An artist's impression of one of the HMRC office hubs, in Stratford, east London
MPs on the Public Accounts Committee have warned that HM Revenue and Customs faces a major challenge to implement its wide-ranging transformation plans, including the controversial office hubs programme, at the same time as the tax agency has to implement new customs and tax systems ahead of Brexit.
In a review looking at HMRC’s annual report, the committee highlighted that HMRC is undertaking 15 major transformation programmes. These include high-profile plans to shut around 170 regional offices and replace them with 13 regional hubs, as well as Making Tax Digital programme to move more taxation transactions online and working to close the tax gap of unclaimed revenue.
Agency chief executive Jon Thompson told the committee that it is undertaking a full review of its reform plans to reassess how many of its proposed changes could be completed alongside Brexit, and said that a "full reprioritisation" was under way. “We plan to do that in quarter four, which is between Christmas and the end of the financial year, and give that back to ministers because I do not believe it possible to take 250 existing programmes of change and simply add Brexit on. I think you reach the point of organisational capacity and capability.”
However, committee chair Meg Hillier said its transformation programme would have been less risky had it not attempted to do everything at the same time.
“What was already a precarious high-wire act is now being battered by the winds of Brexit, with potentially catastrophic consequences,” she said.
“HMRC accepts something has to give and it now faces difficult decisions on how best to use its limited resources – decisions that must give full consideration to the needs of all taxpayers.”
The extent of the “serious, pressing challenges” faced by HMRC require swift and coordinated action in government the report said. “As a matter of urgency the authority must set out a coherent plan and demonstrate it is fit for the future,” Hillier added.
The committee concluded that the transformation programme was not deliverable as planned due to unrealistic assumptions and increased pressure from the additional workload caused by Brexit. These include projections for reduced customer demand due to moving tax enquiries which have not been meet, meaning HMRC failed to achieve expected sustainable efficiency savings in the first year of its transformation programme.
The report also said the committee was “not convinced” that HMRC will obtain value for money from long-term leases for the office hubs programme as they were signed without break clauses.
Although HMRC expects to have moved out of almost all the offices provided under the current PFI office STEPS contract (the Strategic Transfer of the Estate to the Private Sector) when it expires in March 2021. HMRC has already signed seven 25-year leases and one 20 year lease, all without any break clauses, for regional centres. Such deals “suggest poor negotiating to us, and we are concerned that HMRC does not intend to seek any break clauses in the leases for the remaining four regional centres”, according to the committee.
“HMRC may face massive changes over the next quarter of a century, such as from a revolution in business technology, and from large scale developments in the nature of its business. Its long-term property deals restrict its ability to transform or relocate in the future, to support new responsibilities and new ways of working,” MPs concluded.
They recommended that both HMRC and the Government Property Unit, which is expected to take on the management of the hubs, should use their strong negotiating position to ensure they gain sufficient flexibility in the terms for the four regional centre leases yet to be signed, including examining ways to build in greater flexibility from the eight regional centre leases already signed. HMRC is leading the cross-government plans for civil servants to share buildings in order to save money, boost regional growth, and encourage collaboration and flexible working practices, although the PAC has previously warned that the plans are expensive.
The report acknowledged improvements in customer service since the unacceptable levels of 2015-16, but are concerned about HMRC's ability to maintain this level of performance. In 2016-17, HMRC improved customer service significantly, achieving its best performance in the past five years against its key targets, but this was mainly due to additional investment. Now, HMRC’s plans to cut budgets will depend on reducing levels of customer demand as new digital services are introduced and the committee said it will return to this issue to make sure a consistent and reasonable level of service is provided to all its customers.
Responding to the findings, Vicky Johnson, the president of the Association of Revenue and Customs which represents managers and professionals in HMRC, said the report showed “that the sheer scale of the workload facing the department means it now faces difficult decisions on how best to use its limited resources”.
"Instead of piling more pressure on HMRC staff, ministers should properly invest in the department, giving it the resources it needs to keep cracking down on evasion and avoidance. And they should put a stop to years of wrong-headed public sector pay policy that have hindered HMRC’s ability to recruit and retain the experts it needs,” she added.
Responding to the report, an HMRC spokesperson confirmed that it is reviewing all its transformation projects to ensure that we are focusing our efforts where they will have the most impact for the UK and customers. “As we explained to the Public Accounts Committee, we expect take our proposals to ministers shortly.”
The spokesperson added that the move to regional centres would save the taxpayer more than £300m up to 2025.
“We have a clear long-term locations strategy which is fully aligned to the Government Estates Strategy and are confident that we will remain in the regional centre locations for the foreseeable future,” the spokesperson added.
“Opting for long leases has helped us secure very good deals, achieving greater contributions from developers leading to reduced rental costs and overall better value for taxpayers’ money in the long term.”