By Matt.Ross

05 Dec 2012

The head of HMRC has got a hell of a journey to make with this vast and complex organisation. Matt Ross meets Lin Homer, whose inbox bulges with thorny questions around Universal Credit, child benefit reforms and staff morale.

Being the head of HM Revenue & Customs is never an easy job; but it’s really challenging if you’re new to the world of tax collection, and tougher still if your popular, energetic predecessor has died in office. So while HMRC chief executive Lin Homer is no stranger to difficult jobs – she spent six years overseeing major change programmes in the government’s troubled immigration operations – she readily admits that she found it difficult stepping into the shoes of Lesley Strathie, whose death in January left the agency rudderless midway through a set of big reforms.

“Lesley was a class act to follow,” says Homer, remembering how the last HMRC boss – who began her career as a 16-year-old in a provincial Scottish benefits office, and worked her way up to run the two biggest employers in government – had been “one of the people I turned to, as a relatively new civil servant, to learn from.” Strathie fell ill last year, and Homer says she “made it plain before she died that I had her blessing to do this job – which, if I’m honest, was the most important endorsement I could have had”.

Strathie’s death came alongside the departure of a swathe of key HMRC managers – most notably her second permanent secretary Dave Hartnett, who took early retirement after his handling of major corporations’ tax liabilities came under fire. “It would have been so good for HMRC not to have had that interruption in leadership,” comments Homer; it would also “have been great for [Strathie and me] to have had a little bit of an overlap, because I could have learnt so much from her.” When facing difficult decisions now, she adds, “I try to think about what Lesley would have told me to do.”

Homer has now recruited a new top team, however – including former KPMG senior partner Ian Barlow, a poacher who joins the gamekeepers as HMRC’s lead non-executive director, and tax lawyer Edward Troup as second permanent secretary. “We’ve had by necessity... quite a rapid turnover at the top,” says Homer, “but I think we’ve now got a lovely mixture of corporate memory, tax skill, public sector skill and change management.” (Though after our interview, it was announced that HMRC’s CIO is also leaving.)

This new team has largely retained HMRC’s existing change programmes. Strathie’s “strategy and purpose and vision have really stood the test of time,” says Homer; though she adds that changes in the economy and technology have led her to “refresh” some elements, and says that “some of it has not been landed or absorbed well enough”. Fully “landing” the strategy, she explains, will involve “helping the organisation to understand why change is necessary. I’ve got some folk... who’d like to feel that the last few years, which have been transformational in their own right, were something that happened and now we’re going back to life as it was.” In fact, she says, “change is now part of everyday life.”

Only change remains unchanged
This state of perpetual revolution is well illustrated by two of the ongoing change programmes inherited by Homer. The first involves completing the clean-up job around HMRC’s new PAYE management system, whose introduction in 2009 led to a big caseload backlog. The new technology meant “we were able to see more of our business than we had been, so in a sense the system improved – but the consequence was that we’d got more things to work out even than we realised,” she says, pointing out that the ‘open cases’ team is on track to eliminate the backlog by Christmas.

The second is the creation of a ‘real time information’ (RTI) PAYE system, under which employers will report payroll data to HMRC every month rather than annually. This is essential to the government’s Universal Credit benefits reforms, which require the integration of the tax and benefits information systems – but as Homer points out, RTI will also upgrade HMRC’s systems to cope with a changed working environment. “It will absolutely clean up the data in the system,” she says. “PAYE has changed little in 40, 50 years. It was built at a time when lots of us kept a job for years and, if the information wasn’t completely accurate, there was always year-end to sort it out. Nowadays a lot of young people are changing jobs every 18 months, so we’ve really got to have a system where the data input quality is better.”

While cleaning up the fall-out from one major IT project, then, HMRC’s top brass are planning to launch a still bigger one. But Homer argues that the RTI scheme’s managers have learned the lessons of previous mistakes: “We’ve had a lot of user input to the project,” she says. “Really from day one, we’ve had employers involved.” More businesses are signing up for the pilots, she adds – a good sign – and the project is going well. “Will we have our moments? Of course we will,” she says chirpily. “With help from people including all sorts of employers, I think we’ll be able to face those moments, work out what to do, and move on well.”

