Both the FT and the Guardian note criticisms of HM Revenue & Customs raised by the National Audit Office this morning.
As the NAO says:
The cost to HMRC of running the tax system is increasing. In part this is due to rising complexity in the different tax regimes and taxpayer numbers, but it is also due to the additional cost of introducing and remediating digital systems, and moving to a more highly-skilled workforce.
The NAO is critical of HMRC, saying:
HMRC does not measure the overall efficiency of its administration of the tax system, but there is evidence from different parts of the system that there is scope for increased efficiency and productivity: enhanced digitalisation has increased revenue but it does not seem to be reducing running costs; customer service performance has declined; and efficiency targets have proved difficult to achieve without compromising services.
It adds:
Compliance staff productivity remains below pre-pandemic levels. Unless HMRC improves there is a risk that lower levels of yield per caseworker could become the norm.
It also notes that the tax system - which is much bigger than the work undertaken by HM Revenue & Customs, as it does, of course, include all the compliance work undertaken by taxpayers themselves - does not appear to be working well:
There is evidence that the tax system is imposing increased administrative burdens on taxpayers and their intermediaries, despite the availability of digital channels.
The system has become more complex over time, rather than more straightforward and easier to deal with. There are too few examples where system changes have considered the cost to taxpayers, or prioritised sufficiently those that will reduce cost.
Their conclusion is:
There is little doubt that the high returns HMRC generates from its compliance work offer good value for money for the government, but the system is not optimised.
It has rightly identified that simplification, automation, upfront compliance activity and better working with tax intermediaries will help to reduce its costs.
HMRC's move towards end-to-end oversight of each tax regime will be important to better enable it to understand the cost-efficiency of administering each tax, including how easy it is for taxpayers to follow the rules, and whether the system is causing unnecessary contact or making it harder and more costly for taxpayers to comply.
These words are useful but not very hard-hitting. Nor does it get to the real core of the issue that needs to be addressed, in my opinion.
That core issue is that if a tax system is to work, it must be transparent. I have been working on this issue for some years now, including by co-authoring with my Sheffield colleague, Andrew Baker, a work called 'Making Tax Work' for the Global Initiative for Fiscal Transparency. In that, we take a very different approach to the National Audit Office, who see tax as a cost and a burden, as have the governments that they have served for too long. Instead, we say:
Tax transparency as a public good. Making Tax Work (MTW) understands this as a service that is provided without profit to benefit all members of a society.
Similarly, the tax system itself should be regarded as a public good. While few stakeholders pay tax with enthusiasm, many appreciate just how important it is that tax is paid, for all the many reasons noted in the document that follows. If the value of this overall public good is enhanced by greater transparency, with the benefit to society increasing as a result, then this would constitute a societal wide net welfare gain. That is why tax transparency, and the delivery of an appropriate tax transparency framework matters. Making Tax Work sets out in the document that follows pathways and routes for achieving that goal.
The whole approach that we adopt is one of making the system as a whole work for the benefit of everyone. That is not what the government and HMRC have done. Their approach is summarised, albeit inadvertently, by the National Audit Office in this chart in their report:
The emphasis on cost reduction within HMRC - which was driven by all Chancellors from Gordon Brown onwards but which became an obsession under George Osborne, has been deeply counter-productive. The aim of outsourcing costs, whilst demanding every increasing and utterly useless information from taxpayers - typified by the absurd Making Tax Digital programme, which continues to roll out even though it is very obviously not working for smaller businesses - is massively increasing compliance costs for taxpayers. Many of them are having to engage tax advisers when once they did not need to do so. The risk of error on their part, simply because of the frequency and absurd timeliness of reporting demanded, plus the draconian penalty regimes that penalise innocent error and not any wrongdoing - are also massively increasing the burdens on HM Revenue & Customs, who have data that is largely meaningless to use as a result of this over-submission of data.
I make a lot of recommendations in the Taxing Wealth Report 2024 on the reform of HM Revenue & Customs. Most are simple and heavily focused on what is really required to make HMRC work.
I would start with getting better data on tax gaps. After all, knowing the real state of the problem. is key.
Then, tax spillover assessments are required to highlight where action is really needed - and the NAO has not identified that, I suggest.
After that, the focus has to be on criminality - and simple systems to address failings in the collection of data on companies could address that.
Thereafter, working with taxpayers by being in the community is key, as is adequate staffing.
What is not required is Making Tax Digital and alienating penalty regimes and threats.
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Thank you and well said, Richard.
I worked briefly at tax offices in Aylesbury and High Wycombe in the 1990s and came across employees, poorly paid and demoralised, trying to do their best.
