HMRC's reform plan
The 2015 Spending Review committed HMRC to a four-year, £1.3bn transformation programme, marked by two large-scale projects – the Building Our Future office rationalisation scheme and the Making Tax Digital project to create digital tax accounts for all small businesses and individuals.
The office programme is intended to find significant savings by consolidating HMRC’s estate from 170 offices to 13 large, modern regional centres, and leases have been signed for 11 bases so far.
The digitisation scheme will see individuals and businesses get a personalised digital tax account, but its rollout has been delayed following what the department called “a number of concerns about the pace and scale of change”.
Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then it will only be to meet their VAT obligations, compared to an original rollout across business taxation intended to start with income tax in 2018 and then VAT and corporation tax in consecutive years. But Thompson insists the fundamentals of the scheme remain sound in the effort to reduce the amount of tax lost through avoidable error.
“We have gone from launching it in 2016 to 18 million people opening either a personal tax account or a business tax account,” he says. “There is incredible demand out there to do this.”
He believes that accounting software products, which were being produced in line with the original timescales, will mean that there will be more firms signed up, initially on a voluntary basis, for the other taxes.
“Minsters have announced that some aspects of Making Tax Digital for Business are going to go on a slightly different timescale. So while mandation is only going to be for VAT, you can do the others and the software will be out there and I think we’ll get a significant take up.”
Before joining HMRC, Thompson had led organisational reforms at the MoD, including moves to create a “smaller, more professional” department alongside reductions in army numbers and equipment procurement reforms. He says there are “definitely lessons you can take from being a permanent secretary the first time around to the second time around”.
“When you become a permanent secretary, you’re learning the job to some degree,” the former apprentice observes. “You try things and some things work and some things don’t work, and one of the things you get to do second time around is to take the things that have worked in your previous organisation and bring them to your second organisation, and try to lose the ones that didn’t quite work.
“So I did learn from what we had done in defence – I think after nearly four years in that job that I had a pretty decent grip on what it was like to be a permanent secretary.”
The main lesson Thompson says he brought to HMRC was “trying to get people more involved in some of the big changes”. One example of this in HMRC has been staff involvement in redesigning a controversial performance-management system [see box].
“Rather than the executive committee sitting round and deciding on the future of performance management, we had a big conversation about it and more than 30,000 people have given us their views, and we had some pilots and some experiments,” he says.
This was also evident in the work Thompson led to define the vision for HMRC.
“We had a conversation with 60,000 people who then voted for four values and eight principles. It is a different way of involving people in the future of our organisation and the future of their organisation. It is just a great thing to do to go and travel and listen and learn, because I constantly need to learn about the organisation too.”
Following an organisation-wide consultation, HMRC decided on four values and eight principles to achieve them.
- We are professional
- We act with integrity
- We show respect
- We are innovative
- Focusing on our customers
- Promoting compliance and preventing non-compliance
- Reducing the likelihood of disputes
- Digital tax accounts
- Supporting intermediaries
- The important role of agents
- Skilled and sustainable workforce
- Delivering for government
This shift is reflected in both increasing engagement scores in the Civil Service People Survey – from 45% in 2015 to 50% in 2017 – and by senior union figures, who cite his openness, alongside reforms to the performance management system in the department [see box for details], as key.
Vicky Johnson, president of the Association of Revenue and Customs which represents staff at senior grades in HMRC, said Thompson is “completely different to any permanent secretary we have ever had” at the organisation.
“He was charged with improving staff engagement when he took over, that was the big thing – he had a very poorly motivated department,” she says. “We’re in a far better place than we were two years ago, even with the massive transformation programme that we are going through.
“He has pushed to keep us as unions more involved in the Building Our Future programme, but he also pushed for the people themselves to be involved, whatever their future is going to be – whether they are going to stay with HMRC or whether they are unfortunately going to have to leave.”
Lorna Merry, PCS group president in HMRC, agrees. “We’ve certainly noticed a big change in approach,” she says. “Jon is much more open with people, he’ll go out and engage with staff and with members on these issues and talk issues through. From the feedback we get, he is honest about his own views on some of the issues and some of the questions that he’s asking himself. We found him much more willing to listen to our concerns and to try and do something about it. He has made a really good start in terms of winning back staff trust.”
However, Merry remains critical of the regionalisation plan for the offices, which is under way.
“We know, from the meetings that Jon attends, that there remains an awful lot of scepticism among HMRC staff about the regional centres plan,” she says. “We’re half way through, but people have got really serious concerns about our ability to effectively maintain compliance and good customer services from the sort of footprint that is proposed. It is just not seen as realistic.”
Despite the criticism, Thompson says he is “not going to back down from regionalisation and 13 regional centres”.
“I totally believe that’s the right thing to do and I’ve gone around and explained that and been accountable for it,” he says. “But we can also make a difference in terms of talking to colleagues about how we can help by being a more responsible employer and involving them much more in the future of their organisation.”
As well as its own reforms, HMRC has also been involved in working on several policy landmarks – a new website for childcare entitlements and a critical role in the development of Universal Credit, the biggest welfare reform in generations. It has also had to take customer services for tax credits in house, following failures from outsourcing firm Concentrix in 2016. And all this is without counting HMRC’s principal task of collecting the tax that pays for the rest of government – and, indeed, before mentioning Brexit.
