Revenue & Customs board must confront culture of denial to achieve lasting change

Computer Weekly challenges management at the Revenue to change attitudes


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.


Read more on IT risk management