Homer sees the involvement of service users in developing the RTI scheme as crucial to its success, because people are more ready to engage and comply with systems that fit around their needs. “If you make the system work, more people are compliant,” she says, arguing that HMRC’s public-facing operations must be “as accessible and easy to use as possible.” The agency is working with software developers to produce ‘apps’ that simplify tax management for small businesses, she says, and it’s employed more staff to improve customer service by reducing call waiting and letter response times.

Positive feedback
The creation of user-friendly systems, however, requires a sensible policy framework – a responsibility that lies with the Treasury. And while Homer’s highly-tuned political antennae ensure that her views on this are presented in the most diplomatic and supportive of terms, it’s clear that she’d like Treasury policymakers to consult more closely with her delivery experts before announcing the government’s intentions. “We’d like to ensure that we’re as influential as we can be with the Treasury on what good tax administration looks like,” she says. “And I’m very pleased with the quality of the policy partnership we already have, but [Treasury permanent secretary] Nick Macpherson and I have agreed that we want this relationships to be really strong and critically challenging in both directions.” This, she says, means that “we need not just to answer questions we’re asked, but to ask questions ourselves and to anticipate the kind of changes the world is going to require us to make”.

For those versed in Whitehall-ese, Homer’s meaning is obvious – and, no doubt, heartfelt: she’s currently trying to deliver the government’s child benefit plans, dreamed up in the days preceding the 2012 Budget as the chancellor came under irresistible pressure from Tory backbenchers to compromise his existing policy. Under the final scheme, taxpayers earning over £50,000 and receiving child benefit must tell HMRC their net adjusted income – a requirement that “will draw a number of extra people into self-assessment”, Homer says. The exact number isn’t clear, she explains; but HMRC is writing to about 1.3m people, many of whom will have to decide whether to relinquish child benefit.

This doesn’t sound like the most user-friendly of policies, and Homer is keen to emphasise that HMRC has worked hard to “design the interaction to really walk people through it carefully; to make sure they understand the impact on them, the choices that are available. It is going to be challenging for people because nobody likes change, but we think it’s manageable and we’re really working hard to be there for the people it affects”.

Those who relinquish child benefit will have the option of changing their minds if it proves to be the wrong choice, she says, adding that “what we’ll learn from this is how good we are at explaining things to people”. Indeed, Homer – who is, admittedly, a determinedly positive person – must be pretty confident of the explanations HMRC has prepared, because she argues that the delivery of child benefit reform “will illustrate the degree to which good communication can help administration. So I think it’s something that you should come and talk to us about in about nine months’ time, and we might have some lessons at that point about what we learned”.

Spending money to raise money
Homer’s indefatigable positivity probably has firmer foundations on the subject of the £970m awarded to HMRC in 2010’s spending review. The extra allocation, to be spent on tackling tax evasion and avoidance, followed a big programme of job cuts – and Homer clearly thinks the money was vital to maintaining an effective deterrent. “We felt that the level of resource we were at was allowing people to make judgements about when they could be out of our sight, and perhaps feel too comfortable that we wouldn’t find them,” she says.

The National Audit Office believes there’s a long way to go on tax avoidance, arguing in a report published on 21 November that there’s “little evidence that HMRC is making progress in preventing the sale of highly contrived tax avoidance schemes.” However, Homer points out that the £970m investment is “producing an extra £7bn a year”, providing strong evidence that could support more bids for additional funding. “I’m very confident the quality of the work that has been done is a good base to go forward on,” she says.

However, the spiralling appeals against HMRC decisions suggest that the quality of the agency’s work is not universal: 2011-12 saw tax credit appeals rising by 42 per cent, and tax ‘first tier’ tribunal appeals by 38 per cent. Presented with these figures, Homer warns against drawing “too simplistic a conclusion from statistics”. The rise in tax credit appeals, she says, may simply reflect the disputes produced as HMRC works its way through the backlog in PAYE cases: these go back as far as eight years, and she believes that appeals may fall when the backlog has been eliminated. Meanwhile, she argues that reforms to the tax tribunals system – the tribunals and courts services merged last year – make it “very difficult to know the right level of cases going through that tribunal”. It’s hard to say whether there’s a real rise in justified complaints or whether “we’re continuing to see the settling-in of the new system,” she says, and the figures are distorted by the number of disputes piled up behind ‘lead’, precedent-setting cases.

