge and the PAC, has caused a lack of confidence in HMRC’s decision-making. This has led to a system where errors are heavily scrutinised and resulted in a slow and cautious decision-making process that remains to this day.
Political pressure has resulted in HMRC adopting a slow and cautious decision-making process that remains to this day, writes Heather Self (Blick Rothenberg).
In March 2025, HMRC – formed by the merger of the Inland Revenue and Customs and Excise – was 20 years old. The CIOT and ICAEW held a conference (with cake! – zero-rated, of course) to mark the occasion.
The conference was opened by Lord Gus O’Donnell, Treasury Secretary at the time of the merger and the leader of the review which led to it. Of course, the merger was a brilliant idea and everything went extremely well – or did it? I was part of the subsequent panel, which comprised Lord Nick McPherson, Penelope Tuck, David Gauke and me. Nick McPherson succeeded Gus O’Donnell as Treasury Secretary, but at the time of the merger he was head of the Budget and Public Finance Directorate at the Treasury. Again, his view of the merger was an extremely positive one. (For reports of the conference, see here and here.) This article sets out my thoughts in slightly more detail than the five minutes or so I was allowed on the day.
Gus O’Donnell was very clear that external expertise, primarily from David Varney, had been a big factor in the success of the merger. Without intending any disrespect to the late Sir David, I think the merger failed to take advice from those who had been at the sharp end of practical implementation of a merger – not the Chairman or Chief Exec, but the senor leadership team a level or two below them who actually had to deal with the consequences.
At the time of the merger, I was Group Tax Director for Scottish Power (a FTSE 100 energy company) and sat on a Large Business Forum with other senior tax professionals, liaising with the Inland Revenue and Customs & Excise. I vividly remember Dave Hartnett and Chris Tailby announcing the forthcoming merger, in tones of great excitement and enthusiasm. Around the table, every one of us had personally lived through a major merger, such as those of EY and Astra Zeneca. We were all of the view that the practical implications of the HMRC merger had been seriously underestimated.
Three and a half years later, I joined HMRC in the Anti-Avoidance Group, as part of an experiment in recruiting people with outside expertise to help deal with some of the largest tax disputes. I found, as I expected, a department in which every single person knew whether they were an Inland Revenue or Customs & Excise person, and where a myriad of HR issues still remained to be resolved. Large mergers are really difficult, and they take much longer than two or three years to achieve real integration.
One particularly poor area was training. The old ‘Fully Trained Inspector’ programme in the Inland Revenue had been excellent, giving trainee inspectors a really thorough grounding in the law. I am less familiar with the Customs equivalent, but I am fairly sure it also gave people the technical skills they needed. After the merger, the training was redesigned from scratch (why?), with the result that everybody had to learn a bit about everything – and I think the requirement for deep expertise was overlooked, at least for a period (I do think it has improved again now).
For large businesses, the integration of the Large Business Service (LBS) made a lot of sense, and the role of the Customer Relationship Manager (CRM) was a strong one. But not long after the merger, the CRM became more of a management role, and in some cases a CRM with VAT expertise would be appointed to look after a large business whose main issues related to corporate tax. It seems to me that, again, the requirement for deep expertise was devalued.
But I think one of the biggest problems that HMRC faced post-merger was caused by politicians, and particularly Margaret Hodge and the Public Accounts Committee (PAC). The events of 2011, when Dave Hartnett was hauled before the PAC and harangued for decisions that he had taken on major disputes are, I think, seared in the corporate memory of HMRC, and have led to a profound lack of confidence in their decision-making which has persisted ever since. And it is worth noting that the key decisions criticised by the PAC were found by the Park review to be ‘reasonable and the overall outcome for the Exchequer was good’.
The problem is that no individual or organisation can ever make the right decisions every time – mistakes are inevitable. Of course, what should happen is that mistakes should be acknowledged, errors corrected and lessons learned. But if every error, or perceived error, leads to an inquisition, then naturally the reaction will be to add layer upon layer of process to try to prevent errors, leading to a sclerotic system in which very few decisions are made at all. Even worse, for any individual conducting an enquiry, the safest course of action is to keep asking questions or to consult yet another colleague, so that any potential blame is diverted. The consequence is that taxpayers find it harder and harder to resolve disputes, even (perhaps especially) if the right answer is that no additional tax is due.
Is it possible to fix this? I think that Exchequer Secretary James Murray’s appointment as Chair of HMRC may provide a key to unlocking the issue. As Chair, he should provide public and political support for the leadership of the organisation: of course he should provide constructive challenge, but he should also have their back and help them build confidence to become the efficient and effective tax authority that we need them to be.
