Public Accounts Committee
Oral evidence: HMRC Customer Service and Accounts 2023-24, HC 347
Thursday 28 November 2024
Ordered by the House of Commons to be published on 28 November 2024.
Members present: Mr Clive Betts (in the Chair); Nesil Caliskan; Peter Fortune; Lloyd Hatton; Sarah Olney; Rebecca Paul.
Gareth Davies, Comptroller and Auditor General, Adrian Jenner, Director of Parliamentary Relations, National Audit Office, Andy Morrison, Director, NAO, Darren Stewart, Director, NAO, and David Fairbrother, Treasury Officer of Accounts, HM Treasury, were in attendance.
Questions 1-97
Witnesses
I: Sir Jim Harra, First Permanent Secretary and Chief Executive at HMRC; Myrtle Lloyd, Director General Customer Services at HMRC; and Justin Holliday, Chief Financial Officer and Tax Assurance Commissioner at HMRC.
Reports by the Comptroller and Auditor General
HM Revenue & Customs 2023-24 Accounts (HC 47)
HM Revenue & Customs Customer Service (HC 726)
Examination of witnesses
Witnesses: Sir Jim Harra, Myrtle Lloyd and Justin Holliday.
Chair: Good morning, everyone. Welcome to this Public Accounts Committee session. We are looking at His Majesty’s Revenue and Customs customer service and accounts for 2023-24, on the back of previous consideration by the Committee of HMRC’s customer service levels, which had reached an all-time low at that point. That was of concern not only to the Committee but to everyone else.
Also, two recent National Audit Office Reports show that the picture of customer service levels is not improving—indeed, telephone-answering performance has continued to decline. This is a stark figure, but I am told that customers cumulatively spend nearly 800 years on hold waiting to speak to someone. It is terribly frustrating for anyone on a telephone line who has to wait for an answer for long periods. We are looking at how the Department has improved, or plans to improve, the performance levels in future, and at the gap between what should be collected and what is collected—the tax gap.
On the positive side, I understand that all the accounts were signed off and audited before the summer recess, which is an impressive performance for an organisation as complicated and challenging as yours is, Sir Jim. To begin, I welcome you, Sir Jim Harra, the First Permanent Secretary and Chief Executive of HMRC. Thank you for joining us this morning. Will you introduce your colleagues who are with you today?
Sir Jim Harra: Good morning, Chair. I have with me Myrtle Lloyd, who is Director General Customer Services, and Justin Holliday, who is the Chief Financial Officer of HMRC.
Q1 Chair: You are both welcome as well. Before we begin to ask questions, I give apologies for Sir Geoffrey Clifton-Brown, who is the Chair of the Committee. Sir Geoffrey is away today and sends his apologies. He has unavoidable personal commitments, which we know about and understand. He sends his apologies to you, Sir Jim. I am in the Chair today instead.
Let us move on. One or two issues from the last session of the Committee included the fact that you had implemented a plan to move to 12 major hub offices, but the Committee was concerned that you had entered into long-term leases on at least six of those when property prices were quite high, so you probably now have buildings worth less than they were when you bought them. Will you tell us what you are doing now to get any extra value out of the long leases that you entered into at very high values?
Sir Jim Harra: In a moment, I will ask Justin Holliday to come in. In 2015, we announced a strategy to reduce from 170 small offices into, now, 14 regional centres and a small number of specialist sites. We have largely completed the implementation of that programme, which has enabled us to provide significantly better accommodation for our staff. That enables them to work in the way that we want them to work, and it has enabled us to make considerable savings on our estates budget.
Generally speaking, the programme involved us entering into 20 to 25-year leases, because our own experience and our professional advice was that that is the best commercial way to get the accommodation that we want at the right rate. We own a small number of freeholds as well, including that of our regional centre in Croydon. We will also own the freehold of the office in Portsmouth when it is built.
That programme is on course to be delivered, and its whole-life cost will be slightly less than what we forecast back in 2017, although the investment costs are slightly higher within that. Overall, it will come in for slightly less, and we will deliver significant savings and cost avoidance as we move to the new estate. Justin can give you more details about the advice on which we have acted.
Justin Holliday: Back in 2015, HMRC had a choice: to allow a PFI contract to carry on, or to let that PFI contract end and to replace the estate. We had no choice on the timing, Chair, because it was driven by that PFI contract coming to an end. As Jim says, we are proud that we now have a fit-for-purpose estate for our staff. If any of you visited HMRC offices before, you would have been embarrassed by the quality of the accommodation we gave our staff; I am now not embarrassed when I visit them in their offices. Also as Jim said, the running cost of that estate is lower than it was under the PFI scheme, and it is even lower than it would have been had we extended the scheme.
There is a long-standing disagreement, I think, between certain members of the Committee and us about how we did that. Those decisions have all been made. As Jim said, our decisions were based on professional advice. Those decisions are water under the bridge, I think.
In terms of how we are ensuring that we continue to get good value from the estate, it is probably worth saying two things. The first is that we have not stuck rigidly to the strategy we set out with in 2015. We have a couple of extra sites, because that was the right thing to do as events unfolded. As was the then Government’s general position, we entered into leases and, as Jim said, the position has evolved so that we now have a couple of freeholds as well as leases.
The second thing is what we are doing to ensure that the estate is fully utilised. We have extensive sub-letting to other bits of Government, so where we do have a bit of spare estate in one of our regional centres, we will let it to other bits of Government, and we are successfully doing that. There are something like over 50 different Government bodies also occupying HMRC regional centres or HMRC-run Government hubs.
Q2 Chair: Is that reducing the cost?
Justin Holliday: It is reducing the cost to HMRC and ensuring that the aggregate cost to Government is at best value.
Sir Jim Harra: We expect to recover about £36.6 million from other Government Departments this year, and that will rise to almost £40 million next year from the sub-letting.
Q3 Chair: Is the overall cost to the programme less than it was forecast to be at the beginning?
Sir Jim Harra: The whole-life costs of it are slightly less than we forecast in 2017. Back in 2017, based on our base case, it was £2.835 billion. We now expect it to be a little bit less than that, but it is, broadly speaking, the same. I recently received a letter from the Chair, which I will reply to, and it compares the investment cost with the whole-life costs, which are two different currencies. The original investment cost was £552 million in our 2017 business case for over 10 years. Over 15 years now, it is £953 million.
Q4 Chair: Do you still have spare capacity around that you need to do something with?
Sir Jim Harra: Yes. Spare capacity falls into two different categories. There are some areas that HMRC occupies that are greater than our current needs but which we have to have because we are going to be increasing the size of our workforce, and the recent Budget describes the numbers. Then there is estate that we do not occupy but which we need to sub-let to other Government Departments and would otherwise be empty. As Justin says, we have successfully done that. In those hub buildings, I think it is 61,000 square metres that has now been let to 52 Government Departments. We expect our capacity to get more and more constrained as our workforce grows over the next few years.
Q5 Nesil Caliskan: I have two quick questions. First, does HMRC have an estate management strategy, and how does that align with the workforce strategy? You just alluded to it slightly. Secondly, when you sub-let properties to other Government Departments, what is the formula for that? Is it at a subsidised rate because it is a Government Department, or are you applying market rents?
Sir Jim Harra: I will answer the first part of that and might give the second to Justin. We had a location strategy in 2015, which drove our decisions about the locations of sites and their size and the commercial approach to that. As Justin mentioned, we have adjusted that strategy over time because our workforce plans had to change. For example, we have added a couple more sites compared with 2015. We do have a formal location strategy, and obviously that dovetails with the Government’s strategy. Of the 14 regional centres we have built, 12 are also Government hubs. We have provided that for the whole of Government, hence the sub-letting to Departments.
Q6 Nesil Caliskan: Sorry to interrupt, but I had something else in mind, which was perhaps an annual review of how you manage those estates so that you have confidence that you are charging the right amount compared with the market rate, whether it is a Government Department or not. Then of course there is the ongoing day-to-day maintenance as well.
Sir Jim Harra: There are two aspects to that. We are responsible for the ongoing facilities management in the regional centres, and we have recently had a comprehensive review and re-let the contract for that. We reviewed what facilities we wanted, what a reasonable price would be, and what savings we could make. While we are open if necessary to sub-let to tenants from outside of Government, I believe that all the letting so far has been to Government agencies and Departments.
Justin Holliday: All the letting is currently to Government. We charge them a fair proportion of the cost of the building. It is pro rata to the amount of space they are occupying.
Q7 Nesil Caliskan: Is it a market rate or a subsidised rate?
Justin Holliday: The overall rates are marked to market on the rent-review period, which is typically every five years. The tenants pay a proportion of that, so it is broadly a market rent. HMRC does not make a profit; it simply charges the proportion of the rent equal to the space the tenant is occupying.
Q8 Nesil Caliskan: Is a five-year rent review appropriate? Is that frequent enough?
Justin Holliday: That is market normal. In moving away from a PFI scheme, which were often unusual in terms of the market, our commercial driving mantra has been to go to something that is normal in the property market.
Q9 Nesil Caliskan: I have a final question, going back to the maintenance of the buildings, which is a revenue cost for HMRC. Are you confident that you are getting value for money through those contract arrangements?
Sir Jim Harra: We very recently re-procured that, with the aim of getting the right value for money.
Justin Holliday: As Jim said, we have both re-thought and then re-procured how we deliver facilities management in the buildings. We have consolidated some of our contracts because we thought it would give us better value for money. The contracts we have just announced are going to save us about £10 million per annum across the country. We have let those on a five-year basis. I imagine in five years’ time we will be doing that again and re-thinking how we package it up to get the best value.
Q10 Chair: I have one further question before we move on to the main business for today. The Committee previously had correspondence with you about the Making Tax Digital programme, and whether separate assessments should occur regarding VAT and income tax self-assessment elements. Have you made any progress on that?
Sir Jim Harra: We have already implemented Making Tax Digital for VAT and all VAT payers now use that. We have processed millions of returns through that. Feedback from users is that they are finding it easy to use. We can also see that it is improving compliance rates, so it has reduced the level of error in VAT and has brought us benefits as a result. All of which are certified by the Office for Budget Responsibility and are on the Budget scorecard.