Finally, Homer argues that HMRC’s investment in enforcement operations means that “we’re pursuing more people who aren’t paying their tax, and if that generates more cases going through the system we don’t think that’s a bad thing.” So while the HMRC chief acknowledges that data on appeals can be “one of the richest seams of knowledge you’ll get about your business, if you’re prepared to challenge yourself about what it teaches you”, she rejects the challenges around those rising appeals figures. HMRC is, she believes, already “really quite quick to consider what’s said to us, and to accept that if we make a mistake we should rectify it.”

Homer v Hodge
Another set of criticisms have come from the Public Accounts Committee, which has enthusiastically pursued HMRC’s top brass on the topic of major corporations’ tax contributions: it published another very critical report last week. The agency’s chiefs have refused to discuss with the committee the tax affairs of individual businesses, leading MPs to become first frustrated, then aggressive – but Homer argues that HMRC officials have to respect the confidentiality of their clients. “Parliament has prohibited me in law from sharing the detail about individual taxpayers, while under other Acts I’m required to hold myself accountable to Parliament,” she says, “I’ll try to hold those two as well together as I can – but we will draw lines where we think they need to be drawn.”

Homer is keen not to sound obstructive, however, and says clearly that “it’s right that a non-ministerial department like HMRC is placed under pretty heavy scrutiny.” While determined to avoid discussing individual cases, she’s keen to give PAC more information on HMRC’s operations: “They have a right to know more generally about what we’re doing,” she says. “I would like us to be as informative and transparent as we can, and we’ve made a commitment to the PAC through the new role that I’ve created – the tax assurance commissioner [Edward Troup] – to account to Parliament more fully every year what we’ve done about settlements and the process we’ve followed.”

That said, Homer is also clearly frustrated by the some of the committee’s own actions, including its members’ propensity to call for ‘yes/no’ answers to questions – an approach that works fine on black and white topics, but has its weaknesses in more complex fields. “Scrutiny has always got to be conducted in balanced and fair circumstances and I guess what I’m trying to understand is what the committee wants, is trying to get to, and whether there are ways that we can help that aren’t about the sometimes slightly dramatic ‘yes/no’ questions that frustrate them when they don’t get an answer,” she says. “I’ve probably sat in some of those circumstances, where a member of the committee has wanted a ‘yes/no’ and I’ve told them they can’t have it, it’s more complicated than that.”

There’s bound to be friction at such meeting points of the political and the official – the lovers of drama, and the guardians of nuance – in fields as politically weighted and administratively complex as taxation; but then, Homer didn’t come in thinking this would be an easy job. To understand what a mountain her leadership team would have to climb, she had only to take a glance at last year’s Civil Service People Survey results.

In 2011, as job cuts and industrial disputes swept through HMRC, word went around that office closure decisions would be partly based on the staff survey findings. Unions organised a boycott, sending participation rates plunging from about 70 to 50 per cent – and Homer says that put “question marks” around the results. This year, she says, she just wants to get participation rates back up, and she doesn’t care if HMRC once again occupies its usual spot at the bottom of the staff engagement table; indeed, she sounds a little resigned to that result.

At the time of our interview, well before the closing date, the number of completed forms already exceeds last year’s. And Homer sounds glad that people are at least talking to management, even if their survey responses will make difficult reading. “The unions have been brilliant: they’ve really encouraged people to fill it in this year,” she says. “It doesn’t mean they’re going to give us an easy time, but it does mean that we’re going to try to work together on these issues.”

HMRC’s productivity is high, she argues – so while in 2011 staff “clearly wanted more out of their leaders than they felt they were getting, that wasn’t stopping them from working hard. We’re trying to hold on to that, but get a sense of joined, cooperative ownership of this place that will make people feel valued as well as knowing they’re valuable.” That’s an ambitious mission for an organisation facing as much organisational change and media pressure as this one; but as Homer knows, the best way past a sullen silence is to clear the air – even if that means a good old ding-dong. “I don’t mind where we come in the league table this year, as long as we get a dialogue going about what people think about this place and what they want to change, and what we’re going to do about it,” she says. “If I have to hold everybody up again this year, then that’ll be fine.”

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