HMRC this week unveiled plans for an organisational reshuffle as shadow chancellor John McDonnell set out Labour’s manifesto to build a tax department “fit for the 21st century”.
HMRC’s overhaul emerged in the wake of Monday’s stakeholder conference in the latest instalment of the department’s “building our future” programme.
In changes that will take effect from the beginning of 1 October, the department’s four existing directorates will streamlined into three:
- A customer strategy and tax design group led by director general for business tax Jim Harra, who will oversee customer strategy, tax policy, process design and tax assurance teams. This group will customer service staff as well as specialist personal tax teams and “product and process” staff
- A customer service group headed by current director general for customer services Ruth Owen that will oversee HMRC’s operational teams; and
- A customer compliance group led by director general for enforcement and compliance Jennie Granger. This group will be responsible for compliance and enforcement work across HMRC, including the large business operation.
As explained by HMRC to staff, the changes would make it easier for compliance teams to work together and give “customers” the joined-up support they expect. The moves will be implemented in two stages in October and December.
Practitioner and ICAEW Tax Faculty technical committee chair Paul Aplin said the new structure demonstrated a clearer focus on taxpayers and the reflected the strengths of the new group leaders.
“While we await detail, these changes will hopefully help address phone call and post handling efficiency and help to ensure HMRC gets it right the first time. In particular, there is often a need to speak someone with detailed knowledge of the tax system rather than being directed to less experienced staff,” Aplin said.
But HMRC’s regorganisation will be unlikely to deflect Labour’s long-term plan to reform the tax department. As the first step of this campaign, shadow chancellor John McDonnell presented a report from academics and experts led by Essex University professor Prem Sikka outlining why HMRC needed to major reform and recommending a number of solutions to the problems they found.
Introducing the report, shadow Treasury secretary Rebecca Long-Bailey said, “In recent years, HMRC has been seen to be failing to provide an adequate service to taxpayers.”
Sikka’s report collated some of the evidence to support that view in terms of how well HMRC addresses the elusive tax gap, the impact of staffing and cost cuts, customer service and governance.
“Our main concern is to strengthen HMRC. It is a vital national institution. It collects tax revenue - it needs to be strong,” he said.
From the point of view of business taxpayers, he continued, “They need to get through to the institution to get advice to resolve problems on a timely basis. If there are 30,000 cases waiting to be heard and they take a decade to resolve, that does not create certainty. It points to gaps in our judiciary and legal system.”
The report’s main recommendation is to create a supervisory board made up entirely of “stakeholders”. In contrast, he pointed out that the current HMRC board is chaired by former tax lawyer Edward Troup and its non-executive directors come entirely from large corporations.
“HMRC is distant from concerns of ordinary people,” Sikka argued. “That seems to suggest we need to bring HMRC closer to stakeholders. We believe local intelligence is a key to serving the business community and solving local problems. At the moment there is a face-to-face service for Goldman Sachs, Google and other corporations. There is no face-to-face service for local taxpayers. We feel that is wrong and that can be addressed.”
In addition to the supervisory board, the Sikka report recommended:
- Additional investment in staff and a network of offices run by staff with local knowledge.
- A well resourced internal investigation and prosecution unit. Taking on more of this work would to strengthen HMRC’s knowledge base
- Competitive salaries and financial rewards for HMRC staff
- Making corporation tax returns public, as they do in some Scandinavian countries
- Stronger parliamentary oversight - including the right of select committees to examine any tax documents they want
- Extra capacity to clear the backlog of cases held up at tax tribunals, and rejecting the proposal to levy a fee on taxpayers who want to challenge HMRC’s decisions in court.
- A revised general anti-abuse rule and structure so that GAAR arrangements are guided by the Department of Justice “rather than by corporate elites”.
The 36-page ‘Reforming HMRC’ report was lighter on detail about how these reforms would be implemented, but McDonnell explained that it was the first step in Labour’s review of the tax department that would run through to next spring, when Labour would complete “a gargantuan task to set out HMRC for the 21st century and look to a stable future”.
Labour will share its findings and proposals with the government to try and get a bi-partisan approach. If a collaborative approach can be agreed between the parties, “We hope these changes can survive beyond the lifetime of a single Parliament,” McDonnell said.
The point could be made that that another supervisory group would just add an extra layer to what is already a cumbersome governance structure. One of the main factors in the poor public accountability identified in the report was inattention from politicians.
“I have I criticised the lack of attention by politicians in the past,” McDonnell answered. “It’s difficult to say that about the PAC [Public Accounts Committee], but their problem is access to information and expertise.
“A supervisory board would ensure there is a full range of stakeholders involved. As this report demonstrates, it’s quite a close circle of vested interests. We’re trying to make sure openness and transparency comes from the full involvement of stakeholders... You could have a body fully resourced to play that supervisory role - and that could be overseen by politicians.”
Tax justice campaigner and co-author of Labour’s HMRC review John Christensen added: “The PAC have done a good job. But it’s not their full job. There’s no continuity in their work. Whilst many big businesses might be spepticial [about the need for a supervisory board], small businesses do need better representation. They would be an important part of this board. This is not going to happen with a PAC-style approach. Continuity over decades to come is what’s needed.”