We are now in the process of implementing Making Tax Digital for income tax self-assessment. We already have a private beta test service that is being used by a small number of users, but the first cohort will come to that in 2026. There will be a further cohort in 2027. At the Budget on 30 October, the Chancellor announced that a further cohort will come after that. That is still to be announced.
Q11 Chair: So you now have a value-for-money assessment of Making Tax Digital for VAT, and one about expectations for income tax.
Sir Jim Harra: Yes, we can present those separately. They are both certified by the Office for Budget Responsibility for the additional revenues that they bring in.
Chair: Thank you for those answers. We now move on to the first of our main topics of the day, which is reducing the tax gap—this is the gap between what is potentially collected and what is collected.
Q12 Rebecca Paul: First, I declare that I am a member of the Institute of Chartered Accountants of Scotland, and I am also a member of the Chartered Institute of Taxation.
Total revenues increased by £29.4 billion compared with 2022-23, which was largely driven by growth in revenue from income tax, reflecting the continued freezing of tax bands and thresholds, and also corporation tax, where the tax rate increased. Sir Jim, what impact is the current freezing of tax bands and thresholds having on the volume and complexity of taxpayer affairs that HMRC has to deal with?
Sir Jim Harra: The freezing and in some cases the reduction of thresholds and allowances across the tax system mean that the number of taxpayers in the income tax system is increasing all the time. We think it has increased by about 3 million people over the last couple of years. Also, more taxpayers are in what we regard as complex parts of the tax system for them to deal with. For example, they are involved with higher rates, or they may have more involvement with capital gains tax.
That does two things. First of all, it means that the underlying pressure on customer contact that Myrtle and her organisation have to deal with is upward. Although we are implementing measures that reduce that contact, obviously we must absorb that increase and then make real reductions in contact levels. That is partly because of the sheer increase in the customer base, but also because of the nature of some of the people coming into the tax system for the first time, who are unfamiliar with it. For example, more state pensioners have to deal with the tax system than previously.
The other impact is that it also affects our compliance work, because the Office for Budget Responsibility would expect that, in order for us to maintain the tax gap, we have to do more compliance work because of the increased customer base, even though a large proportion of new customers are probably in fairly compliant parts of the tax system—for example, where tax is deducted from their income. So it has an upward pressure on our operational services that we have to manage.
Q13 Rebecca Paul: You mentioned pensioners; they are a really good example. To bring this issue to life, can you talk us through what it means in practical terms when a pensioner is brought into paying tax, in terms of the additional work that HMRC has to do?
Sir Jim Harra: The state pension has always been a taxable source of income, but a combination of the frozen tax allowances and the triple lock means that more and more state pensioners find that their total income is large enough to be subject to income tax. If they have another source of income—for example, a job or a private pension—we will try to collect the taxes due on their state pension by adjusting the tax code that applies to that other income.
If they do not have enough other income for us to do that, and we have to ask them to make a payment, provided that we think we have all the information we need, we will not ask them to complete a self-assessment tax return. Instead, we will simply send them a bill, in what we call a simple assessment. We try to minimise the extent to which state pensioners have to engage with the self-assessment tax system.
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. 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. I guess people will become more familiar with that process over time, but as more and more people come into the system, that is frictional contact that we receive.
Q14 Rebecca Paul: This feels like quite a challenge for HMRC, because all these things add up, don’t they? Do you have the resources to cope with the increasing number of taxpayers?
Sir Jim Harra: It is one of the reasons for the pressure on our customer services in the last couple of years. Although we have been introducing, for example, digital services and improved guidance and communications to reduce the level of contact that we receive, we have not reduced it by as much as we would have wanted. In part, that is because of the underlying upward pressure of new customers coming in, who are more likely to have a frictional engagement with the tax system, and therefore contact us. That is one of the reasons why our customer service levels have been below where we want them to be.
Having said that, we have succeeded in reducing contact overall, and we will continue to do so. In the current financial year, the Government, in our supplementary estimate, has given us additional funding, which Myrtle has used to put more advisers on the helplines. I am pleased to say that in the second half of this financial year, we have turned around the low service levels. We are now hitting our service standards, and we expect to hit them throughout the remainder of this year.
Q15 Rebecca Paul: Thank you. I am going to move on to the tax gap. HMRC estimates that the tax gap—the difference between the amount of tax that should be paid to HMRC and what was actually paid—has increased from £38.1 billion to £39.8 billion. Obviously, there has been an announcement that we will try to close that gap; 5,000 compliance staff will be focused on that. Can you talk us through exactly what they are going to be working on to close that gap? What do you expect the impact to be?
Sir Jim Harra: First of all, as you mentioned previously, tax receipts have increased significantly, so the increase in the absolute value of the tax gap is simply a product of that. In percentage terms, we believe it has gone down slightly, and it has gone down significantly since 2005-06. It has pretty much flatlined in recent years, so there has not been a percentage increase.
You are right that the Government has announced that it is giving us additional resources to tackle the tax gap, bring in more revenues and reduce it further. The Red Book at Budget sets out the measures that the Government is taking—including closing loopholes and giving us additional resources and investment—and the amount of extra revenues that is forecast to bring in. The Office for Budget Responsibility has certified that by 2029-30, that should be bringing in roughly £6.5 billion additional tax revenues.
In terms of our staffing, that funding gives us 5,000 additional frontline compliance officers, plus 1,800 debt management officers in Myrtle’s part of the Department. That is a £1.6 billion cost over five years, and we expect that element to bring in £4.7 billion by 2029-30.
Q16 Rebecca Paul: What will their focus be, though? Obviously, closing loopholes is incredibly difficult—more difficult than people tend to realise—but helping the taxpayer not to make errors, and preventing problems before they arise, is easier. Will those 5,000 compliance staff be largely focused on helping taxpayers avoid making errors?
Sir Jim Harra: We call our compliance strategy “prevent, promote, respond”. That is our hierarchy of preference of activities. We want to prevent people from making mistakes or committing fraud, and that means putting in place processes that prevent them from doing that, detecting it before it happens and stepping in. Then there is promote, where we encourage people to be careful about their tax affairs and have a compliant attitude towards them. Finally, there is respond, so where people make mistakes and avoid or evade tax, we step in and respond, correct it and collect the tax that they should have paid and have not paid.
We are able to deploy the compliance resources I am given across that strategy, according to where we think we will get the best return. We internally target ourselves to increase the amount of yield that we get from those upstream activities—prevent and promote—and we can deploy our officers on that if we wish. Inevitably, of the 5,000 extra staff we bring in over the next five years, a small number will be experienced, already qualified tax professionals, but most will be entry level, and we will have to train, mentor and deploy them. The type of work they will be able to do will evolve over time, but it will start off being relatively simple cases.
Q17 Rebecca Paul: How are you going to measure success? Are you going to set some very specific targets and measure against them? Is that something that we would expect to see at some point?
Sir Jim Harra: Yes. We are set, annually, a compliance yield target that we are expected achieve from the resources that we have been given. The Office for Budget Responsibility certifies what compliance yield it would expect us to produce in order to maintain the tax gap—prevent the tax gap from growing—and also deliver any extra revenues that the Government has scored on its budget scorecard. So that is how our compliance yield target gets set. Then we report against that. We report what our compliance yield is.
As I mentioned, in the Red Book the totality of the measures that the Government announced is expected to bring in roughly £6.5 billion additional tax revenues by 2029-30. That will be translated into a compliance yield target for HMRC. Then we will track whether we hit that. The Office for Budget Responsibility will also track whether we are spending the funding that we have been given and deploying the resources that we said we would. Last year we achieved £41.8 billion in compliance yield. That is a record level and exceeded our target for the year.
Q18 Rebecca Paul: I asked about the measurement piece because it will be key to making sure the balance is right as well. When I look at the accounts, I can see that in statutory reviews of automated penalties and default surcharges, quite a low percentage—in 2023-24 only 26%—of HMRC original decisions were upheld. So as you bring more staff in, it is important that you measure exactly what they are focusing on and delivering, and making sure they go after the right things in order that you are not actually creating more work without a favourable outcome.
Sir Jim Harra: I agree. If I can explain the reviews of penalties, there are two different categories. There are penalties for filing your return late or making a payment late, which are automated. At the point when we charge those penalties, we know that the return is late, but we do not know at that point whether the taxpayer has a reasonable excuse, and therefore they have a right to ask us to review the penalty. We will cancel it if we are satisfied that there is a good reason why they were late. That is why you see a high cancellation rate for those. The other group of penalties are applied by our officers as part of their compliance work, because they find that you under-declared your income in your tax return. Those are done case by case. They are considered by the compliance officer and are usually agreed with the taxpayer as part of the settlement of the case. There is a very low cancellation rate on those.
Q19 Rebecca Paul: Thank you; that is really helpful. Moving on, the proportion of the tax gap made up by small businesses has increased every year from 37% to 60%, between 2017-18 and 2022-23. I am interested in your perspective on what you think has caused that and what can be done to try to reverse that trend.
Sir Jim Harra: It is the most stubborn part of the tax gap. Although we have succeeded in reducing the tax gap, you can see that parts of it other than the small business gap have reduced and therefore, proportionately, small businesses now represent a much larger proportion of the tax gap than they did in the past. Tackling that through traditional compliance casework is quite challenging because of the value in each individual case. There are a very large number of cases, each often with a relatively small value. So having the level of coverage that makes a real impact on that is challenging.
There is also a fairly high churn rate among the self-employed. If you look over a five-year period, a lot of small businesses will have closed and new small businesses will have opened. Work that you have done to get a small business compliant is often lost, which is one of the reasons why we have been introducing Making Tax Digital, because that is a mass approach to encouraging small businesses to get things right and prevent them from getting it wrong. It can have that impact without having to work them case by case. But I would expect a large proportion of the work that the 5,000 additional compliance officers do over the next five years will be in the small business part of the tax gap, and we will have a greater coverage of that than we have had recently.
