The Public Accounts Committee (PAC) has lambasted HMRC for its performance in preparing for Brexit, preventing tax credit fraud, improving its customer service and its use of information.
The PAC is a powerful committee in the House of Commons which is charged with seeing the government gets value for money from its expenditure. This is a broad umbrella under which they have taken a forensic interest in HMRC and its activities over the years.
This year's PAC report on HMRC's 2017-18 performance reflects the committee's interest in all aspects of HMRC’s work. In particular the committee has made repeated calls for HMRC to get a grip on the figures around tax reliefs.
Unprepared for Brexit
The committee's concerns about Brexit-readiness are front and centre in the report summary but then detailed in a separate letter rather than in the report itself because of the urgency of the Brexit deadline.
PAC has been talking to HMRC for some months about the proposed Customs Declaration Service (CDS), in July expressing concern that the system would not be functioning by January 2019 and now casting a cynical eye on the viability of contingency arrangements.
The letter expresses particular concern that HMRC has no communications plan in place and cannot develop one for the 100,000 smallest businesses "that HMRC can not engage directly with, as you do not know who they are".
Tax credits mismanaged
The PAC is concerned about the £38bn HMRC pays out in working and child care tax credits – about 20% of the entire benefits budget. Their concern centres around the loss of £1.3bn to errors and fraud, as well as underpayments of tax credits rightfully due, amounting to around £200m.
The problems have festered partly because with the cancellation of the Concentrix contract there was a reallocation of HMRC resources to take the work back in-house, but some of this reallocation was out of fraud investigation.
The PAC is clearly not satisfied by HMRC's suggestion that there is no appetite across government to put more effort into tax credit fraud reduction, because tax credits themselves are being phased out. I predict we will see PAC come back to this issue the next time it has HMRC before it.
The PAC was also unimpressed by HMRC's use of information and its information powers. In particular, the new register of overseas company owners of UK property due to be introduced in 2021 seemed to PAC to offer new investigation opportunities.
Reading between the lines, it looks as if HMRC was wrong-footed by this line of enquiry, as the register is "owned" by the Department of Business, Energy and Industrial Strategy.
In my head I am envisaging the HMRC fraud team who are members of the register's "cross departmental working group" moving pretty sharpish from "who shall we send to the next meeting" status to "frantic briefing" mode.
The issue of tax reliefs is one which the PAC has recently made its own. The PAC asserts – not unreasonably – that, as there are:
- 105 reliefs which cost an estimated total of £416.8bn
- 80 more reliefs where the costs are nil or negligible, but a further
- 239 reliefs where the effects are not known
How does HMRC know that tax reliefs provide value for money if it doesn't know how much they cost?
The PAC seems to expect HMRC to know how much tax is foregone as a result of each relief, and to evaluate and make recommendations to HMT policy colleagues based on the results. Which is eminently reasonable – but not at all how Whitehall works.
The Office of Tax Simplification has done some work on tax reliefs, and the PAC has been successful in driving the agenda at least as far as HMRC's annual report. However, whether the PAC or the OTS has the leverage to make HMRC invest the necessary resources into doing the research and evaluation that would be necessary to look at tax reliefs in the detail envisaged, nobody knows.
HMRC is also hampered in the attempt to give satisfactory answers on large employers' operation of PAYE, by a similar lack of the power to enforce improvement, or the resources to offer proactive customer service help.
On the vexed question of HMRC's customer service in general, the PAC is rightly keeping a cynical eye on the £1.8bn allocated to HMRC's transformation programme which is forecast to bring in £1.9bn of efficiency savings.
The PAC states plainly that it finds HMRC's assumptions unrealistic and pours some cold water on the idea that telephone waiting times should be measured from the beginning of the queue for an adviser, rather than from the beginning of a call. HMRC doesn't count all those minutes listening to options and pressing one for x, two for y. The PAC strongly recommends it should. Which, in my book, puts the PAC firmly on the side of the taxpayer and their agents.
About Wendy Bradley
Wendy Bradley is a retired tax inspector, now working as a freelance journalist.