The Malaise Within HMRC

Despite the ongoing spin operation by HMRC to puff up its reputation, the reality is far from rosy and happy.

Economia, the professional magazine of the ICAEW, has published an article outlining the problems facing HMRC and the malaise within the organisation.

Loyal readers will recognise many of the issues raised eg; moral, leadership, strikes, restructuring, Pacesetter etc etc.

I reproduce the aricle in full below:

“Without a shadow of a doubt people will withdraw from work quite easily.” These are the words of warning from a front-line worker at HM Revenue Customs, making it quite clear that there could be future industrial acton if conditions at HMRC do not improve.

The insider’s comments come as HMRC staff and accountants monitor developments at the nation’s taxman, which is under orders from government to cut 10,000 jobs by 2015. 

Speaking to economia on condition of anonymity, the civil servant, a 20-year veteran at HMRC, made his points emphatically. The workforce is demoralised, feeling ill-served by recent reforms to pensions, terms and conditions and efforts to make them more efficient. Most of all, the taxman’s workforce, he said, is dejected by the dwindling head count of staff working at HMRC, the prospect of more cuts and their impact on the department’s work.

The travails for the Revenue have been making headlines in recent weeks, most of all when poor relations between workers and management broke down to such an extent that workers decided on industrial action. 

At the end of June members of the Public and Commercial Services (PCS) union voted 52% in favour of walk outs in opposition to the job cuts, which come on top of 30,000 positions that have been removed since 2005, the year the Inland Revenue was merged with Customs and Excise following the O’Donnell Review. 

Workers and the PCS union are also concerned about the introduction of private sector companies to take over some civil service functions. Pilot schemes were decided in January giving the chance for contractors Sitel and Teleperformance to run call centres in Lillyhall, Cumbria and Bathgate in Scotland. 

Concern for HMRC stretches from the union, and workers to accountants. Many feel that the job cuts are planned for a time when the HMRC is being asked to improve performance on beating tax avoidance and improving collection. 

Inside the department one of the main concerns among HMRC staff is that what they see as under resourcing leading to mistakes. 

“The pressure we’re under to hit targets and get post turned round leads to errors because we’re having to do it that fast,” says the insider. “The emphasis is placed on getting rid of the stuff whether it’s right or wrong.”

Contributing to the problem, according to the tax veteran, is HMRC’s working system know internally as Pacesetter. Staff have to work according to a script detailing which steps they must take to resolve a query. The system lays down targets and is viewed as being too rigid, excluding experienced staff from using their judgement even when it's possible that the script will produce a problematic answer. According to Ken Frost, an accountant who writes a blog called HMRC is Shite, Pacesetter is seen as “nonsense”. 

“It applies manufacturing principles to a civil service department with targets that are not related to the real work issues,” he says. 

The insider adds, “We want to see improvements to the system to make the whole process better for the tax payer. There’s got to be investment. I would like to see more staff, more money, better IT and better tax policy.” 

ICAEW technical manager for SME tax, Anita Monteith, questions whether frequent dramatic changes among tax staff have been handled well. 

"One of the issues I have with HMRC is that during each of the mergers we have had, they not only amalgamate two different kinds of tax but also two different cultures," she says. "Cultural change in a big organisation is very difficult to achieve. We have added significant redundancies so I am not sure how succesful they have been in taking their staff with them." 

Such is the sense of dejection among staff it has has made its way into official reports. Leaked documents made public last year revealed only 18% thought the department was well managed. An internal report obtained by the Sunday Herald in Scotland said employees felt their voices were not being heard. 

However, there is currently a lull in hostilities after the PCS decided at the end August to suspend any further action on job cuts. The decision came following an offer made by HMRC to reinvest in new staff and a commitment to make further bids for fresh investment. 

The deal is subject to further negotiation which means the prospect of future strike action has not entirely receded. Observers and commentators believe problems at HMRC go back to the merger and original job cuts. 

