HMRC badly misjudged the "cumulative impact" of its complex digital transition and released "too many customer service staff before completing service changes," the National Audit Office has said in a new report.
Between 2010-11 and 2014-15, HMRC cut staff in personal tax from 26,000 to 15,000, decreasing the cost of its personal tax operations by £257m.
In a damning statement, the NAO said “the quality of service provided by HMRC for personal taxpayers collapsed in 2014-15 and the first seven months of 2015-16 when average call waiting times tripled”.
Desperately stretched HMRC staff only managed to handle 71% of call attempts in 2014-15. HMRC met its target to handle 80% of call attempts in only 10 weeks of that year.
Customer service woes peaked in 2015 when waiting times reached 47 minutes for self assessment callers during the deadline week for paper returns in October 2015.
"Services have subsequently improved following the recruitment of additional staff but whether this performance is sustainable depends on HMRC achieving successful outcomes from its programme to make tax digital," said the NAO.
HMRC also plugged the gap by reassigning staff to its call centres in 2014-15. But according to the NAO, this caused issues elsewhere as HMRC had to defer essential work to maintain PAYE records.
"The stock of outstanding discrepancies in tax records requiring investigation rose from 2.4 million (March 2014) to 4.6 million (March 2015). Of these items, 3.2 million were high priority cases, carrying a risk that employees will have paid the wrong amount of tax. The recruitment of extra staff helped reduce the total number of unresolved items."
"It is unacceptable that so many people now risk paying too much tax because cutbacks at HMRC mean that items such tax codes have not been checked," said John Cullinane, The CIOT's tax policy director. "It is difficult to see how further cuts to HMRC staffing levels can be justified while this size of backlog on anything like this scale remains."
HMRC had expected to counteract the steep decrease in service staff increased automation, flexible procedure so staff could move between different services, and "moving customers from traditional channels to less expensive contact through the expansion of digital services".
"But demand for telephone advice did not fall," said the NAO.
"HMRC’s overall strategy of using digitally enabled information to improve efficiency and deliver service in new ways make sense to the NAO," said Amyas Morse, head of the NAO.
"This does not change the fact that they got their timing badly wrong in 2014, letting significant numbers of call handling staff go before their new approach was working reliably. This led to a collapse in service quality and forced a rapid expansion of headcount."
Making Tax Digital
In its report, the NAO warned HMRC to learn its lessons as the tax authority continues its digital metamorphosis. “HMRC needs to move forward carefully and get their strategy back on track while maintaining, and hopefully improving, service standards,” said Morse.
The NAO report also sternly warned: “HMRC’s transformation will be complex, and more radical than previous change programmes, and that HMRC will need to balance ambition with realism about its critical assumptions and contingency planning.
"We consider implementation problems [for MTD] are inevitable and HMRC will need commitment and resilience to deliver its vision."
Reacting to the report, The CIOT's Cullinane said, "This report sets out starkly what happens when Government makes over-ambitious assumptions about the speed with which savings from digitalisation can be realised and cuts staff prematurely. There is a lesson here for HMRC’s future digitalisation plans.
"Making Tax Digital promises significant potential benefits, but HMRC’s resources should not be cut further in anticipation of this before the cost-savings that digitalisation promises are actually being delivered."
What's been your experience of HMRC customer service? What do you think of the NAO's report?