HM Revenue and Customs

Catherine McKinnell Excerpts

Tuesday 5th February 2013 Westminster Hall

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Howarth. I join colleagues in congratulating my hon. Friend the Member for Hayes and Harlington (John McDonnell) on securing this morning’s extremely timely and interesting debate. His interest in all matters related to HMRC is well known, particularly through his work as chair of the PCS parliamentary group. I am keen to take this opportunity to commend him for his tireless commitment to ensuring that those who work for HMRC and their concerns are properly represented in this place.

I described today’s debate as timely not least because, until very recently, I had anticipated being briefed this morning by HMRC’s chief executive in my capacity as shadow Exchequer Secretary. Sadly, that meeting was cancelled at short notice—or was it perhaps prevented from taking place? I could not comment. In any event, as luck would have it, my hon. Friend successfully secured this debate, and the Minister will be pleased to know that many of the issues that I wanted to raise with the chief executive I will now raise directly with him instead.

What is clear from the many excellent contributions this morning is the absolutely crucial function performed by HMRC and its staff. Of course, HMRC does not just act as the UK’s “credit control department”. It has a vital role to play in delivering key Government policies, such as the impending universal credit, to which I will return. HMRC interacts with most of the UK’s adult population of 45 million and, indirectly, with their children, as well as with about 5 million businesses, and its primary function in doing so is to make our taxation system work. Indeed, without the money that HMRC collects, there would be no funding to invest in public services. That is why the capacity and resources that it has to perform its role are so critical and an ever-more pressing issue in this period of austerity and growing Government debt—a point that was made forcefully by my hon. Friend the Member for Leeds East (Mr Mudie).

HMRC staff can provide a pretty impressive return on investment. We know that, last year, senior HMRC officials brought in £16.7 billion over and above that which was returned by businesses and individuals. Indeed, the Association of Revenue and Customs—ARC—estimates that a senior tax official, earning £50,000 a year, can expect to generate an additional yield of at least £1.5 million a year—a return of 30 times the cost of their salary. Many hon. Members have referred to the excellent analysis provided by the PCS of the yield provided by HMRC’s office in Wick alone. That office is scheduled for closure in this financial year, as hon. Members have also mentioned. Each member of the 15 staff working in the Wick office in northern Scotland is responsible for bringing in about £1 million in tax a year. The total is more than £14.3 million. That compares with the overall annual salary and rental bill for the office of £494,000. It is an impressive return.

Despite the impression that one may have gained from recent media reports, we are fortunate to live in a generally tax-compliant country, with 93% of all tax paid as it should be. However, that figure, which compares well with those for our trading partners, can be maintained and improved only if we have a properly resourced HMRC. The Government should be doing everything within their power to assist HMRC to close the remaining tax gap, which my hon. Friend the Member for Bolton West (Julie Hilling) talked about in some detail. Many hon. Members have contributed today to give colour to the picture of just how difficult it will be to close that tax gap in the context in which HMRC currently operates.

As we are all too aware, HMRC faces budget cuts of £2 billion in the course of this Parliament. The Minister is likely to mention that the Government are “reinvesting” more than £900 million in HMRC, but the straight fact is that that is money that the Treasury had planned to take away from HMRC and is now returning. That still leaves HMRC with a £2 billion net reduction in resources. The Prime Minister may claim that HMRC’s staffing levels are increasing under his Government, but a quick fact check reveals that HMRC is losing 10,000 staff. It is little wonder, therefore, that there are serious concerns that HMRC staff and resources are being stretched to the absolute limit, and that situation is likely to get worse.

Indeed, the National Audit Office report on HMRC’s customer service performance, published in December, revealed truly worrying findings about the way in which HMRC handles its customers. A completely unacceptable 20 million telephone calls to HMRC went unanswered last year. As other hon. Members have mentioned, the NAO estimated that it cost customers £33 million in call charges while waiting to speak to a human being, on top of the estimated £103 million cost of wasted customer time. That is particularly concerning for those on low incomes, who literally cannot afford to keep hanging on the telephone, and for struggling small and medium-sized enterprises, which could be making far more productive use of their time. The hon. Member for Cities of London and Westminster (Mark Field) made a very passionate plea for small businesses in his contribution to the debate, and I agreed with much of what he said.

