Computer Weekly challenges management at the Revenue to
change attitudes
When Steve Lamey revealed a multitude of flaws in the system and
processes used to collect 230bn from the nation's taxpayers, he got
his officials thinking.
Chief information officer and a board director at Her Majesty's
Revenue & Customs, Lamey speaks with authority. He told a
public conference that about 30 million letters go to the wrong
addresses every year. That is nearly one in three of all letters
sent out by the tax department. And more than half of all
self-assessment forms are processed incorrectly first time. His
"biggest, biggest, biggest challenge" is correcting "poor quality
data".
A slumbering giant HM Revenue & Customs (HMRC) may be, but
within two hours of Lamey's concerns coming to the attention of the
department, its officials had decided to act.
They issued a creatively-worded denial. Their statement reassured
the public, media and MPs that Lamey's comments were quoted out of
context: that although there was always room for improvement, all
was well, in fact, with the way HMRC was conducting its
affairs.
But Computer Weekly has studied many disclosures about
inefficiencies in the tax gathering department and has found a
pattern emerging.
There is evidence, over 10 years, that the tax department is
filtering and moulding information to sustain an image for itself
as efficient and rarely erring.
Each time there are revelations that the department needs major
renovation, officialdom marshals facts and statistics to show that
it is operating smoothly, troubled by nothing more than one-off,
temporary problems which affect only a small number of its 30
million taxpayers. And in most of its statements of denial, it
throws knives at the credibility of the messenger without
responding to the specific disclosures.
The effect is to protect the department's reputation as a peerless
collector of taxes, able to ensure that every 1 collected in tax is
passed to the Exchequer with only a minimal deduction for the costs
of administration.
But the mask is slipping.
In his keynote speech to the government IT summit last month Lamey
gave a succession of examples of inefficiency which show there is a
potential for making large savings in the cost of tax
collection.
Once his comments were reported by Computer Weekly, and followed up
by the national media, the press office of HMRC issued a statement
which appeared to deny all that had been reported.
It said that Lamey's comment had been "misinterpreted and quoted
out of context to give an entirely distorted picture of HMRC's IT
systems and performance".
The statement attributed to Computer Weekly inferences that it did
not make, then attacked its reporting of these inferences. HMRC
said that 95% of forms are accurately completed, without answering
Lamey's point that only about 48% of them are processed correctly
first time.
This sacrifice of the truth to maintain a false image of the
organisation leads one to doubt that Lamey and his board of
directors can tackle structural defects when the organisation's
culture is to deny that any exist.
Several of the department's board, including its chairman David
Varney and Lamey, were respected executives who were recruited from
the private sector to effect major reform. Their tasks include
combining two large departments, Customs & Excise and Inland
Revenue, saving 507m by 2007-8, which involves cutting 1,600 jobs
to meet the target set by the Gershon efficiency review, which
calls for 21bn in savings across the public sector by 2008.
But before they can make any radical changes they will first have
to confront a culture which denies the existence of systemic
inefficiency.
For years Parliament has been given only selected cuts of
information about the way the Revenue runs its affairs. This is
illustrated by an internal memo which was leaked to Computer Weekly
about tax records going overseas.
Officials had given a firm undertaking in a statement to MPs that
tax records would stay in the UK when the department contracted out
its then 2,000-strong IT department to US-based supplier EDS.
Then, in 1996, officials discovered that batches of tax records
might have to go abroad so that experts working for database
company Oracle in Australia or the USA could help to fix problems,
should an emergency arise when self-assessment was
introduced.
The internal memo shows that the Revenue's officials prepared two
possible statements for ministers to make to Parliament about some
tax records being sent overseas. One was narrowly worded. The
second was more comprehensive. "Would you prefer answer one or the
fuller version, answer two?" asked the briefing note to
ministers.
It was the narrow explanation which was given to the House of
Commons in an arranged question and answer. No mention was made
publicly that sending tax records overseas necessitated what the
memo had described as an "important change of policy".
When Computer Weekly put it to the then tax minister, Michael Jack,
that Parliament had been misled, he replied that his public
statement had been prepared by Inland Revenue. But the Revenue
accepted no responsibility - its spokeswoman refused to comment on
what she said were internal documents.
An irony of the affair is that the Labour MP, Dawn Primarolo, who
was in opposition in 1996, said at the time, "I am very
disappointed that the minister has declined to fully answer my
questions about the security arrangements surrounding Oracle's
access to UK tax records. I will pursue this matter until I am
satisfied that I have received a proper response."
Now Paymaster General, Primarolo is in charge of the department she
was critical of, and she is ultimately responsible for the
unreliable, selective, self-serving or contradictory information
released by its officials. There is a long history of this in the
tax department.
In 2002 the department wrote to hundreds of thousands of people
warning them that their pensions could be affected as they had been
using the wrong national insurance numbers. But it failed to reveal
that the problem was caused by duplicated and incorrect NI numbers
and data stored on its systems. The affair left members of the
public mistakenly believing that they were to blame for errors in
the Revenue's data.