Q20 Rebecca Paul: Thank you. You mentioned the £6.5 billion reduction that you are trying to secure. How confident are you about delivering that?
Also, given that the tax gap is an important measure and there is some subjectivity around some of the assumptions that will go into how you calculate that—for example, differences in the interpretation of tax rules between the taxpayer and HMRC—how do you ensure that you have that independence there, so that you are comfortable that the tax gap is set at the right level and you are measuring everything appropriately?
Sir Jim Harra: To pick up the first one—on how confident we are that we can deliver it—I am confident that the additional funding that we have been given should enable us to achieve that outcome, and indeed the Office for Budget Responsibility has certified it on the basis that they are comfortable as well.
We have the funds that we need and it is an achievable target with the funds that we have, but obviously we have to be completely on the ball in spending that money effectively and wisely. Recruiting the people, training and professionalising them, and deploying them effectively is no small task, so I would not suggest that it is easy to do. The 5,000 additional compliance officers are on top of the recruitment that we would already have been doing just to maintain our workforce, so it is probably more like 12,500 people that we need to recruit, train and deploy. The scale and nature of that task is not small, but we believe that it is achievable.
On the tax gap, we have published a detailed methodology for how that is measured, and that is subject to regulation by the Office for Statistics Regulation, for example, so we are confident that it follows best practice. It has also been reviewed both internationally and domestically and found to meet best practice. But you are right; it involves estimation and judgment, and parts of it are more certain than others. We do, in our methodology, describe the degree of certainty and the confidence that we have in the different aspects of it.
Q21 Lloyd Hatton: As we have established, the tax gap—the difference between the amount of tax that should be paid and what is actually paid—does sit at a large sum, just shy of £40 billion. Therefore, I am a little bit concerned, Sir Jim, that the language that you used today was around “flatlining” and maintaining it. I know that my constituents want to see that number reduced; it is a significant sum of what would be public money. Could you, just in the simplest possible terms, tell us the target to get it down, not simply to maintain it, and when you are going to hit that target?
Sir Jim Harra: I should clarify that. It is in the nature of the discussions we have with the Office for Budget Responsibility. First of all, when they forecast how much revenue the Government will receive, they have to make an assumption about what the tax gap will be. They start from a position of, “Okay, will you be able to prevent it from growing? Have you got enough resources to do that?” Then, if the Government give us resources to do better than that, that can get scored as additional tax revenue. Therefore, the extra £6.5 billion is focused on reducing the tax gap, not just maintaining it; maintaining it is a starting point in the build of the resources that we need for the OBR to be satisfied.
We do not set ourselves a target to reduce the tax gap because it is not practical to do so. It does not get measured until more than a year after the end of the tax year, and then is subject to revisions as more data becomes available, so—
Q22 Lloyd Hatton: Forgive me for interrupting, Sir Jim, but £39.8 billion is sort of the equivalent of our MOJ and Department for Transport budgets combined, so would it not be more helpful if there was a clearer aspiration for how much it is going to be reduced by—rather than maintained at—and for when you are going to hit those targets? I think that that would be really helpful for me and, I hope, for the rest of the Committee.
Sir Jim Harra: We do not have an aspiration to maintain it; we have an aspiration to reduce it, and we have significantly reduced it over the years. If you look back, say, from 2005-06 until now, it has reduced, I think, from 7.5% to 4.8%. It is definitely not our aspiration just to maintain it. Frankly, the whole purpose of HMRC is to collect all of those revenues, so we want it to be at a minimum, but when it comes to operational targets that I can deploy the Department against and measure my performance against, the tax gap is a long-term measure that tells you whether we are doing the right things but, in the short term, we have to have different operational targets. It is not easy for me to manage the Department against a target for the tax gap this year, because I will not know for some considerable time what the tax gap actually is.
With the Office for Budget Responsibility, we convert into a compliance yield target the amount of compliance yield that they believe we would have to recover in order to prevent the tax gap from growing and achieve the additional tax revenues that we have been resourced to deliver.
The operational target that I pursue is that annual compliance yield target. If I deliver it, that should reduce the tax gap and we should see that in the measurement of the tax gap as it becomes available.
Q23 Lloyd Hatton: I still think we could be a lot more ambitious.
To understand how we close the tax gap, do we not also need to understand a bit more about the offshore tax gap? Do you agree, Sir Jim, that to close the tax gap altogether, we need to know how much is held in an offshore tax haven? Are you able to give me any vague estimate of the offshore tax gap and also a little bit of detail about what you are doing to go after non-compliance when it involves a tax haven?
Sir Jim Harra: Yes. The tax gap estimate that we publish is comprehensive. It includes the element of non-compliance relating to offshore income or assets. We have just recently isolated the element of the tax gap that we believe relates to that, and we published experimental statistics, or statistics in development, about the proportion of the tax gap that comes from foreign income.
In recent years, we have had automatic exchange of information with other jurisdictions. They report to us certain types of income people they believe are resident in the UK are receiving. We can check that against what those people are declaring to us, and the difference, obviously, is that tax gap.
On 24 October this year, we published those experimental statistics for the first time. They showed that 4% of the UK residents on whom we had received that information had either not declared or under-declared tax on that foreign income, in the year 2018-19. That in absolute terms was about a third of a billion pounds.
That is not a complete measure of the offshore tax gap because it only relates to the types of data that we currently get from foreign fiscs—
Q24 Lloyd Hatton: So your current estimate that it is just a third of a billion.
Sir Jim Harra: That is the best estimate that we have come up with at this stage—
Lloyd Hatton: Do you think it is accurate? It seems incredibly small to me.
Sir Jim Harra: It is uncertain. First of all, it is only one aspect of the offshore tax gap, but it is based on the information that we have, and it is a start that we have been able to isolate the—
Q25 Lloyd Hatton: Do you worry, then, that you do not have anywhere near enough of the information required to have any idea what an accurate estimate of the offshore tax gap would be?
Sir Jim Harra: Significant advances have been made in recent years in obtaining information from foreign fiscs and in their obtaining information from the UK reciprocally about the foreign income of our taxpayers. That improves our ability both to monitor and to tackle the tax gap, but it is incomplete.
Q26 Lloyd Hatton: With a figure as tiny as that, you cannot help but walk away thinking that your estimates are not based on accurate information.
Sir Jim Harra: With respect, we are giving the best statistical estimate we can with the evidence we have. We have published the methodology for how we do that. They are official statistics.
The reality is that the tax gap is made up of a whole range of different behaviours and attributes. People hiding income or assets offshore is one of them. There has until now been no official estimate of how much that is, and we are building that.
Q27 Chair: The Committee may well come back to that particular issue in due course. In the meantime, we need to move on to Sarah Olney. I say to Members and witnesses that it has taken us quite a lot of time to get through the first three questions, and we have other important matters to consider. Can we bear in mind the time we are taking?
Q28 Sarah Olney: On the tax gap, quickly, what level of reduction do you think HMRC would regard as a success?
Sir Jim Harra: I want there to be no tax gap at all.
Sarah Olney: I am glad to hear you say that.
Sir Jim Harra: HMRC exists to collect all the tax that is due. We believe that the tax gap in the UK is low by international standards, and we are one of very few countries that have a comprehensive estimate of it. We have successfully reduced it in recent years, but we know that there is more we can do, with investment and resources, which is why we have been given the extra resources in the Budget. There is definitely more beyond that that we could do.
Q29 Sarah Olney: Moving on to the related issue of the compliance yield, obviously you have exceeded your target for the past year in the report and accounts, with £42 billion compared with your target of £40.5 billion. Do you think that HMRC will be able to sustain the increase in compliance yield over the next few years? Can we expect to see more target-busting performance?
Sir Jim Harra: I expect that in the current year we will also achieve more compliance yield than we did last year. Even though that was a record level, I believe that we will beat it this year. Our target this year is significantly increased—it is £45.5 billion. That is achievable, but it is really stretching, which is what you would want from a target, I guess. I am hopeful that we will achieve that target, but I am confident, certainly, that we will achieve even higher compliance yield than last year. The big challenge for us going forward is making the most of the investment we have been given in the Budget, both in changing our systems and deploying the additional resources. That is challenging because you have to take experienced compliance officers off the frontline to train and mentor those additional staff. You get payback later on, but we have to ensure that it does not depress our performance in the meantime.
Q30 Sarah Olney: Can I ask how you have achieved that increase in compliance yield? According to the report, there is an increasing focus on upstream compliance, but according to the numbers in your report, that has led to a decrease in prosecutions. There were 344 prosecutions in 2023-24, compared to 691 in 2019-20, before the pandemic. You have said that there are delays, and we all know this, in the criminal justice system. How is it that you have improved your compliance yield when the number of prosecutions has fallen so much?
Sir Jim Harra: Prosecutions are not necessarily the best way in all cases of getting the yield. Our approach to using criminal investigation is that, while we reserve the right to use it in any case of deliberate evasion, we use it for the most serious cases where we believe it is necessary and will have the right impact. Our deliberate strategy in recent years has been to use our fraud investigation service in higher-value cases. Although you will see a smaller number of cases, investigations and prosecutions, actually the average value per case is significantly higher, and the yield that we are getting from the fraud investigation service is therefore holding up or better, despite the reduced caseload. That is the strategy. That does not mean that we do not work the other cases, but we do not use criminal investigation as the means of tackling them.
Q31 Sarah Olney: Is there not a danger that, in the lower-value cases, failing to prosecute some of the criminal behaviour reduces that deterrent effect, and perhaps leads to almost a culture of non-compliance, because people do not think that they will be pursued?
Sir Jim Harra: Yes, I think that is a risk, and there is very limited evidence about the deterrent effect of criminal investigation and prosecution. We are currently doing a search of the academic work and trying to get the best possible answer on what the deterrent effect is. I would point out that when we use civil processes, there can still be significant sanctions. We charge penalties for deliberate evasion, and we will name people who have been involved in serious deliberate evasion. We also have other sanctions available to us, such as account freezing. Criminal conviction is not the only painful sanction that you can apply for deliberate evasion, but you are right that we need better insight than we currently have into what the deterrent effect is of criminal investigation and prosecution.
