HMRC’s new boss

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It has been reported that:

HM Revenue & Customs (HMRC) has named private equity executive Mike Clasper as its new chairman.

He replaces Paul Gray, who quit after an embarrassing scandal that saw the HMRC lose the personal details of 25 million child benefit claimants.

Taking up the post on 1 August, he will be responsible for overseeing HMRC's corporate governance. He will also help select the first chief executive.

He will join from Terra Firma, which recently bought record label EMI.

Mr Clasper was formerly chief executive of BAA, the airports operator, until July 2006.

I wish Mr Clasper well with his new job. I just wish that I could be confident that he was the right man to do it.

I am not being personal in saying that. I presume that he has all the characteristics that were looked for by the selection panel. What I seriously doubt is whether that selection panel was wise in determining what they wanted based upon the evidence of the person they selected.

Let me explain this. The private sector works on a model where failure is accepted as a possible outcome from a venture. It is assumed that if failure occurs it is either because the public do not require the service that the enterprise set out to supply or because it was not good enough at supplying it and the public chose a better alternative to meet their needs. In either case failure is acceptable because it reduces the burden of misallocated resources. I cannot imagine an economic activity where this is better demonstrated than in private equity, from which Mr Clasper has come.

This management approach is wholly unacceptable in the public sector. There are two reasons why an activity is undertaken in the public sector. It is either, as is the case with HM Revenue & Customs that the service is one inextricably linked to the state and only the state can undertake it, or as is the case with the health service, for example, that the state must supply the service because society at large cannot afford the creation of the excess capacity that would allow for the existence of meaningful choice for all in the supply of that service.

Whichever is true this means that a fundamentally different management approach has to be adopted in the management of these state supplied services. A culture of failure cannot be tolerated in their supply. In these cases failure has a real cost to society. In the case of HM Revenue & Customs, for example, if cash is not collected then cost is imposed upon society at large and the likelihood of dissent in society is increased. In the case of the health service failure to supply, even at a local level, causes a real hardship for people. The option of walking away does not exist therefore. The only acceptable level of outcome is success.

I am not convinced that most private sector managers understand this. That is why we have talk of cost efficiency when in practice this is very often in conflict with the supply of the level of service that is required if success is the only acceptable outcome. That is why we have talk of schools closing when this is obviously nonsense: children will still need to be taught even if their school closes. What closure actually means in this case is the replacement of unsuccessful management with those who might supply the acceptable level of service. So why can't we talk about that?

I really do hope that Mr Clasper understands that whilst in the private sector the lowest level of service that can be tolerated in exchange for the maximum revenue that can be charged is a valid management model this is simply untrue in the public sector where the economics of supply are fundamentally different. Marginal costs in the public sector are very often negligible. Marginal revenues are usually non-existent. Total fixed costs are enormous. None of this fits with the conventional model of economic management that the private sector users. That is why a different technique is necessary.

I hope that he can get his head round this. His background does not give me cause for optimism. And in the meantime, if he does not the damaging round of Revenue office closures, untested computerisation, and withdrawal of essential service that the public need to ensure that they can pay their tax and get help from people they can understand will continue. Those are the big issues he has to address if this organisation is to restore its credibility, its morale and its effectiveness.

I wish him luck.