Other leaks of information, even before Lamey's speech, have cast
doubt on whether the department is fully in control of the system
for collecting tax. But each time there is such a disclosure the
department wheels out its machinery of denial.
In 2000 the Revenue secretly took the unusual step of clearing
about one million unresolved tax records from its systems, not
knowing whether taxpayers had overpaid or underpaid tax for the
year 1997-8. One reason for this was a build-up of a backlog of
"open" unresolved cases on its system.
When details were leaked to and reported by Computer Weekly the
department issued a statement to the media. Under the headline
"Computer Weekly article is incorrect," it gave no explanation of
why it had cleared open records from its systems. Instead it
criticised the article for being inaccurate, though it did not
specify any inaccuracies.
Much later, in 2001, Computer Weekly's reporting of the matter was
supported in a report of the public spending watchdog the National
Audit Office. It concluded that, "The automatic clearance of one
million individual income tax records for 1997-8 represents a
failing in the normal operation of the PAYE system and the quality
of service to the taxpayers involved." The episode left people even
less sure than before the disclosure about whether the Revenue had
any clear idea of how many taxpayers had overpaid or underpaid tax,
or whether staff were able to manage their workloads.
The efficiency of the department was again question when the
introduction of tax credits failed disastrously in 2003. It led to
two million people being paid the wrong amounts.
Clear information about the causes of the debacle could have helped
to inform senior managers and avoid further disasters, but the
department instead issued contradictory information about what had
gone wrong. First it praised the systems to support tax credits.
Then it denigrated them, and the supplier EDS.
In late 2002 the Treasury's Office of Government Commerce had
carried out a Gateway review - an independent assessment - of the
readiness of Inland Revenue to go live with the new tax credits
system. The review gave the project the go-ahead, but warned it was
high risk.
When it became clear that the system's introduction was a failure,
details of the Gateway review were leaked to Computer Weekly and we
reported that the OGC had described the scheme as high risk.
The department reacted as it had before. Not releasing the report
of the Gateway review, which would have silenced the controversy
about what its contents, the department attacked Computer Weekly
for selectively quoting from it. Then the Revenue's statement went
on to quote selectively from the same report.
"It is utterly ludicrous to condemn the Revenue computer system
using carefully selected paragraphs from a leaked document," said
the department's statement in 2003.
"The facts are that the OGC report concluded that the Revenue is
carrying out an excellent job with its computer system, with praise
for the Revenue's good programme management.
"The OGC Report also concluded that the new Tax Credit Project 'is
an exemplar of good programme management and, although facing many
major challenges [the Revenue] is well equipped to successfully
manage and deliver.'"
Soon the Revenue's position on the computer systems swung to the
opposite extreme. The tax credits fiasco was entirely the fault of
the computer systems. "One thing went wrong," said Nick Montague,
then chairman of Inland Revenue, when he appered before the
Commons' Public Accounts Committee in November 2003. "That was the
failure of the systems."
Today a question remains over whether the department's senior
managers are as adept at managing the Revenue as they are at
policing its image. Meanwhile leaks of information which point to
profound inefficiencies have continued.
In July 2003 the chairman of the Treasury sub-committee, Michael
Fallon, went so far as to question twice whether the minister was
in control of her department. "Have you not actually lost control
of this department?" he asked Primarolo.
He asked again, "Do you feel you have a sufficient grip of this
department?"
Primarolo replied, "I do." She said there were exceptions, but, "I
believe that the department supplies me with the advice and support
that I require as a minister."
No one should be surprised if the tax department fights to project
an image that it is able to collect the nation's taxes without
wasting them. But should it keep its reputation for efficiency if
much of the evidence is to the contrary?
And if Lamey is to make a success of radically reforming HM Revenue
& Customs, as he is determined to do, he will first need his
officials to accept the need for major change - privately and
publicly.
For this to happen, the most dependable piece of hardware the
Revenue owns, its denial mechanism, may need to be
dismantled.'
Honesty is key >>
How efficient is HM Revenue & Customs?
- When chief information officer Steve Lamey joined HM Revenue
& Customs last October no one knew how many letters went
astray. He discovered that about 30 million go to the wrong address
every year.
- He said systems are overly complex, unreliable, fragmented and
some of them historic, an obstacle to efficiency.
- Each of 72 tax offices process self-assessment forms in
different ways. Even on separate floors within a single tax office
there are sometimes different processes.
- The tax systems are plagued by "really poor quality data", said
Lamey.
- The Revenue has "every combination of outsourcing and sourcing
strategy you could imagine" which "brings itself a whole load of
obstacles" to efficiencies, he said.
- He wants to collect more unpaid tax. The "tax gap", as it is
known, is estimated at between £30bn and £50bn.
- There is a history of serious lapses in good practice. In 2004,
for example, of the public spending watchdog, the National Audit
Office, reported that a housekeeping routine had accidentally
deleted an unknown number of tax records.