HM Revenue and Customs has said the high-profile failure of its tax credits error-checking contract with outsourcing firm Concentrix means it will fail to meet its fraud-reduction targets for a second year running.
The agency was tasked with limiting fraud and error in tax credit payments to 5% or less of paid entitlement during 2015-16 and 2016-17.
But HMRC’s latest estimate for 2015-16 is a 5.5% rate – equating to £1.57bn – and its just published annual report says “loss of additional capacity” in the wake of the failure of its contract with Concentrix meant it would not meet its error and fraud target for 2016-17.
The situation has prompted comptroller and auditor general Amyas Morse to qualify his regularity audit opinion on HMRC’s 2016-17 resource accounts – the 14th year running such a move has been taken.
According to the NAO, the projected increase in error and fraud related to tax credits was due to “income, work and hours, childcare and undeclared partner risk categories” in 2015-16, and the introduction of the “Commercial with a view to a profit” self-employed test and Concentrix in 2016-17.
HMRC agreed a three year payment-by-results contract with Concentrix in May 2014, under which the firm was tasked with vetting around 2 million tax credit cases that the agency forecast were likely to contain fraud or error.
However in August last year Concentrix became increasingly unable to deal with the volume of calls from tens of thousands of tax credit recipients who had been told their payments were being suspended and HMRC was forced to intervene, ultimately ending the contract early and bringing services back in house.
A special session of the Work and Pensions Select Committee heard last year that in addition to causing serious hardship to benefits claimants, coping with the Concentrix situation had required HMRC to divert 500-600 staff to dealing with the backlog of cases.
Nevertheless the department's chief executive and permanent secretary Jon Thompson told MPs at the time that there was a strong business case for an investment of £27m that yielded savings of £270m.
The annual report said HMRC had “taken decisive action” when it identified that Concentrix’s service provision was failing to meet the needs of customers and the department’s required standards, and had taken back 181,000 cases the firm had been allocated to investigate.
It added that its tax-credit workload would “steadily” reduce as customers migrated to Universal Credit, with no new claims being taken from October next year and no renewals of awards after March 2022.
“We currently expect around 220,000 customers to move to Universal Credit in 2017-18,” it said. “As our customers migrate we will also see a reduction of staff within HMRC, with up to 4,000 members of staff and seven buildings from the current estate scheduled to transfer across to DWP in line with the phased migration timetable through to 2022.”
Elsewhere, HMRC warned that 15 ongoing transformation programmes may not deliver the level of efficiencies originally expected, but said it still aimed to achieve its efficiency target from changes in other areas.
The NAO said the scale of transformation envisaged by the agency would be “challenging to manage” and that in 2016-17, HMRC had reported £78m of savings against an originally expected £189m.
“HMRC must ensure that any changes to scope or timing of programmes do not jeopardise the delivery of benefits,” it said.