Q32 Sarah Olney: I note in the report that £14 billion of that £42 billion compliance yield is coming from upstream compliance, which is better managing people’s tax affairs before they get to a non-compliance phase. A lot of that accounting is based on estimates and it is a little bit uncertain. Can you talk us a little more through how you have arrived at that £14 billion, and how you can be certain that you have achieved that compliance yield?
Sir Jim Harra: Yes, and I might bring Justin in to explain how it gets certified and validated. There are different elements of what we call upstream yield. First of all, let us say we stop a fraudulent repayment claim before it is repaid and we prevent the payment going out. That is upstream compliance; you can see the figure on a form that we have frustrated that.
Through one to many communications, we say to people, “Please check your affairs and amend them if they are wrong because we see some risks.” If they then make an amendment, we will score that because we have prompted it.
But we also score the deterrent effect of our downstream response work; we can monitor that. When we investigate someone and correct their past non-compliance, we actually see better compliance in subsequent years. So there is a future effect as well as a retrospective effect from our work, and we score that. We have quite careful and quite conservative ways of measuring and scoring that, and they are subject to certification.
Justin Holliday: There are two routes whereby things are reviewed. Product and process yield, which is the product of change in how we do things or the change in policy, is certified by the Office for Budget Responsibility. Operational upstream yield is extensively internally reviewed and is subject to occasional review by internal audit and also by the National Audit Office.
Q33 Sarah Olney: Finally, will the additional compliance staff you are recruiting be deployed primarily in upstream compliance activities or will they perhaps be more focused on prosecutions?
Sir Jim Harra: It is for my director general of compliance to deploy them to best effect. There are no rules about what they will be used for. The new staff, however, will generally be entry-level people who will need to be trained and deployed, so they will initially be put largely on respond investigation on small businesses. Some of the 5,000 will be graduate entrant recruits; when they are trained, they will be deployed more on large businesses, for example. There will be a very small number of already experienced tax professionals who we will be able to attract into the Department. But as those people become more professionalised over time, how we deploy them may change.
Q34 Sarah Olney: Let us move on to the level of debt. Tax debt is now at £43 billion, which is less than a year ago, but it is still very much higher than it was before the pandemic. Do you have anything to say about why it continues to be so high? When might we start to see a significant reduction?
Sir Jim Harra: Our debt balance reached record levels during the pandemic, and that was partly as a result of Government policy, because there was forgiveness for late payment of tax. It was also partly as a result of the fact that certain enforcement actions were not available to us—there was a moratorium on insolvencies, for example. That has reduced significantly, but we are still seeing really very high levels of new debt coming into the system, much higher than we have seen previously. That is largely small businesses. We believe that it is largely cash-flow issues in small businesses. That is adding pressure on us. The debt balance is a product of new debt less the debt that we resolve. We need to do two things. We need to try to depress the extent to which new debt arises, but we also need to increase the extent to which we resolve that debt. That is why, for example, there are 1,800 additional staff being given to us for debt collection over the next five years in the Budget.
Q35 Sarah Olney: Can you give me a sense of how those staff are going to be deployed to help you manage that? Perhaps Mr Holliday could answer.
Sir Jim Harra: I will pass that to Myrtle, because they are part of her organisation.
Myrtle Lloyd: In the main, they will be on our debt helpline, chasing up customers on self-assessment, PAYE, corporation tax and VAT debts. There will be a small amount of them put on to our enforcement activities as well.
Q36 Sarah Olney: Thank you. It is clear from the report that the debt balance is becoming progressively more aged. Do you have any specific approaches to tackling some of the older debt?
Myrtle Lloyd: One of the reasons for the additional headcount is for us to get to the debt before it ages. In the Budget settlement, we got investment into getting better data from credit reference agencies and better customer insight so we can tailor our interventions based on customer behaviour and the customer group. We would look to deploy those to have much more tailored interventions on some of the older debts.
Q37 Sarah Olney: To summarise, your approach will be to ensure that the new debt does not become aged, as opposed to having a new approach to collecting aged debt. Mr Holliday, I see that the amount of debt written off increased from £3.2 billion in ’22-23 to £5 billion in ’23-24, which is obviously a significant increase. Are you expecting a large amount of debt write-off in the current financial year?
Justin Holliday: I think we are on the record in this setting in saying that we thought the level of losses that are write-offs and remittances for the past few years has been lower than normal and lower than we would expect. Part of that is a product of delays in the courts and the moratorium on insolvency. Most of our write-offs are because the taxpayer has become insolvent.
Q38 Sarah Olney: So you are still working out the covid interruption impacts.
Justin Holliday: Yes, there is still a bit of that working through, so I would expect this year’s tax losses to be a bit higher than last year. That does still need—in whatever the opposite of a bell curve is—to work through the system. It is also worth saying that there is a gap between the recognition of that in the tax gap statistics and in the actual write-offs. Statistical colleagues have, in estimating the tax gap, anticipated already some of that write-off. That is not going to add to the tax gap.
Q39 Lloyd Hatton: I have two quick questions on something Sarah rightly raised. Those numbers are quite appalling reading, collapsing from 691 investigations down to 344. First, why are you not using all the extra resources that you have already told us you have to increase the number of criminal prosecutions? Secondly—our constituents would particularly want to know the answer to this—why is HMRC seemingly incapable of investigating those who are likely deliberately avoiding tax?
Sir Jim Harra: I completely reject that. First, my objective is to reduce the tax gap, not to increase prosecutions. We use prosecutions when that is the most effective way of reducing the tax gap. We are very successful in our criminal investigations. We have a very high conviction rate from our prosecutions, but criminal investigations are very resource intensive. It takes a lot of resources to do one criminal investigation; that could do several—
Q40 Lloyd Hatton: You need a tough deterrent, surely? People will get away with avoiding tax if they do not think anyone is going to come after them. If the numbers have collapsed drastically from 691 to 344, the deterrent disappears altogether.
Sir Jim Harra: It is frankly an article of belief whether you think that increasing prosecutions from 300-odd to 600-odd will actually have a deterrent effect on evasion. As I said, there is very little evidence for it. We use criminal investigation where we think it is the best way of reducing the tax gap. We tend to use it for the more serious cases. That may be people who have deliberately hidden information from us, or professional people we need to make an example of to show that we cannot engage with professionals in that way. But the mass use of prosecutions, in our experience, is not the most effective way of using our resources to reduce the tax gap.
It depends what you think success looks like for the Department. If you think success looks like having more convictions for crime, we could do that, but our experience is that that is not what would reduce the tax gap.
Q41 Lloyd Hatton: Okay. I think a lot of people across the country would question that reasoning and would want to see those who deliberately avoid tax face prosecution.
I will move on to the impact of policy changes around corporation tax and research and development relief schemes. There are two key questions I would like to understand a bit more about from you, Sir Jim. Can you give us some concrete evidence that these policy changes around relief schemes are actually providing value for money? What work has HMRC done to ensure that they are actually providing good value for money for the taxpayer?
Sir Jim Harra: R&D tax relief is obviously a very important tax relief, which successive Governments have put a lot of funding into, because they stimulate innovation, but it is important that they are used for the purpose for which they are intended and not for others. We know that the level of error and fraud in R&D reliefs has been extraordinarily high—much higher than the tax gap generally—which is why a large number of measures have been taken to reduce that. 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, because that is how we achieve the policy objective. We think that in ’21-22, error and fraud peaked at around 17.6%, but as a result of the measures taken, we now expect error and fraud in ’23-24 to be about 7.8%. That is our best estimate.
Q42 Lloyd Hatton: Could you explain in a bit more detail how you reached that estimate of 17.6%?
Sir Jim Harra: We use what we call a mandatory random inquiry programme. We take a random sample of claims and investigate them, and we can extrapolate from that. It gives us a statistically valid way of coming up with an estimate. When we started introducing that, it identified that the level of error and fraud in R&D was higher than we had previously thought, so that is quite a well-established way of measuring.
Q43 Lloyd Hatton: That is quite a worrying statistic: it suggests that fraud and error is quite commonplace when it comes to these relief schemes. Going back to my first question, do you think there is concrete evidence that this relief scheme is providing good value for money? Does this scheme, much like many others, provide poor value for money and actually open up a big space for fraud and error? I am really interested to know what you think.
Sir Jim Harra: Obviously error and fraud is not the only aspect that might make a relief not have value for money. Evidence has been published in the past that shows the effect of R&D relief in stimulating R&D in the economy, which Governments have wanted to see, because they believe that it helps with economic growth. That shows that it has a positive effect, less so on the small business relief than on the RDEC. You have seen policy change over the years to adjust to and reflect where the value is in the relief, but error and fraud is another aspect that could affect the value for money of the relief. That is why there has been a determined effort in recent years to reduce error and fraud significantly and bring it within reasonable bounds. The best figure that we have estimated for ’23-24 is 7.8%, which shows significant progress, but it is still much too high.
Q44 Lloyd Hatton: My final question is very short, so it would be good to have a very short answer. Do you think that these relief schemes provide good value for money for the British taxpayer?
Sir Jim Harra: Yes, there is evidence that they are effective in stimulating R&D, which is what the policy objective is, so they do achieve their policy objective.
Chair: Sarah Olney is going to follow up on that.
Q45 Sarah Olney: I have been contacted by a business in my constituency about R&D tax reliefs. It told me that because HMRC changed its classification once it applied for R&D tax credits, it was then rejected. It has had enormous difficulty engaging with HMRC to discuss the matter. The case was opened in 2022; there was then a whole discussion and an appeal process, which it is advised should conclude some time next month. In the meantime, there is a grave danger that this innovative software firm will become unviable. Sir Jim, can you comment on whether this is a problem that you are seeing: that businesses are finding that they are now ineligible for R&D tax credits, and that because of the time it is taking to resolve queries and appeals they are going out of business?
