Report

Funding the Nation: Optimising HMRC

HMRC is unique as a government department. It is the UK’s tax collector, helping to fund government services and provide benefits. Collecting the right amount of tax, at the right time, is one of HMRC’s core missions. Collecting the right amount of tax is what pays for our roads, our hospitals, the salaries of nurses and teachers across the country.


Because of this critical role in underpinning the rest of government, it is critically important that HMRC functions at the highest possible level.
This report details where, over the last decade, HMRC has had challenges, and provides insight into where HMRC will face obstacles in the future. It is designed to provide a pathway for HMRC to future proof itself for a Government of any political stripe.


The report identifies that HMRC’s workload has changed significantly over the last decade to mirror changes in the wider economy, as well as demographic pressures. HMRC now manages more complex tax administration, and more frequently, than it has had in previous decades.


We suggest a large-scale investment into HMRC which would help resolve some of these issues. We estimate investment of £910m would return £11.3bn to the treasury over a parliament and would meaningfully reduce the tax gap. Critically this investment would include £210m for HMRC customer services. Some of this expected return could also be put to use in upgrading HMRC’s legacy systems and technologies, which would over the long-term further increase HMRC’s productivity. Even after these investments there would be significant sums for a Government of any stripe to invest in the core public services that are so critical to the functioning of our society.

Key Facts

Closing the Tax Gap

  • Using historic yields as a guide, ARC has modelled that if the UK government invested £700m into its compliance regime (with a further £210m into its customer services) it would expect to raise £11.3bn for the next Government over a Parliament. This money could be used to fund the political priorities for the next government.
  • £11.3bn is roughly 300,000 nurses in the NHS or teachers in our schools. It is also a similar amount to the 2p National Insurance cut from this year’s budget.

HMRC has a technology problem

  • Our survey showed that the average HMRC staff member loses 93 minutes every week to poor technology.
  • 15% of the workforce thought that technology inhibited their ability to work by more than four hours per week.
  • Per year, this is equivalent to 4.4 million working hours lost in the department to poor technology every year.
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Chronic underinvestment in customer services is costing the economy

  • The average waiting time for HMRC phone calls is 24 minutes. HMRC received 38 million phone calls last year. This means that across the UK, 15.2 million working hours are spent on hold with HMRC.
  • We estimate that the current length of time customers spend simply waiting for HMRC to answer the phone could be costing UK businesses £660m. 
  • We estimate that UK businesses could be losing another £480m per year from engaging with HMRC by post.
  • This means UK businesses are losing around £1.1bn in time costs associated with HMRC’s customer services. This is likely an under-estimate because there are likely to be other associated costs with HMRC customer service enquiries, such as seeking advice from other areas (from agents to charities like Low Income Tax Reform Group).

Recommendations

Large-scale investments into compliance, with an equivalent investment in customer service to close the Tax Gap

A long-term staffing and skills plan

An ongoing technology plan

A clear data strategy 

Develop a clearer strategy for tax administration

Support

The campaign has been delighted to receive the report of the tax community. They have supported our work with their invaluable expertise and they had the following to say about our report.