Delivering this year’s ICAEW Tax Faculty Hardman lecture was a daunting prospect. I wanted to imagine what Philip Hardman – who died in 1993 – would say about the state of tax administration if he could return for a day.
Philip died before self-assessment, before electronic tax returns and before the creation of HMRC. Inevitably perhaps, I found myself focusing on HMRC, the aspirations which the O’Donnell Review had for the new department, and the degree to which they have been realised.
The aspiration was for an HMRC with a clear focus on helping citizens and businesses pay their taxes as easily as possible using highly efficient systems and processes. Things can hardly be said to have gone to plan.
Full-time equivalent posts fell from 97,073 in April 2005 to 66,992 in November 2010. Other government departments saw their budgets increase over the same period by an average of 4% per annum. HMRC aims to shed a further 15,000 posts.
Service standards for citizens and businesses have declined. Outside Whitehall, few would argue against the proposition that the headcount reduction and the decline in service standards are a matter of cause and effect. Inside Whitehall and Westminster, the fantasy that they are unconnected persists.
I question whether the efficiency programme has actually been very efficient. The value for money savings of £1,143m claimed for the first five years of HMRC’s existence were almost entirely wiped out by the £953m tax written off as a result of the failure to carry out PAYE reconciliations in the run up to the introduction of NPS.
In the USA, the IRS has taken a similar path, which has also resulted in a deterioration in post handling times and call centre performance. The IRS has now asked for an increase in headcount and budget. I believe that unless HMRC sees an increase in its resources, overall service levels will remain unsatisfactory. Simply transferring resources from one area to another will not solve the core problem.
HMRC has also lost far too many skilled people in the pursuit of ‘efficiency’. A major investment is needed in training to redress that.
Failure to face these problems risks widening the tax gap. As Lord O’Donnell himself said: ‘If there is poor efficiency within the tax service, there will be weaker compliance’.
Trying to do too much with too little has failed. It is time to face that fact.