“It wasn’t long after that [EU referendum] vote that you had to sit down and think ‘well this is going to be fairly significant for our organisation’,” Thompson admits. “It doesn’t affect the entire organisation but it does affect large parts of it. Customs is clearly a significant repatriation for the United Kingdom, but there are other aspects of indirect taxation where we need to form a position, like VAT which is under a European Union framework and ministers are therefore going to have more influence over that. Then there are issues like data sharing and criminality and working with law enforcement and HMRC has child benefit and tax credits, so [it affects] the welfare state as well.”
He argues that HMRC has dealt with this additional workload well, after moving quickly to establish a dedicated unit to think about the possible options.
The government has now published a white paper based on HMRC’s work setting out two possible options for customs after Brexit – a highly streamlined customs partnership and a new customs partnership. The first of these would seek to negotiate a continued waiver from the EU on the requirement to submit entry and exit summary declarations for goods being moved between the UK and the EU, while the second option could see the UK acting in partnership with the EU to operate a regime for imports that aligns precisely with the EU’s external customs border, even if goods enter the UK first.
Thompson says these options were outlined promptly after the EU leave vote to ensure engagement and consultation. “What we’re in the middle of at the minute is asking ‘how does that work with an implementation period and negotiation’,” he says. “But we’re all geared up, we’re waiting on the strategic political process to conclude, and then we’ll move on.”
Through its policy partnership with the Treasury, Thompson says HMRC is feeding back to the Department for Exiting the European Union on the viability of proposals throughout the negotiations with the EU. “There is a longstanding policy partnership between the Treasury and HMRC so that when they’re thinking about tax policy and implementation Treasury ministers get joint advice from both organisations,” he says. “I think ministers know what we think about how long [implementation] would take and what it means for our customers and our organisation.”
When it comes to putting that post-Brexit plan in place, Thompson says he expects to need up to 5,000 additional staff. What’s the floor in that number?
“Well, it depends,” he says with a chuckle. “I deliberately said it because we were focusing initially on what happens if there is no deal in 2019 [when Britain leaves the EU]. Now, that is clearly not the government’s preferred option so we were working very hard on that initially and then we moved on to the two main options for customs for the future.”
If he still needed to implement a no-deal exit, could he? “It is clearly not the government’s preferred outcome, but sitting here, if we had to implement that option, could we invoke our plan reasonably quickly?” he asks. “Yes we could, I think.”
The impact of Brexit has, however, required a reprioritisation of the rest of HMRC’s reforms, with an update set to be provided in March after CSW went to press.
“I think the words I used in public were it wasn’t credible to simply add on Brexit and the impact of the Autumn Budget 2017 to what was a fairly extensive organisational transformation programme,” said Thompson.
HMRC has “reached our internal conclusions” about what should be altered and are now in discussions with Treasury ministers to agree the details, he says.
“When you become a permanent secretary, you’re learning the job to some degree. You try things and some work, some don’t”
Some projects that might have been started now won’t be taken forward, while some will take longer than they otherwise would have done. “We think that will probably create enough headroom to accommodate the number of projects that are needed for Brexit and the Autumn Budget,” he says.
However, he insists that the department will remain focused on the reason the reform plan was agreed in the first place. “Some of the great programmes that we’ve started, like Making Tax Digital, will continue on. There are some aspects of it though that we might not be able to do everything we might otherwise have done, but the general thrust will continue,” he says. “And we should not lose [sight of] the fact that that programmes were required for all the right reasons in terms of changing the tax system and changing the organisation.”
This goes to show just how big an impact leaving the EU is having on one of Whitehall’s biggest operational departments.
“It has been a significant addition to delivering public services and collecting tax – record levels of tax for the seventh year in a row and changing the organisation and you’ve now got Brexit and what that will mean,” Thompson acknowledges.
It is, though, another opportunity for him and HMRC to learn new things, a challenge that his career shows he clearly relishes. “I have loved working in the civil service, it has been 14 years so far and it has just been great,” he says. “I have been unbelievably lucky about getting in to the right place at the right time and getting opportunities. You get to do fantastic things.”
HMRC’s move away from the guided distribution performance management system is highlighted by one senior union figure as the key change of Thompson’s time in charge at HMRC. “That was quite totemic,” said the PCS union’s Lorna Merry.
Under the unpopular system introduced in 2012, civil service managers were required to rate a set proportion of their staff as either having “exceeded” expectations, “met” them, or put them in line to be told they “must improve”.
The system was introduced to bring private-sector discipline into the civil service and help managers better target poor performance. But it has been criticised as arbitrary and HMRC has been working to develop a new system – publication of which CSW understands to be imminent.
Thompson describes this consultation with 30,000 people as “a very different way of running an organisation”, while Merry says this illustrates “a determination to tackle problems where they are identified”.
Vicky Johnson of the Association of Revenue and Customs, who has been involved in the talks about the new system, agrees that overhauling the previous “toxic” system had been one of Thompson’s key moves. “He has got rid of that completely and allowed us to design a new system that we think is going to be much more palatable for everybody.” she said.