Sir Jim Harra: That is very much not what we want to see, and obviously I would be happy to look at your constituency case, but it reflects the challenge we face in making sure that people who have eligible claims receive their relief as quickly as possible, while protecting the scheme from what has been an extraordinarily high level of error and fraud. That is a really difficult balancing act to achieve. I think we are doing our best to make sure we sort the sheep from the goats as we do it.
We have been improving our risk assessment. One issue in the past was that we got very little information with these claims, so it was very hard for us to distinguish which ones were risky. But one of the policy changes that has been introduced is that much more information has to be supplied to us, so we can improve our strike rate, if you like, and reduce the impact of our inquiries on legitimate claimants.
Sarah Olney: Thank you very much. I will write to you about this particular case, if that is okay.
Sir Jim Harra: Yes.
Q46 Chair: Actually, I have a particular case that I will write to you about, too. I think we all have them, haven’t we? It is the job of being a constituency MP.
My case involves a constituent whose business is going to be closed down by your winding-up order; 80 jobs will be lost just before Christmas. They say that they have a payment plan that you will not accept. The feeling from their tax adviser is that generally HMRC is getting much more aggressive about simply trying to simply collect tax at any cost. Is that a fair description?
Sir Jim Harra: If it is a time-to-pay plan, we have a time-to-pay policy: if you cannot afford to pay your tax on time, we do not want to take enforcement action against you, or insolvency action. We want to give you an affordable payment plan, but obviously you must pay what you can afford and you must show that you are going to reduce your tax debt over time. But it is very much our policy to encourage debtors to enter into a time-to-pay plan.
Chair: Can I write to you about that case? That is the best way to do it.
Sir Jim Harra: Please do.
Q47 Chair: Thank you. I have a very quick question for Justin Holliday. There is an increased estimate of error and fraud in the child benefit payment system for 2023-24. Can you tell us why that is? Is it just a methodological change that has caused the estimate to increase? How have you responded to that information? Just a brief response, please.
Justin Holliday: We are confident that the underlying level of error and fraud on child benefit has not increased. As you correctly say, Chair, we have changed the methodology to better measure it.
There are two big causes of error and fraud on child benefit: the first is legitimate claimants moving overseas, and the second is people leaving full-time non-advanced education between the ages of 16 and 19. In response, we are working better with the Home Office, in the case of emigration, and working better with the Department for Education, in the case of people leaving education settings, to get better data to feed into our risking and our compliance response.
Chair: So we should see better figures by next year, should we?
Justin Holliday: I think they will move down slowly. I would not want to bet on it going down next year, but it should move down over time.
Chair: We might be coming back to ask questions if it does not.
Justin Holliday: Understood.
Q48 Chair: We will move on to the very important issue of improving customer service. The Committee has previously been very critical about the failure of HMRC’s customer service. Of the seven indicators that you use, five have specific targets. The information we have for the last two years, 2022-23 and 2023-24, is that you have not hit one of the targets. That is not great, is it?
Sir Jim Harra: No, it is certainly not the level of service that we want to give. I have explained some of the pressures on us that have resulted in that situation and some of the steps we have taken to improve it. The poor levels of service continued in the first half of this financial year, but they are now significantly better.
Chair: From when?
Sir Jim Harra: In the second half of the year, so really from 1 October. For example, we have been hitting our telephony target of dealing with 85% of adviser attempts. We expect to sustain that throughout the remainder of this year and, with the resources that we have been given for ’25-26, next year.
Chair: With respect, it is not a very long period from 1 October, is it?
Sir Jim Harra: No.
Chair: Compared with the failures for a long period of time.
Sir Jim Harra: We were given earlier this year additional resources—additional funding. As a result, we have seen service levels improving over the summer, to the point where, in the second half of the year, we are now on our service standards with those additional resources.
Q49 Chair: We will come on to the telephony issues, which are really serious. I think it frustrates people more than anything else when they cannot get through on the phone and have to wait for ages, particularly when phone lines are just shut down. You give up, you go away and people are left out there not knowing what is going on. That is not acceptable, is it?
Sir Jim Harra: We experimented with two pilots in 2023 on what the effect would be if we temporarily closed helplines, because we believe that a significant proportion of the contact that we receive is avoidable and that customers could actually self-serve online. It is our preference that customers try to do that before they contact us. We did two small-scale pilots in 2023, which we evaluated. We have published evaluations of those. We currently have no plans, however, for any further helpline closures.
Chair: When someone is on the telephone and they suddenly find that the call does not get answered and they have no way of contacting you, it does not feel like a small-scale pilot to them, does it?
Sir Jim Harra: Sorry, I was talking about the pilots that we introduced in 2023: they were for short periods in very specific areas. More generally, I agree that when we were not handling a large proportion of the calls that were coming through to us. I can understand that that is very frustrating.
Chair: Or you just shut the telephone lines down altogether, for periods.
Sir Jim Harra: That was the pilots that I talked about. In 2023, we ran two short pilots on what would happen if we did not have the helplines . In one of the pilots, we said, “We want all customers to go online and use our webchat, by preference.” In the second, we said, “The helpline is reserved for certain priority customers. For others, we want you to go online.” Those were testing whether we could shift the avoidable contact online and help customers to solve their—
Q50 Chair: I think the assurance you have given us is that that will not happen again.
Sir Jim Harra: There are no plans to close access to helplines.
Chair: Can we just alter “no plans” to “it will not happen again”?
Sir Jim Harra: Well, I cannot give assurances for what people are going to do in future. I can tell you that there are no plans to do it again. However, it remains our strategy to be digital first—in other words, to encourage customers to try to—
Chair: We will come on to that particular issue. On telephony problems, I will hand over to Nesil Caliskan.
Q51 Nesil Caliskan: Thank you, Chair. Sir Jim, I just want a bit of clarity. You referred to the two pilots. Is that different from the fact that after 70 minutes, people were cut off from the phone lines?
Sir Jim Harra: I will let Myrtle come in on what our operational policies are for terminating calls, but yes, they are different.
Myrtle Lloyd: The 70-minute limiter is a technological limiter, because at very busy times, if you have loads of people waiting in excess of 70 minutes, it brings the system down. Also, we have done customer research: while our customers are willing to hang on a bit longer to get through to somebody to resolve their concern, beyond a certain time they abandon it anyway.
Nesil Caliskan: Yes, but we are not talking about people getting fed up because they have been on the phone for so long and cannot get through. What I want clarity on is whether the two pilots that Sir Jim has referred to—we are left with the impression that they are not being pursued as an idea—are different from the fact that in 2022-23 almost 7,000 calls were cut off after 70 minutes.
Myrtle Lloyd: If you are talking about the 70 minutes then, as Jim said, we were in a position where, with more taxpayers on the system and with an inflationary cost to absorb, we did not have enough people to answer all the phone calls.
Nesil Caliskan: So it is a decision that HMRC has made. It is a customer service decision to cut off the phone calls, as opposed to your technology not being sufficient to be able to keep people on hold.
Myrtle Lloyd: Yes. Well, at 70 minutes—we put it technologically, because if you have loads and loads of people entering the queue, you reach a limit in the technology and the system starts slowing down and not performing.
Q52 Nesil Caliskan: Do you think being cut off after waiting 70 minutes is good or bad customer service?
Myrtle Lloyd: It is not ideal, but I can assure you that, as of us having reached our service standards, we do not have people reaching those thresholds.
Nesil Caliskan: When I speak to constituents who tell me that they wait for hours to get through, they do not say, “It’s not ideal.” They say, “It’s appalling.” More frustratingly—I am sure you will recognise this, because you will have had feedback from those who are trying to access the services—they are given no warning before the 70 minutes that their phone call will be cut off. Do you recognise that that is poor customer service?
Myrtle Lloyd: That is not ideal customer service, and I am sorry for that. That is a feature of when we had fewer people to answer the phone calls. We are now resourced to meet our service standards, and instances of the 70-minute cut-off occur only if we have an IT failure or suchlike and we have loads and loads of people in the queue. We are constantly revising and reviewing our interactive voice response, and on certain lines we give people a sense of how long they would need to wait to get their calls answered.
Q53 Nesil Caliskan: May I go a bit further on that? It is about the technological pressure that might exist if there are too many people in the queue, which may be more likely at different times of year. I am getting the sense that that technological instruction, if you like, to your software has not changed—that it is still the case. Will you be responding to the particular pressures in a particular month, for instance, so that you are less likely to reach that threshold?
Myrtle Lloyd: We have a good understanding of the peaks and troughs of activities in our business cycle, so we are resourced to meet those peaks and troughs and to meet the service levels that we have published. When we are at our service levels, we do not have instances of people reaching that 70-minute wait time.
Q54 Lloyd Hatton: I want to quickly touch on something, because Nesil is making such an important point. Nearly 40,000 calls were cut off after being forced to wait 70 minutes. That is not just “not ideal”; it is bloody awful. Why do you not warn those 40,000 people? Surely that would be a simple thing that you could do. If you are not going to warn them, surely you must admit, Myrtle, that this is the clearest example that HMRC’s telephone services are completely broken.
Myrtle Lloyd: We do let people know what the average wait time is on some of our bigger service lines.
Lloyd Hatton: That is not the same. At 65 minutes, you could go, “By the way, in five minutes’ time, if we haven’t got back to you, we are going to hang up.” People deserve to know. It is so frustrating if you work, if you have childcare or if you have other responsibilities. It is a really appalling way to treat customers.
Myrtle Lloyd: That is something that we can review and see if it is possible to do that.
Lloyd Hatton: Urgently.
Myrtle Lloyd: We send a lot of messages about call wait times on the IVR. We also signpost people to the digital services, which in many instances have really high satisfaction rates. About 66% of our customers who come through to our phone lines could have done what they needed to do digitally, which is instant 24/7 access. We would really encourage people to use our digital services where they are available and where they can.
Q55 Nesil Caliskan: The idea that people are hanging on for hours with HMRC just for the fun of it, when they could actually go to the digital services, is not quite accurate, is it? People are struggling with the digital services, which is why they are turning to the telephone. There will be some instances, of course, where people can use digital, but a lot of people cannot get what they want from digital, which is why they are phoning HMRC.
