Public Accounts Committee: Service levels improving, claim HMRC bosses

This is the first time HMRC bosses have appeared before the newly formed committee in this Parliament. Harra, alongside Myrtle Lloyd, HMRC’s Director General for Customer Services, and Justin Holliday, Chief Financial Officer and Tax Assurance Commissioner, faced tough questioning during a two-hour session on issues from helpline closures to whether HMRC will institute a callback service.

You can view the session here and read a full transcript here.

Customer service

Harra acknowledged poor levels of customer service had continued into the first half of this financial year, but reassured the committee that, since October, they have been “significantly better”. He said HMRC advisers had been hitting the target of dealing with 85% of call attempts “and expect to sustain that for remainder of this year and with the resources we’ve been given for 25-26 for next year.”

Nesil Caliskan (Labour) why callers were being cut off after waiting on hold for 70 minutes, with almost 7,000 calls experiencing this in 2022-23. Myrtle Lloyd explained this is a “technological limiter”, as long backlogs of callers on hold “brings the system down”.

She acknowledged this was “not ideal”. Caliskan said her constituents call it “appalling”. Lloyd Hatton (Labour) said HMRC’s services were “completely broken”.

The panel agreed to look at whether they could implement a warning for customers to tell them they would be cut off after 70 minutes. Lloyd added that a callback system “will be part of our requirements” when HMRC moves to a new platform.

Caliskan said issues with navigating HMRC’s digital services were partly to blame for long telephone queues, saying: “this idea that people are hanging on for hours with HMRC just for the fun of it when actually they could just go to digital services is not quite the accurate picture is it?”

“Being cut off is not just bad customer service,” she added. “It is an organization that is, deliberately it seems, trying to put you off from ever phoning HMRC again.”

Harra gave “a categorical reassurance” that that is not HMRC’s motivation. But “the simple fact is that in recent years we have not had sufficient resources to handle all of the contact that we receive, and therefore we have to try to reduce the avoidable contact by, for example, encouraging customers to do things online for themselves, and also try to prioritise the contact that we do deal with”.

Lloyd said HMRC are “constantly tweaking our digital services based on customer feedback”, with Harra adding: “We have not had sufficient resources to handle all of the contact that we receive, and therefore we have to try to reduce the avoidable contact by, for example, encouraging customers to do things online for themselves, and also try to prioritise the contact that we do deal with”.

Sarah Olney (Liberal Democrat) said research has found that HMRC advisers have not complied with procedures in a third of calls, and asked why staff without the required level of proficiency were permitted to answer calls.

Lloyd said many of these were new or temporary staff in training and she was “confident” that levels would improve in the next report. She added that advice results in 97% of customers paying the right amount of tax.

Phoneline closures

While Harra told the committee that there are “no plans” to close helplines again, he was unable to offer a guarantee when pressed. However, he said that while he was in charge there would be no closures of helplines. He steps down from his role in March.

On the decision to close HMRC helplines in March, which was reversed the following day, Hatton said: “Surely you must accept that this one day car crash has done lasting damage to the credibility of HMRC.”

Harra admitted that earlier pilots of helpline closures revealed “a high degree of scepticism about whether people would be able to get the services they needed”. However, he added: “Given the position we were in at that time, if we had done nothing, we were going to get levels of demand that we simply could not service.”

Harra said he provides “advice and options”, but “the choices ultimately are for ministers”. Asked if they made the wrong choice, he added: “That’s not for me to say. Clearly the decision was changed pretty quickly, so a different judgment was reached very quickly.”

Harra said HMRC have “actually struggled” to find an evidential link between customer service and tax compliance, which would help with calls for extra funding. “It would be an extra way of persuading the Treasury that it is something to invest in, if we could show that there are tax revenues at stake,” he said. “It’s actually very difficult to prove evidentially.”

“I agree of course that the service levels that we gave in the last couple of years and in the first half of this year, are far, far below the levels that we would want to give, and I can understand why customers are dissatisfied with that, and I am dissatisfied with that as well,” Harra continued.

Digitalisation

Harra said 70% of all interactions with HMRC are now digital, with the figure close to 100% in some areas, such as employers PAYE.

However, he said the move towards digitialisation was being held back by both a lack of awareness and a lack of confidence.

