Jim Harra, the newly-installed interim permanent secretary at HM Revenue and Customs, has revealed plans to overhaul pay in his department, which he said has reached crisis point.
Harra said the tax agency had appealed to the Treasury and the Cabinet Office for more funding to reform its pay system, given that employees had gone “many years” without a real-terms pay rise.
Unions slammed the department for offering staff a “derisory” 2% average pay rise in August. The award, for the 2019-20 financial year, saw staff wages rise by between 1.86% and 2.08%. The most recent cross-government pay settlement allowed for a increase of up to 2% of departmental pay bills, which departments could divide between staff as they saw fit.
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The department has submitted a business case into the Treasury and the Cabinet Office for significant pay reform that would enable HMRC to “attract and retain the right skills and also make sure that our people are engaged”, Harra told the Treasury Select Committee yesterday.
“The only way we can fix... the structural problems we have in our pay system is to implement pay reform and we are committed to that,” he added.
He said the reform would aim to address “three key issues with our pay system which I would regard as a crisis, really”.
The first issue is that HMRC staff had not have real-terms pay increases for many years, Harra said. “In fact, when you take pension and national insurance increases into account have had cuts,” he added.
The second is what he described as an “inbuilt unfairness” in the pay system that means two people doing the same job in the same office could be paid different rates, because people cannot progress up pay scales.
And the third main issue is that stagnating wages are set to push some of the department’s employees at administrative grade below the statutory minimum wage – also called the national living wage – next year. “I will have to increasingly have to put my pay flexibility into meeting that statutory obligation to pay the national living wage, which is not a position as an employer that I want to be in at all,” Harra said.
Harra was responding to MPs’ questions about widespread dissatisfaction in the department about pay. In last year’s Civil Service People Survey, HMRC had the lowest engagement score of any major department, and just 21% of respondents from the agency believed their pay adequately reflected their performance.
The perm sec told MPs that staff were “very, very dissatisfied with their pay and they’ve left us with no doubt on that”.
He said the tax agency was also looking at how it could improve working conditions and use its estate more efficiently to save money that could be recycled into pay rises.
“We also have to bear in mind that it’s about 15 years since we modernised the conditions of our workforce, in terms of the ways that they work. So I think there is a case for, if we can get our business case signed off, opening up both the pay and the terms and conditions of our people to give them maximum flexibility to get pay rises,” he said.
Reforming HMRC's culture
The evidence session also shed some light on how the agency is responding to the findings of a major review earlier year that revealed widespread bullying and abuse in the organisation. The review, by former John Lewis personnel director Laura Whyte, found that “swearing, breaching confidentiality [and] mocking colleagues, seemed to be unremarkable” in the workplace.
Appearing alongside Harra, Penny Ciniewicz, director general for customer compliance, said the department was focusing on two areas: behavioural standards, and policies and processes.
She said HMRC was in the process of developing a new set of standards setting out how staff should behave, in light of Whyte’s recommendation that the department ensure there is a “clear, shared understanding of behavioural standards in the organisation”. She said around 17,000 HMRC employees had given feedback in a major exercise to determine what those standards should be.
The department is also considering how it can improve the policies and processes to raise and respond to concerns or complaints about behaviour.
The department has set up a director-level “complaints insight board” to examine the evidence on complaints and how best to resolve them, said Ruth Stanier, director general for customer strategy and tax design.