To labour the point, being on the phone for hours and then being cut off is quite different from saying, “Okay, I’ve been on for two hours and I’ll hang on a bit longer.” Being cut off is not just bad customer service; it is the organisation deliberately, it seems, trying to put you off ever phoning HMRC again.
Myrtle Lloyd: I would refute that. We do not deliberately degrade or want to make customers suffer. We do have evidence that a lot—well, 69%—of our interactions are actually available by self-serve means. What we absolutely do is encourage the customers who can go online to do so, so that we can free up the phone lines. We recognise that not everybody can go online; some of our services are not yet available online, and we have vulnerable customers as well. If the 66% of customers who phoned us last year had gone online to do simple things like check their national insurance and reset their passwords, the customers who absolutely needed to call us would have had a better service.
Nesil Caliskan: It sounds a bit like you are blaming the customer.
Myrtle Lloyd: We are absolutely not blaming the customer. We have a multi-channel service, and we are trying to make sure that every customer gets the best service within the channels that are available.
There is stuff that we are doing to make our digital services more visible. We have a marketing campaign, and we are constantly tweaking our digital services based on customer and user feedback. What I am asking everybody to do is use the most appropriate channel for the transaction that they are trying to execute, so everybody gets a better service. There is work on our part to continue to improve and expand our service and make people more aware of it, but I also ask people to come along with us on this journey.
Q56 Nesil Caliskan: Finally, I absolutely recognise that there has to be a shift in the way customers interact with big organisations. When we have a year-on-year increase in the number of people needing to interact with HMRC, of course the organisation needs to find better digital ways of supporting them so that they are not just left on the phone. Public sector organisations, including local authorities, one of which I led for six years, face those exact challenges. I get it. But when people are cut off after 70 minutes, it feels like HMRC is trying to force them to use the digital service, instead of it being just an unintended consequence. I would not want our constituents to feel that they are being pushed into something before the digital platform is appropriate and up to standard.
Sir Jim Harra: I can give you a categoric assurance, on the 70-minute cut-off, that that is not the reason why we do it. We are not driven by that motivation at all. The simple fact is that in recent years we have not had sufficient resources to handle all the contact that we receive. We therefore have to try to reduce the avoidable contact by, for example, encouraging customers to do things online for themselves. We also have to prioritise the contact that we do deal with. We have tried a whole variety of approaches to get the optimal ways of doing that.
When it comes to terminating calls, there is a practice in the helpline industry that if you know that a customer is going to have to wait an unreasonable length of time, you terminate the call and say, “We are very busy—call back.” We do that very little, because our customer research has told us that our customers would prefer to wait and try to get through to an adviser rather than be cut off and told to call back.
Q57 Lloyd Hatton: Why don’t you warn people, Sir Jim? Why do you not warn my constituents when they have been waiting in excess of an hour that that is going to happen, rather than doing it with no clear information? It is really infuriating.
Sir Jim Harra: On many of our helplines we do warn what the average wait time is, but I take your point about whether we can give people some sort of advance notice in the recording before we cut them off. But our aim is that no one should get to that point, and currently the service levels that we are offering—
Lloyd Hatton: But they do. Over 40,000 customers did get to that point with no warning, and it is infuriating.
Sir Jim Harra: I will take away that point—you have made it several times, so obviously I will pay heed—but the reality is that we want to offer a service where people do not have to wait that length of time and we have zero of those types of calls, or where it happens only on a day when an IT system has gone down, for example.
Q58 Chair: I have a couple of quick follow-ups. Do you offer a call-back service?
Myrtle Lloyd: We do not routinely offer a call-back service. We intend to answer the calls as they come in and resolve the customers’—
Chair: Why don’t you offer a call-back service?
Myrtle Lloyd: We are talking about instances where we tell people in the IVR that we will call them back. The technology platform that we have right now does not allow us to do that yet.
Chair: This technology platform is used by a lot of organisations, which achieve that and allow it.
Myrtle Lloyd: Our current platform does not allow us, but we are in the process of going into procurement for a new platform, and that will be part of it.
Chair: That will be part of the new platform?
Myrtle Lloyd: That will be part of our requirements.
Q59 Chair: I have another question about cut-offs. Your offices close down at some point at the end of the day. If someone is on a call that is waiting to be answered, and it gets to your office closing time, do you just cut the call off?
Myrtle Lloyd: No, we absolutely do not do that. Our office opening times are from 8 o’clock to 6 o’clock and every call entering the queue before 6 o’clock gets answered. Our colleagues will work past 6 pm to answer those calls.
Q60 Sarah Olney: When people are able to get through, it has been found through sampling some of the customer calls that advisers have not fully complied with procedures in a third—that is, a third—of calls that were sampled. That is obviously going to have a knock-on impact on customers’ ability to get their taxes right. Can you tell me, first of all, Ms Lloyd, why that number is so high? Does that not deeply concern you?
Myrtle Lloyd: I think we invest in the training of our colleagues. It is about a four to five-week training period and then a consolidation period after that. There was a point when we had a huge influx of new temporary colleagues, and I think the sample that you are referring to was from that point. A lot of those colleagues were in their consolidation period and were not as efficient, and they had not gained—
Sarah Olney: It is not about efficiency; it is about accuracy.
Myrtle Lloyd: Yes, they had not gained the level of proficiency and confidence that our more experienced colleagues have.
Q61 Sarah Olney: If they had not attained the required level of proficiency, why were they answering calls?
Myrtle Lloyd: There is a period of consolidation. Not everything is classroom-based. They will do some classroom-based learning and some e-learning, then they do some side-by-side monitoring of calls with experienced colleagues. After the four to five weeks of training, they really then become totally effective at about the nine-week period. I am speculating that that would have been the period in which we had colleagues who were perhaps not as familiar with the system, or as confident, and were not able to answer some of the queries or gave incorrect information.
Q62 Sarah Olney: When you found that worryingly high number of advisers not following correct procedures, did you not do some re-sampling to give yourself some comfort that the explanation you have just given was the reason that was happening?
Myrtle Lloyd: We carry out regular quality and accuracy checks, we work on customer feedback, and we revisit our training and take colleagues back into the classroom for training as well. We have now had a period of stability on some of the lines. We are applying the learnings from that feedback into our training packages in our next tranche of training. It is something that we are constantly monitoring on a daily, weekly and monthly basis, and making improvements as we go along.
Q63 Sarah Olney: Are you confident that the 34% will be reduced in the next report?
Myrtle Lloyd: Yes.
Q64 Sarah Olney: We look forward to seeing that. Can you estimate what impact those inaccuracies are having on the ability of taxpayers to get their taxes right?
Myrtle Lloyd: We look at a number of factors. We look at procedural accuracy, financial accuracy, and the quality of the calls. In terms of the financial accuracy of whether our advice results in customers paying the right amount and bringing in the right information, it is at about 97%, so it is fairly high.
Q65 Sarah Olney: Do you think there is an increased risk for those taxpayers who have been able to get through, when the procedures have not been followed correctly, that they have received incorrect advice? Are they at risk of paying fines or penalties for inaccurate returns?
Myrtle Lloyd: We assess each case on its own merit, and if it is found that the taxpayer has received incorrect advice, they would not be penalised.
Q66 Sarah Olney: Do you think you are able to say, without any reservation, that nobody has been penalised for getting their tax affairs wrong as a result of having received incorrect advice over the phone?
Sir Jim Harra: There is no reason for that. First, while I know that our wait times are often unacceptable to people, when they get through to our advisers, the satisfaction rate with them is very high—customers are generally very pleased with the quality of the service that they get.
As Myrtle says, we monitor the accuracy of that, and we record all those calls. If ever a customer says, “Hang on, I was told x by the adviser,” we can go back to review the recording. I have seen complaint cases where we acknowledge that we got it wrong, and we give redress as necessary to the customer.
Q67 Chair: Before moving on to modernising the tax system, may I pick up on a point that you made, Myrtle Lloyd, about the fact that customers on the phone lines are told about waiting time? Is that not the average waiting time from the previous day, rather than the currently existing one?
Myrtle Lloyd: Yes. That is the capability of our current technology platform.
Q68 Chair: How long has that failure been accepted for? It is a pretty fundamental failure, is it not? If I go on a telephone line and someone says, “The wait time is 20 minutes,” I will think, “Okay,” but if I knew that that was yesterday and today it is 50 minutes, I might hang up straightaway. Why is it taking you so long to rectify that?
Myrtle Lloyd: That is what we have. That is the limitation of the technology platform that we have. It gives people a sense—while it might not be absolutely accurate or not exactly about today—of what the average wait time was the previous day. It is better than nothing, but it is not ideal.
Q69 Lloyd Hatton: That is like going into a restaurant to make a dinner reservation and the maître d’ turns around to say, “Oh, absolutely jam-packed yesterday, you couldn’t have found a free table for love nor money”—but I am not here yesterday; I am here today to make a reservation and have dinner. If they can do it, surely HMRC can do it.
Myrtle Lloyd: We have a certain pattern of calls on a daily basis, and they are pretty much around the same at certain times of the day, so the pattern is fairly similar over the five days.
Q70 Lloyd Hatton: It is a generic information base—that is what you are saying—so if it is in the morning, this is what it tends to be like in the morning, and if it is in the afternoon, this is what it tends to be like in the afternoon. That begs the question of why you have any system at all, if you already know how busy you will be in the mornings or in the afternoons. Surely either you should have an accurate system that tells people what the current demand is for the helpline right now—live—or you should not have one at all. What we have here is a weird halfway house that does neither.
Myrtle Lloyd: We work on the basis—we have seen customer behaviour too—that when customers hear that, they either call back later or call back at a different time. The customer feedback is that they prefer to know something rather than nothing.
Lloyd Hatton: But they do not know anything, because you hang up on them after 70 minutes and do not tell them that you are going to do it, so they are left in the dark.