“There is some unawareness of the extent of our digital services,” he said. “We currently have a campaign going on, which started on 4 November, to increase awareness of our digital services, particularly our mobile app. To some extent, I think it is also a lack of confidence, because tax can be complicated. We know that customers like reassurance.”

Clive Betts (Labour), who chaired the meeting in the absence of Geoffrey Clifton-Brown, asked why customers can do VAT registration online but are often unable to monitor the progress of this. Harra acknowledged there is no “track your parcel” type service, but added: “If it is something that will significantly reduce avoidable contact, it will be prioritised in our investment plan.” Digitalisation “is increasingly about improving existing services rather than extending them”, he continued.

Fiscal drag

Rebecca Paul (Conservative), who declared her membership of CIOT and ICAS at the session, questioned the impact of freezing of tax bands and thresholds on complexity of taxpayer affairs HMRC has to deal with.

Harra said growing numbers of taxpayers are moving into “complex parts” of the tax system, or coming into a tax system they are unfamiliar with, such as state pensioners. This was covered the following day by the Telegraph.

He said this means the “underlying pressure on customer contact… is upward”. “Obviously, as they come into the tax system for the first time, when they receive bills from us it can come as a surprise to them,” he added. “It is not something they have experienced before and therefore it can generate contact with us to query what the bill is, or if they are worried about payment.”

However, Harra said that service levels were improving, adding: “We are now hitting our service standards and expect to hit them throughout the remainder of this year.”

Tax gap

Harra explained that additional funding announced in the Budget will allow HMRC to recruit 5,000 additional frontline compliance officers and 1,800 additional debt management officers, which is expected to bring in £4.7 billion by 2029-30.

Asked what will their focus will be, He said: “We want to prevent people from making mistakes or from committing fraud, and that means putting in place processes that prevent them from doing that and making sure we detect it before it happens and step in. Then it’s promotion so encouraging people to be careful about their tax affairs and to have a compliant attitude towards it. But then finally respond, so where people do make mistakes or do avoid or evade tax that we step in and respond and correct it and collect the tax that they should have paid that they have not paid.”

However, he also warned that many of the new staff would take some time to get up to speed. “A small number of them will likely be experienced, already qualified tax professionals, but most of them will be entry level who we will have to train and mentor and deploy.”

Paul asked why the proportion of the tax gap made up by small businesses is increasing. Harra said this was a “stubborn” part of the tax gap which is difficult to tackle via traditional compliance work as there are a large number of small value cases.

He added that Making Tax Digital was “a mass approach to encouraging small businesses to get things right”, saying that “a large proportion” of the work done by the additional compliance officers over the next five years will be focused on small businesses.

Harra said that his ambition was for there to be no tax gap at all, though the UK gap is low by international standards.

Other issues

On research and development (R&D) relief, Hatton asked if Harra could provide any “concrete evidence” that recent policy changes are providing value for money.

Harra said R&D tax relief is “a very important tax relief” which stimulates innovation, but the level of error and fraud in R&D reliefs has been “extraordinarily high”.

“The balancing act that I have to achieve is using those effectively to prevent ineligible claims from getting through while enabling people who are making legitimate claims to get their relief as quickly as they possibly can,” he added.

He said error and fraud peaked at around 17.6% in 2021-22, but as a result of the measures taken, it was now expected to be about 7.8% this year.

Asked by the chair about the number of long leases of up to 25 years HMRC had taken out on offices, Justin Holliday said the decision was made in 2015 and HMRC are working to ensure the estate is “fully utilised”, including “extensive sub-letting to other bits of Government”. “It is reducing the cost to HMRC and ensuring that the aggregate cost to Government is at best value,” he added.

Sarah Olney asked about compliance yield, which exceeded its target last year. Harra said that despite an even higher target of £45.5 billion this year, he “believes that we will beat it”.

Olney also asked why the number of prosecutions had dropped to 344 in 2023-24, compared to 691 in 2019-20, before the pandemic. Harra said prosecutions are “not necessarily the best way in all cases”.

“Our deliberate strategy in recent years has been to use our fraud investigation service in higher-value cases,” he added. “Although you will see a smaller number of cases, investigations and prosecutions, actually the average value per case is significantly higher.”