Brown soon had both offices and others in the region closed and sold, to a Cayman based fund, for residential development.
Without saying so, UK governments have, in the past four decades, implemented what US Republican activists call “starving the beast”, not that the Dixiecrats haven’t.
I visit France regularly and note how the French state maintains its apparatus, including Bank of France offices in the cities.
Much to agree with
Couldn’t you be employed in an advisory capacity to oversee how it should be run?
Could is a very open ended word.
“very obviously not working for smaller businesses”
Could it be that the UK is evolving (perhaps as the USA has) towards a two-tier tax system. Individuals and small businesses are pushed into an automated system with some oversight, large companies and corps get a free ride (cos they deliver “growth” don’t they?) Doubtless A.I. wil be deployed to monitor UK serfs and small Cos.
As far as I know, there is not even a mechanism, let alone an obligation, to estimate the cost to UK plc of individual tax changes. For a Government obsessing over ‘productivity’ this is ridiculous.
Well said and your analysis probably resonates well with the work of John Seddon and his Vanguard Consulting team. From his team’s vast experience he has always said that making things digital, shoving work to the back office actually and always costs everyone in the end-to-end system more and reduces efficiency. Might be worth you contacting John Seddon – if you haven’t already done so – and do a joint podcast/article on this topic. Whether the HMRC will ever listen or change, hmmmm?!
I doubt I have time….
I think this concept of “efficiency” (as the government sees it) is important and has wider implications.
A doctor can be 100% efficient is there is always a queue outside the door. If you put two doctors on the job there may well be periods of “downtime” where there are no patients to see…. so “doctor efficiency” drops to (say 80%) and the government bean counters get upset.
No thought, of course, to the larger meaning of efficiency. Patients’ time wasted queueing is not counted and considered unimportant. It’s the arrogance of measuring who’s time is important as much as the economic arguments that annoys me.
Spot on
I have two points.
The first is that “efficiencies”, along with “increased productivity” are always code words for cuts. Cuts in funding, because the expectation is that a public service will have to do more for the same funding, or the same with less money. It is a deliberate sleight of hand to call either an “efficiency” or an “increase in productivity”. Doing so is a lexical trick to pander to those who firmly believe that sloth and waste are rife throughout the public sector, and that is it “our taxes” which are being squandered by loathsome, bloated public servants.
The second is that most Government Departments are being expected to “go digital” with very little expertise and no money to implement what is a paradigm shift in ways of working. The digital infrastructure itself – from servers to laptops – is seriously out of date and insecure. Additionally, one Department’s computers frequently cannot talk to computers in another Department because they were told to set up their own individual systems to get the “best value for money”. The hack of the NHS systems by the WannaCry attack brought this into sharp focus; it turned out that the NHS was still using Windows XP, which was so old that Microsoft had ceased to support it with Security Patches. Furthermore, staff did not, or were not trained to, download and install the Patches.
IDS’s procurement of a computer system for Universal Credit cost “our taxes” £50 million – it never worked and was thrown out. There is zero tech expertise in Government, so it relies on Consultants, usually from McKinsey. No checks on the tech offerings are therefore possible.
Back to the inevitable dead end. What I do not understand is why LINO does not announce precisely how much money was denied to public services during the 10 years of austerity. That is the main reason the country is collapsing around our ears, and runs into £trillions. If ever there was a huge, deadly stick with which to bash the Tories, that is it. They could then say (as they don’t believe in MMT) that they have to borrow much more.
Point on MMT EVEN if you assume government borrowed money first and then spends, ignoring unlimited intraday overdrafts with the central bank, GBC still fails because it’s only telling half the story the money spent doesn’t just dissapear you will get some government spend back as tax maybe all of it Government Budget Constraint predicts deficit due to borrowing but if you get all back as tax no deficit. Please make this point on your YouTube vids.
Raising interest rates actually increases inflation. It’s supposed to encourage people to save and discourage people take out loans. Loans go down deposits up. If loans go down deposits go down same amount. Cost of credit incorparated in all goods and services – higher the interest rate higher price. Keep rates at 0% permenantly. https://new-wayland.com/blog/interest-price-spiral/
The more I read about how the City of London is used to launder criminal proceeds, the more you can see how standards in our politics is being eroded and our tax system is being undermined. It all seems like a deliberate, intentional effort to ignore ‘things’ and there is no doubt about it that there is enough money involved to salve any politician’s, accountants, compliance officer or lawyers conscience.
At least this reifies what Thatcherism was all about really but there is little consolation in that really.