Myrtle Lloyd: Yes, I accept that you have made that point—we will look at the 70 minutes—but we are talking about the average and giving people a sense of what the average wait time is.
Q71 Chair: We will be looking for a very clear indication of how and when all those failures in the system will be put right.
Sir Jim Harra: Chair, we will look at that, but we believe that, within the restrictions of our current technology, giving customers an idea of the average wait time at the time of day they are calling is helpful to them. That is the feedback we have.
Chair: We will be looking for the intention—the plan—for when that will be improved so you have a service that most other organisations, most other call centres, would deliver automatically now.
Myrtle Lloyd indicated assent.
Q72 Chair: Okay. Let us move on to digital: modernising the tax system. You have clearly flagged that you are intent on making the organisation a digital-first organisation. Why is that taking so long to do?
Sir Jim Harra: First of all, I think it is probably a never-ending process. Currently, roughly 70% of all interactions with HMRC are digital. That is virtually 100% in some parts of the tax system. For example, when employers are dealing with us on pay-as-you-earn, pretty much 100% of their filings are online, similarly for corporation tax and VAT.
We continue to work on other areas. For example, in 2023 we replaced a completely paper-based child benefit system with a digital one, and with investment, we can do more. In the major parts of the tax system, customers can now deal with us digitally. The most difficult area is where unrepresented individual taxpayers are dealing with us. Even there, on self-assessment, something like 97% of self-assessments are now filed online using our digital services.
Q73 Chair: So there are some successes, but clearly you have a way to go in some areas. It seemed to me, when we were discussing the telephone lines and issues around that, you felt that customers should just use the services, but they are not. Is the failure theirs, for not understanding, or is it yours as an organisation, for not properly explaining and offering the necessary advice they need to use them?
Sir Jim Harra: First of all, there is some unawareness of the extent of our digital services, and we have done some research on that. 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, it is a lack of awareness.
To some extent, I think it is also a lack of confidence, because tax can be complicated. We know that customers like reassurance. Taking child benefit as an example, while we have now fully digitised that service, we are still getting a fair bit of contact from customers saying, “I’ve now done this online and I’m contacting you to make sure it’s all okay. Have I done that okay?” We are also increasing the digital communication with our customers, so in those cases we are now sending SMS messages to claimants saying, “Thank you. We have received your claim. It is complete, and we are processing it.” That is all to reduce avoidable contact.
That also fits with the research that we have done about how our customers want to deal with us. We know that 86% of our customers say that they are willing to deal with us digitally or would prefer to do so. It also means, of course, that they can do it at a time that suits them, rather than within our opening hours. I think it both helps us to reduce the demand, which enables us to deal with the priority callers, and helps our customers because it is in line with how they want to run their lives.
Q74 Chair: Do you have plans about how you can expand your services further in a particular timeframe? Is there a clear plan with time limits and targets that you can share with us?
Sir Jim Harra: Yes. Like all Departments, we are going through a spending review process at the moment in which we are bidding for the investment that we think we need in the coming years. In the spring, we will be publishing a digital services road map, setting out the activity that we will be undertaking.
Q75 Chair: I want to ask about what you offer. We were given an indication that one problem is that customers can do a new VAT registration online, and they can be told about the length of time at the beginning, but there is no way for them to monitor the progress of that registration. Why not? Again, that is something that many organisations often have.
Sir Jim Harra: Our research shows that being able to offer that kind of service would reduce avoidable contact to us. That is why I mentioned, in relation to child benefit, that we now have the automated SMS messages to customers to reassure them about what stage their claim is at. Some of our digital services do not enable us to do that, so we often do not have the “track your parcel” capability that some commercial organisations have.
Q76 Chair: Will that sort of improvement in the service be part of the road map that we are going to see shortly?
Sir Jim Harra: If it is something that will significantly reduce avoidable contact, it will be prioritised in our investment plan.
Chair: Do you not know by now whether it will?
Sir Jim Harra: We do not know what investment we are going to get beyond 2025-26. We certainly know the further digitisation that we want to undertake, and it is increasingly—as you mentioned—about improving existing services rather than extending them. Until fairly recently, it has really been about going into parts of the system that are currently undigitised and digitising them. Increasingly, reducing the avoidable contact will involve improving the services that we currently have. However, there are still some areas, such as inheritance tax, where it is largely paper-based and we want to just digitise. We have to get that combination right.
Q77 Nesil Caliskan: Sir Jim, building on what you have said, I recognise that parts of the service are completely paper-based. The papers refer to something like 22 million items of correspondence that were sent to HMRC, which is an extraordinary number given that we are in 2024. It is only slightly less than the number of phone calls that the organisation takes, so there is clearly a need to move from paper-based to digital.
I want to ask about the digital services road map, which is presumably, as I think you have already said, about the investment over time to improve the platforms for digital. Organisations tend to have an approach that focuses on the backroom to get the infrastructure in place.
While that is important, do you recognise that there needs to be an emphasis on the front of house—the website and telephones—given some of the feedback on customer services and people’s experience? I urge that, in the road map that is being developed for what will be a very expensive endeavour—IT and digital always are—there should be an important balance that gets the backroom infrastructure in place but also addresses our critical customer services problem.
Sir Jim Harra: I completely agree. I was about to say, “No, we have to get the balance right,” but that is what you have said. We have been investing in both. In our back-office systems, for example, we have the unique customer record programme that has been about improving how we bring together the data for our customers under the different heads of tax that they deal with, so we can present them with a single picture of all their services.
That goes together with investment in the frontline services that customers use to interface with us. A key development for us has been our app. We are one of the only central Government Departments that has one and it has seen very rapid take-up. Last year, we saw a 64% increase in its usage; it was used almost 89 million times. We are currently running a campaign to get the number of users up to 6 million by the end of this year, because we can see that it is a favoured way for customers to deal with us. Today, if you want to claim child benefit, you can go on to our mobile app and do that entirely on your phone.
Q78 Chair: An incredible amount of correspondence comes through the post. You are almost single-handedly trying to keep the Post Office afloat by the looks of the way you operate. Why is there so much resistance to the use of emails? Security is often mentioned, but letters go missing as well.
Sir Jim Harra: I will let Myrtle come in on the electronic communication channel we want to have in a moment. But first, to deal with paper, yes, a lot of our processes drive our customers to have to write to us through the post. We also have some legislation that requires us to do things in writing through the post. We have been working through how we can digitise our own outbound services. For example, if you are on pay-as-you-earn, whereas previously we had to send you a pay-as-you-earn code through the post, you can now sign up for a service where you get all of that online. I will let Myrtle pick up on the channel.
Myrtle Lloyd: Email is a channel, but we use it very sparingly for the same reason that you outlined: security. What we would be looking to do is encourage secure messaging through the app or through the personal tax account and investing in asynchronous messaging. That is a far better and far more secure way for us to communicate with customers than email.
Q79 Chair: How successful is the roll-out of that given that you are still getting this enormous volume of correspondence? You have then got to scan it and file it—I mean, it is incredibly expensive.
Sir Jim Harra: To pick up on how we deal with post at the moment, we have a digital mail service. All the paper post goes into a central location, gets scanned and is then allocated to our colleagues on screen, so we are not moving paper around the organisation.
On the new channel for secure messaging, that is an area of our digital services where we are clearly behind many other organisations. That is something for which we would be looking for investment as part of the road map.
Q80 Chair: In looking at those changes, did you talk to the NHS? It has a very similar challenge with the amount of paper it uses, and a reluctance to move towards electronic means because of security. Do you have cross-fertilisation of ideas and meetings with the NHS to discuss how it is approaching that?
Sir Jim Harra: I cannot say about the NHS specifically. There is a Central Digital and Data Office in the Department for Science, Innovation and Technology and the Government Digital Service. They are central resources that we all use to co-ordinate.
Certainly, when it comes to a mobile app, we are conscious that the NHS makes very extensive use of that. After the NHS, certainly in central Government, we are probably the next biggest users. I think there are things we could learn from them, but I cannot say what engagement we have with the NHS.
Q81 Lloyd Hatton: Let me take us back to earlier this year. I have two press releases published by HMRC in front of me. One was on 19 March and the second was the day after, on 20 March. On the 19th, you said basically you were going to shut down a large proportion of your phone line services for a big chunk of the year. Understandably, a lot of people thought that this idea was absolutely bonkers, and 24 hours later you had to issue another press release saying that actually, you were not going to shut down a large number of your helpline services for a big chunk of the year. Surely, you must accept that this one-day car crash has done lasting damage to the credibility of HMRC. What are you therefore going to do to restore taxpayers’ trust in HMRC to be able to provide even the most basic services, such as a helpline?
Sir Jim Harra: It was clearly not what I want to see. As I said earlier, we were in a situation where we simply did not have enough resources to deal with all the contact that we were receiving, and therefore we were trying things that would enable us to prioritise which contact we dealt with—for example, dealing with vulnerable customers, but pushing other customers to try online. That was badly received. We were given additional resources by the Government to do it in a different way, and therefore we withdrew that decision and instead, with £51 million, we were able to deploy additional advisers on the helplines.
Q82 Lloyd Hatton: When that went out on 19 March, did you think, “This is going to go down badly with the public”?
Sir Jim Harra: We knew, from the pilots we had run the previous year, that there was a high degree of scepticism about whether people would be able to get the services they needed while we did this. On the other hand, we knew from the pilot that while there was resistance to it, the evaluation showed that it had not, overall, impacted on people’s ability to file their returns, make their payments and do the things they needed to do.
Q83 Lloyd Hatton: If there was a high degree of scepticism, why did you do it anyway? Obviously, that scepticism was proved to be accurate, because a day later, the whole thing sort of collapsed.
Sir Jim Harra: 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. We were not going to be able to prioritise what that demand was, so vulnerable customers or customers with complex affairs who needed to speak to an adviser were not going to get through, because others ahead of them in the queue with simple queries that could have been done online were blocking the queue. In the position we were in, with inadequate resources, that was what we thought was the best—
Q84 Lloyd Hatton: Did you ask for additional resources?