It is therefore welcome that HMRC appears to be improving its performance in that area, but I am sure that the Minister would acknowledge the Public Accounts Committee’s conclusion that that is from a very low base, with targets far below industry standards. I urge him to ensure that the recently announced move away from 0845 numbers will benefit people on low incomes, who often use pay-as-you-go mobile phones rather than mobile contracts or landlines.

We also heard the truly staggering statement by HMRC’s chief executive at a Public Accounts Committee session just last month that the agency currently has about 100,000 unanswered letters, although admittedly the number has fallen from the incredible 1 million at one point last year.

It is not just the NAO and the PAC that believe that HMRC is creaking at the edges. A survey by the Chartered Institute of Taxation of its members in the summer of 2012 found significant concerns regarding customer service provided by HMRC, including: delays in post handling; telephone calls that are passed to a customer service centre, resulting in a four-to-six week further delay; increases in basic errors; and delays in getting through to PAYE telephone lines.

A similar survey by the Institute of Chartered Accountants in England and Wales found that HMRC is often failing to meet its “basic responsibilities”, with phone calls and letters frequently going unanswered and staff often lacking the knowledge and training to handle complex inquiries. That is not just an inconvenience for taxpayers; mistakes by HMRC can be very costly and can make all the difference to a struggling SME or a struggling family. Every hour spent on hold to HMRC is holding back our economic growth, and that is at a time when the Government are relying on SMEs to dig us out of this economic stagnation.

Of course, the situation is not helped by a Government who simply do not seem to think through how their policies will be delivered on the ground. The debacle over the changes to child benefit, which came into force last month, has seen 475 staff drafted in to deal with that policy at a cost of £11.7 million and an additional 500,000 taxpayers being drawn into the complex self-assessment regime. I would therefore be grateful if the Minister confirmed from which areas of work those 475 staff have been taken in order to implement that ill-thought-through policy. What assessment has been made of the impact on what would be their usual work?

Will the Minister also give us some clarity this morning on progress in relation to the real time information system? He is well aware of the concerns of small businesses about the huge financial and administrative burden that that will place on them at what is already an extremely challenging time. It is extremely worrying, given that the functioning of universal credit will depend on that system functioning properly, that answers to recent written parliamentary questions suggest that the IT system matching employers with their bank records in the RTI pilot has a current failure rate of 25%. Will the Minister outline whether the success rate has improved in recent weeks? Can he provide us with some reassurance that he is confident that real time information will be delivered by HMRC as intended and on time?

Those are just two areas of significant change where HMRC is being expected to deliver ill-thought-through Government policy with significantly reduced staff and resources.

One area in which the Government have been making themselves look extremely busy of late is that of initiatives to tackle tax avoidance. The Chancellor’s announcement ahead of the autumn statement of £77 million of “new” funding for HMRC to expand anti-avoidance and evasion activity is welcome. However, the Minister must acknowledge that that does not come close to the £2 billion of swingeing cuts that HMRC faces. I have asked him this question before, and my hon. Friend the Member for Leeds East asked it again this morning: can he clarify whether that is indeed new funding or whether it just represents funding being shifted from one area of HMRC to another? If it is the latter, what assessment has been made of the revenue that will be lost from elsewhere as a result of reduced resource and capacity?

Time is limited, so the final key concern about HMRC capacity and resources that I will raise this morning—the case has been made powerfully by my hon. Friend the Member for Hayes and Harlington—is about the staff. Many concerns have been expressed about the number of highly skilled, experienced staff who have left HMRC. The Association of Revenue and Customs describes it as a “demographic time bomb”. I understand that more than half of HMRC’s work force are over the age of 45 and 18% are over 55. I have nothing against older employees, but there are genuine concerns about future work force planning and the ability of HMRC to deliver on some of the Government’s priorities.

HMRC is being asked to deliver ever-more complex taxation legislation, to deliver what have been described as “undeliverable” Treasury policies, to close the tax gap and to improve dramatically its customer service—all the while receiving £2 billion less in funding and operating with 10,000 fewer staff. Nobody disputes that efficiencies need to be made—every part of the public sector needs to make them and HMRC does not expect to be immune from that requirement—but it has already made hugely significant savings over recent years, including under the previous Government, so I urge the Minister to accept that there must be a limit to HMRC’s capacity to do more with less.