HMRC’s errors

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I have defended HMRC’s right to collect the tax owing to it as a result of the error on its part in processing PAYE data.

But let’s put this matter very firmly in context. As the Guardian has reported:

On Friday the Revenue admitted it had made mistakes in collecting tax through the Paye system from nearly 6 million taxpayers. Around 4.3 million have paid too much and are due a refund, worth £1.8bn, while 1.4 million had underpaid a total £2bn and will have to pay an average of £1,428 each in further tax.

The £1.8 billion will, I am sure, be paid. Not all the £2 billion will be recovered.

In combination these errors (and there may be more to find as yet and the vast majority will not net off, so adding the two figures together is a legitimate thing to do to assess the total scale of the problem) come to £3.8 billion.

In 2007/08 and 2008/09 – the most likely years for which tax will be recovered, the following summarises the cost of running HMRC, based on its own accounts:

Year

2008-09

2007-08

£m

£m

Staff costs

2740.7

2787.6

Admin costs

1943.1

1835.1

Income generated

(742.1)

(661.6)

Net cost

3941.7

3961.1

The errors now identified do, therefore, represent near enough the entire cost of running HMRC for a year.

The cost of potentially irrecoverable underpayments represents the cost of running HMRC for more than six months.

The absurdity of imposing staff cuts and reorganisation on HMRC that left it in such chaos that errors totalling the entire cost of running it for a year were not addressed is apparent.

Who is to blame? Well Gordon Brown, obviously.

But let’s also be clear. This chaos started when HMRC began to drag in private sector managers to run the department with absurd ideas of turning it into a giant factory churning out, as it transpired, incorrect paperwork.

I blame a culture that said HMRC could be removed from the places where the people who were paying the tax were – treating tax payers like objects in other words by closing local tax offices and denying people the opportunity to ask the questions they needed of trained staff who were dealing with their affairs in the locality where they lived.

So I blame the culture David Varney introduced when he arrived at HMRC from O2.

I blame non-execs from places like Barclays Bank who have clearly not asked the right questions and demanded the right solutions.

I blame the career civil servants who bought into the corporate efficiency clap-trap they were sold by the likes of Varney and their business non-execs.

And I blame an under resourced House of Commons where select committees do not have the resources to undertake the research to make sure they ask the right questions.

What’s needed now to prevent this? Tax people in charge of HMRC for a start.

An end to the staff dismissal programme.

A new emphasis on taxing people from offices in the communities where they live.

A new culture of getting things right – not doing things on the cheap. Tax is not the same as a budget supermarket operation.

A commitment to tax justice.

A commitment to tax compliance.

And all this will cost less than the mess HMRC has made.

Much less.

Which is the price of bringing private sector failure into the public sector – which is the real lesson here.