According to Frost, jobs were cut “wildly” and with little planning, meaning that considerable expertise was lost as highly skilled staff were allowed to opt for redundancy without much thought for the future of HMRC. 

“It’s easy to say cut resources in an economy drive, and to some extent it is a good thing. But HMRC is quite a particular kind of beast,” says Frost. 

Monteith agrees, saying, "I'm not sure that giving people a little bit of training on how to use a script is enough given the complexity of our tax system. 

"From what we have seen there has been a lot of poor training and a lot of poor service coming out."

She says the crucial difference is between having an idea to make the system more streamline and cheaper to operate, and making that happen with no thought for practicalities.

Other advisers see the same issues. According to Mike Warburton, tax director at Grant Thornton, it would have been politically difficult for HMRC to remain untouched when government had taken a cleaver to costs in all other departments. But he believes the cuts are causing problems.

The reductions have come when the government is asking HMRC to achieve many goals at once and when tax legislation is increasingly complex. “It’s unsurprising there have been difficulties,” he says.

Government has moved on some of the complaints. In August it announced fresh recruitment plans for call centres, agreeing to take on 1,000 extra workers. That made headlines. Others have questioned how long it will take before the new staff are on top of their work. 

George Bull, a partner at Baker Tilly, welcomes the recruitment, but says, “I reckon it will take 18 months before they are competent. They will be new to the job and not very experienced in dealing with queries.” 

Only a third of the posts will be appointed in the current financial year. But Bull sees a larger issue - the recruitment tackles the quantity of calls being answered. It does not necessarily address the “quality” of the response, he says.

There are other “quality” issues in the minds of advisers. Ken Frost casts doubt on the ability of outside contractors to uphold the standards of security and confidentiality required of HMRC hands.

He cites the notorious loss of two disks containing 25 million child benefit records, including names, addresses and bank account details in November 2007. The incident, which dominated news headlines at the time, placed enormous pressure on then chancellor Alistair Darling and forced the resignation of acting HMRC chairman Paul Gray. Frost’s point is that the farrago also involved a private contractor providing the internal mail service where the disk went missing. 

Security bothers Mike Warburton too. “I’m a great believer that the HMRC, through training at the outset, is very focused on security. I’m not sure I will feel confident that an outside body will have the same high standards of confidentiality.” 

Naturally, the arrival of private sector contractors has concerned existing HMRC employees worried that their jobs are threatened not just by cost cutting but a shift in approach.

But George Bull takes the personnel worries a step higher. He says recent recruitment ads for senior management reveal an organisation under paying for the best people, and in some confusion over the brief. Bull observes the job descriptions recognise the need for people to manage complex structures but fail to mention that this will need to done at a time of declining resources. 

Leadership is a crux issue for Ken Frost, who believes HMRC has failed to define a strategic direction and instead settles for a succession of short-term tactical changes. To resolve this requires political leadership. According to Frost, “There’s no cabinet minister saying "I’m the minister for HMRC" and until you get that you don’t get accountability.” 

HMRC told economia that it takes security “extremely seriously” and that third party contractors are always subject to the same “clauses and controls” that in-house staff abide by. 

The Revenue also says that it is fully committed to a “quality” service. In a statement, HMRC said, "The recently announced investment in HMRC contact centres is designed specifically to achieve a target of answering 90% of calls two years earlier than originally planned and is not intended to be a substitute for technical expertise.

“We have developmental programmes for staff across HMRC, such as the Tax Academy, which offers two degrees both fully accredited by Manchester Metropolitan University. We are also committed to staff spending time with tax agents such as accountants in order to gain a better understanding of the challenges our agent customers face in dealing with HMRC.”

HMRC also says it was granted £917m in the 2010 spending to tackle avoidance. According to the HMRC insider, this money will come from savings made elsewhere.

Meanwhile the nation’s taxman remains some way from settling down. Gloom continues to afflict many staff. “I can see no cause for optimism,” says the insider. “They’ve got to invest in public services. They can’t just cut.”

Tax does have to be taxing.


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Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

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