Public Accounts Committee report is ‘not convinced plans will sustainably reduce demand for traditional channels’

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The UK is missing out on £42bn of unpaid tax because HM Revenue and Customs is not deploying enough resources to improve compliance, parliament’s spending watchdog has said.

Tax compliance and customer service are both suffering because HMRC has too few staff working to improve performance, according to the Public Accounts Committee’s latest report.

HMRC has indicated it is aiming to improve customer services by digitising systems and encouraging people to use online tools. 

However, MPs said it was “not convinced that its plans will sustainably reduce demand for traditional channels or deal with the unacceptable level of service that taxpayers and agents are currently suffering”.

“The move to online services will not happen quickly and will not be appropriate for all circumstances or customers,” they added.

The MPs have asked HMRC to write to them explaining its plans to improve customer service to “adequate” levels, including the metrics used to monitor performance; how it will support customers who cannot use digital channels or prefer post or phone contact; and contingency arrangements if plans to reduce remand for these channels are unsuccessful or take longer than expected.

While the £731.1bn HMRC collected in taxes and duties last year was the highest on record, PAC said it is “still not deploying the resources required to maximise the tax revenues it collects or provide an acceptable level of customer service”.

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The £42bn in unpaid tax is around 5% of the total owed each year. In a report that also criticises HMRC for lacking “ambition” to tackle fraud and error, the MPs noted that the 2021-22 tax gap stood at a similar level to in 2019-20.

HMRC bases its compliance performance and resourcing on maintaining, rather than reducing, the tax gap. 

The MPs argued that spending on compliance is cost efficient because for every £1 that HMRC spends on compliance activities, it recovers £18 in additional tax revenue. Only putting enough resources – including staff – into compliance work to maintain the current tax gap therefore means the government is “missing out on billions in lost revenue”, they said.

The committee has challenged HMRC to say what level of investment in its compliance teams would be needed to reduce the size of the tax gap – and whether it intends to do so.

“The eye-watering £42bn now owed to HMRC in unpaid taxes would have filled a lot of this year’s infamous public spending black hole. But the public purse will continue missing out on billions of desperately needed revenues as HMRC will only employ more staff to tackle compliance over the next few years – that’s not fast enough to dent the tax gap at a time of huge public sector spending pressures. Meanwhile, taxpayers battle customer services that need improvement,” committee chair Dame Meg Hillier said.

MPs also raised concern about resourcing for customer service, saying staff cuts had dented the level of service HMRC is providing to taxpayers.

Over the last five years, the tax agency has reduced its customer-service staff numbers from 25,500 to 19,500, and the MPs said not having “sufficient” staff in this area was partly to blame for a significant drop in HMRC’s responding to calls and postal queries during the pandemic.

“We were surprised to learn that at times in the past HMRC has simply closed its telephone line when it could not cope with demand. It is not acceptable not to answer calls from people who are trying to pay the government money,” the report said.

These comments come shortly after PublicTechnology revealed that, following five days of outages last month in which the department estimates it missed 100,000 calls, HMRC brought in external consultants to assess the resilience of its contact-centre platform.

Elsewhere in the report, PAC reiterated its concerns about HMRC’s approach to fraud and error. The tax agency only expects to recover around a quarter of the £4.5bn lost in its Covid support schemes – and the MPs said it has “yet to demonstrate it has done all it reasonably can to recover the losses and avoid the dent to public finances”.

“HMRC risks rewarding those taxpayers that were dishonest if it does not pursue more of the losses than currently planned,” the report added.

An HMRC spokesperson said: “Since 2005 we have cut the UK’s tax gap by more than 30%, and we continue to prioritise collecting unpaid taxes.”