A committee of MPs has depicted HM Revenue and Customs
as a fatigued institution, fighting successive crises and regularly
announcing plans to improve the technology and administration while
the service to the public gets worse.
The latest report from the House of Commons Public Accounts
Committee, published last week, looks at HMRC's tax credits system
and the accidental deletion of nearly one million taxpayer
records.
It raises questions about whether the department is coping with
collecting tax and paying out the right amount in tax credits and
warns that failures with the tax credits system are undermining
public confidence in HMRC as an organisation.
The basic statistics, published just after the June election,
are damning: 5.7 million families received new tax credits in
2003/04 but nearly two million were overpaid a total of £1.9bn.
Although ministers have repeatedly blamed the debacle on IT
systems, the PAC report makes it clear this is not the whole
truth.
"Software errors in the new tax credit system have resulted in
overpayments of £174m to 540,000 of the overall 1.8 million
claimants overpaid," the report said.
Much of the crisis arises from deep-rooted project appraisal and
programme management issues at HMRC, including the inherent
complexity of the scheme, according to the MPs.
Edward Leigh, chairman of the all-party committee, said, "The
department has a lot of work to do to get the tax credits system
operating fairly and effectively. There must be a question-mark
over its ability to do this, especially given that staff must also
tackle the backlog of everyday tax collection work which has built
up as a result of their being diverted to firefight tax credits
problems."
The government landed the tax credits programme on the Revenue
as the department was recovering from an unprecedented backlog of
work after the delayed introduction of a national insurance
recording system.
It was built by EDS and introduced in 2003 but has been run for
the past year by Capgemini. A major upgrade to the system was made
last spring, although this was around the time Capgemini was taking
over the Revenue's IT systems from EDS.
The PAC found the tax credits system to be overly complex and
ambitious - difficult for HMRC to implement and hard for claimants
to understand. Leigh said, "There is a general lesson here: that an
ambitious scheme might be fatally undermined by its intrinsic
complexity."
This complexity arose in part because the tax credits scheme was
designed to pay people on the basis of their salary during the
previous tax year. When HMRC finds that it is overpaying people
because their salaries have usually risen after making a claim for
tax credits, it routinely makes demands for claimants to hand back
overpayments, or it reduces their future tax credit awards.
The committee found that the tax credits IT system could not
stop the recovery of overpayments even when staff were considering
waiving overpayments in cases of special hardship. This was a
feature specified in the requirements.
Despite the built-in complexity of the tax credits system, no
one stopped the project at the feasibility stage, and there is no
way of knowing whether the independent Gateway reviews highlighted
the risks because they have not been published.
The PAC report echoes the concerns expressed by MPs over the
failed introduction of a system for dealing with child support
payments.
MPs were told the child support system would be cheaper, simpler
and quicker to administer than the existing arrangements. In fact,
MPs found that the systems and required changes in administration
made the switch to simpler payments more complex to administer than
the old arrangements.
Leigh said, "The new tax credits system was supposed to be
simpler to administer and simpler for claimants to understand. What
we were given was a frustratingly arcane system that routinely
overpays large numbers of claimants - some 1.8 million in respect
of 2003/04.
"This is no kindness to people in desperate financial
circumstances, for many have subsequently to cope with repayment
demands by the departmentÉ Permanent secretaries [heads of
departments] should flag up the risks with ministers before such
unduly complex schemes are implemented."
The department's target for the accuracy of processing and
calculating tax credit awards was 90% in 2003/04. In fact, it
managed only 78.6%. "The results are worse than under the previous
scheme," said the committee.
HMRC had predicted in December 2003 that tax credits would halve
the error rates attributable to claimant error and fraud. But the
report said the department has been unable to show that this has
happened.
Leigh said, "The introduction and operation of the Inland
Revenue's new tax credits system has been a nightmare. The Revenue
has yet to produce reliable evidence that the flood of public money
being wasted under the previous tax credits scheme through fraud
and error has been stemmed to any degree."
The report's findings also raise questions about whether
ministers rushed the implementation of tax credits. It said, "[The
department] does not have sufficient information about the claimant
population to enable it to provide good service to the public and
avoid disruption to its main business of tax administration."
It added, "[HMRC should] develop as a matter of urgency the
operational information needed to manage the department's
relationship with claimants and the effects on them."
The report vindicates the comments of Steve Lamey, HMRC's chief
information officer, who spoke at a public conference in May about
the department's poor-quality data, inefficient business processes,
and lack of "killer KPIs" - key performance indicators.
How much difference the committee's report will make in the long
term is unclear. By tradition the PAC and other select committees
avoid directly criticising individuals and there are no
parliamentary processes in place to ensure that the committee's
recommendations are carried out.
Meanwhile, the department faces radically improving the way HMRC
performs, changing the public perception of a tax department which
cannot cope, merging two huge departments - the Revenue and Customs
- while making large cost cuts in line with the government's
promised efficiency savings.
It is said that difficulty is the nurse of greatness, but HMRC
has yet to respond to treatment.