Sir Jim Harra: Had I asked for additional resources? We certainly are transparent with Ministers and Treasury about the resources we have and the service levels we can give, and what the different options are for what you can do with that.
Q85 Lloyd Hatton: I appreciate that the benefit of hindsight is a marvellous thing, but as chief executive, do you not think that actually a more urgent and pressing demand for additional resources would have been a wiser approach, rather than taking us all up the hill with this first press release, saying, “We are going to shut down these services for a big chunk of the year,” only for then 24 hours later to say, “Oh no, the public are in uproar. We are going to therefore restore these services,” and then ask for additional resources so you can get on with the job.
Sir Jim Harra: I feel that my job is to advise Ministers, “Here is the best that I think we can do with the resources that we have got. Here is what I think the impact is. Here are the different options for managing that.” It is for Ministers to decide which options they want to go with.
Q86 Lloyd Hatton: Would you blame Ministers for not heeding your calls, then?
Sir Jim Harra: No. I give Ministers advice and options. I believe that we give good advice, but the choices ultimately are for Ministers. Understandably, funding is tight. Treasury and HMRC will always look to do our job within the minimum funding that we possibly can, but in this instance, £51 million of additional funding meant that we did not have to reduce the service.
Q87 Lloyd Hatton: So do you think, following the advice that you, Sir Jim, gave to the Minister, that they made the wrong decision?
Sir Jim Harra: That is not for me to say. Clearly, the decision was changed pretty quickly. A different judgment was reached very quickly.
Q88 Lloyd Hatton: Okay. Let us move on to this point around support for vulnerable customers. Last February, this Committee found that HMRC customer service had reached an all-time low. Do you not agree that this sorry state of affairs has been very, very damaging to your credibility, so there needs to be a specific piece of work to look at how HMRC reaches out to vulnerable customers—customers who find accessing your services particularly difficult—so that we can begin to restore trust?
Sir Jim Harra: In a moment, I will let Myrtle come in to describe the services that we give to vulnerable customers. 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. I can understand why customers are dissatisfied with that; I am dissatisfied with it as well, and I am pleased that we are offering better service levels now. But we have specific services for customers who are vulnerable or who need extra support, which I will let Myrtle describe.
Myrtle Lloyd: We have always had extra support provisions for vulnerable customers. We have uplifted that support by 20%, recognising that we now have customers with more complex needs. We have also provided £5.5 million of funding to 12 community and voluntary organisations for outreach and to help customers. We continuously monitor those and work with partners to help us to reach out to more vulnerable customers.
Q89 Lloyd Hatton: Let us move on. The most recent HMRC customer service report estimates that “as many as 20% of customers need assistance using its digital services. It is not clear that HMRC has…set aside sufficient capacity” or expertise “to provide” additional “customer support”. Can you try again to reassure this Committee what you are doing for those 20% of customers—that is 7 million customers—who basically cannot use all the digital services because they do not have the additional assistance or resource that is needed to get them to that point?
Sir Jim Harra: It is a key example of the challenge that we face. We need to be able to concentrate our advisers on that type of customer. The more we can get the digitally able customers to self-serve online, the more we can devote our resources to that. That is why our strategy is about reducing avoidable contact—so that we can give a better service to those types of customers.
Q90 Lloyd Hatton: Could you go into a little bit more detail? What are you doing to ensure that those 7 million taxpayers are not shut out of accessing HMRC services? How are you assisting them to use digital services where they can?
Sir Jim Harra: First of all, how we make sure that they can access us is the key point. That is about making those customers who are digitally able more aware of our digital services and encouraging them to use them. It is also about reassuring them that if, at the end of their digital journey, they find that they cannot do what they need to do, there is an adviser at the end of that journey on webchat who will help them. That improves accessibility for those customers who need assistance—whether that is assistance to use our digital services; or, if they are digitally excluded, someone to do things for them; or, if they have complex affairs and know that reading our guidance will not give them the answer they need, they have an expert adviser at the end of the line who they can reach. We have an online service helpdesk, which specialises in assisting customers who should be able to use our digital services but need assistance to do so. I do not know whether you want to add more about that, Myrtle.
Myrtle Lloyd: We have our online helpdesk, and we have our extra support team. When our advisers on the phone encounter a customer who they determine needs extra support, they will refer them to the extra support team.
Q91 Lloyd Hatton: Finally, I want to circle back to where I started with this part of our session. Looking at what happened during the spring, the clear damage that did do to the credibility of HMRC, and the comments that you made, Sir Jim, after that happened, would you accept that perhaps the most useful thing HMRC could do to restore its credibility is to own up and say, “We got this wrong” and to apologise? The public backlash was immense over those two days, and I think people do not have much trust in HMRC to do basic things right and to provide basic services. Owning up, putting your hand up and apologising would probably be the best way to send a clear signal to the public that you want to restore trust and that you want to do better.
Sir Jim Harra: I certainly apologise to customers that we have not been delivering good service levels for the last couple of years and for the first half of this year. When it comes to customer trust, I think I would disagree with you. We know that we have good levels of satisfaction from customers, and I believe that customers do trust us to look after their information and to assist them. We simply have not had the resources to cope with the volume of contact, and I apologise for that meaning that some customers have not been able to access us or have had to wait longer than is reasonable to do so.
Q92 Rebecca Paul: I want to pull together all the different things we have been talking about today. We started talking about the tax gap and the importance of bringing that down. Clearly, addressing that gap and bringing it down is intrinsically linked to the customer service element, because the taxpayer needs help at the right time to prevent issues. I do not want to go over what we have already gone over in quite a lot of detail, but one of the things I was quite concerned about from reading the Report was, when you closed the self-assessment helpline in the summer of 2023, only two working days’ notice was given. That felt very quick. I do not think I have ever seen such a substantial decision, which will have such an impact, taken with so little notice. The VAT registration helpline permanently closed in May 2023, and that was with three days’ notice. I appreciate that the digital piece is what you are hoping to grow, but I would suggest that those notice periods are too short. First, it would be good to get your view on those notice periods. Apologies for asking this question again, but I think it is really important for clarity—I know the Chair has already raised it. Do you plan to close or restrict your phone lines again in the future?
Sir Jim Harra: I repeat that we have no plans for any further helpline closures or restrictions. When it comes to the advance notice we gave for those pilots, we have heard feedback that people were surprised at the short notice. From our point of view, we were not entirely clear what giving more notice would have gained for people. More fundamentally, it must be true that our customers sometimes need to speak to us to find out what they need to do, and therefore giving a good customer service must in some way help with tax compliance. However, we have actually struggled—and we have worked with the National Audit Office on this—to try to get an evidential link between customer service and tax compliance. 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. It is actually very difficult to prove evidentially. Indeed, some of the evaluation of the temporary closure of the self-assessment helpline showed that, during the period when we were not offering the helpline service, it did not appear to materially affect people’s ability to meet their obligations. I think it is a work in progress to demonstrate, in an evidential way, the benefits that our customer service has to tax compliance. In any event, there is a good case for giving a good customer service, whatever that shows.
Q93 Rebecca Paul: I would suggest that more notice is always better. For example, if I knew next week I was going to register for VAT, and for whatever reason I did not feel I was able to use the digital option, having more than two or three days’ notice would allow me to make the call at the right time to get that help. I would suggest that generally a bit more notice is helpful.
Sir Jim Harra: I understand that, but it is difficult for me to promise that, if we do it again, we will give more notice. I am saying that we have no plans to do it again. In any event, we have no plans for any further restrictions, but if we ever did, we hear the comment about the notice given.
Q94 Lloyd Hatton: Jim, why do you keep using the language of “no plans”? As the chief executive of HMRC, can you not give us greater clarity?
Sir Jim Harra: Greater clarity than “we have no plans to do this”?
Chair: “We are not going to do it.”
Q95 Lloyd Hatton: Thank you, Chair. Jim, when you did it at the start of this year, it was a calamity. When you did those pilots last year, which Rebecca has highlighted, it was with very little notice. Why can you not just say, “We are not going to do it”?
Sir Jim Harra: I cannot say what my successors will want to do in five years’ time or 10 years’ time.
Lloyd Hatton: But while you are the chief executive.
Sir Jim Harra: While I am chief executive, there will be no closures of helplines.
Lloyd Hatton: Thank you.
Q96 Rebecca Paul: That is incredibly reassuring. Thank you for that. While I am talking about VAT, may I ask this? Obviously, right now you will have real-life pressures with respect to this. I expect you are getting an increase in VAT registration requests in the light of the change in rules that is coming—from various schools and whatnot. It would be really good to understand, now that you are going through that, how many of those taxpayers are able to register digitally in a straightforward way, versus those who need to call up and ask various questions. Have you got any sense of that at the moment? I imagine that has started now and you are under that pressure.
Sir Jim Harra: Virtually all VAT registrations are done online. We have an online VAT registration service, which has virtually 100% take-up currently. However, in some of those we will then have to intervene because we see some risks, for example, so it is not a fully automated process. We risk-assess them and we may well intervene. However, on our service standards, we have two service standards: a 20-working-day and a 40-working-day service standard. More than 80% are completely processed within 20 working days, and more than 95% within 40 working days.
Rebecca Paul: That is very helpful. Thank you so much.
Q97 Chair: Thank you all very much for attending today. There is probably a little relief across the table that we are coming to the end of our questioning. Thank you for attending and answering our questions. Particular thanks go to you, Sir Jim. I think you announced in the spring your retirement, so this is probably the last time you come before the Committee.
Sir Jim Harra: I will be back on 16 December.
Chair: Oh, so I am anticipating your exit a little early. I was going to say that perhaps that gives you some relief—thinking about your retirement and at least one of the pleasures of it—but we can come back to that on 16 December. Again, thank you all for coming today and giving evidence to us. We will publish an uncorrected transcript of today’s hearing in the coming days. We will, of course, consider the evidence we have been given and we will then produce a report in due course, perhaps with some further questions and issues we would like to raise with you, to await a further response from you in due course. Thank you for coming. That brings to an end our proceedings today.
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