HM Revenue and Customs is on course to reduce its headcount to 2016 levels within the next two years, permanent secretary Jim Harra has told MPs.
Harra told members of parliament’s Public Accounts Committee this morning that achieving further efficiencies in the current financial year would be unlikely. However he suggested that greater use of digital assistants and robotics could reduce costs in the remaining two years of the Spending Review period.
Over the summer, Boris Johnson’s administration tasked departments with creating plans to reduce staffing to 2016 levels by the end the current three-year Spending Review period. The figure equates to around 91,000 jobs – effectively a 20% cut for the whole civil service.
Some departments will have scope for greater reductions than others, and all departments were asked to model how they would deliver a 40% reduction in staffing alongside proposals for the one-in-fve cut.
Despite the headcount reductions being her predecessor’s policy, Liz Truss – who resigned as PM this afternoon – did not roll back on the substance of the plans, although she did back off from the 2025 target. Further decisions on staffing cuts are likely to be made by her successor. Meanwhile, newly-installed chancellor Jeremy Hunt has warned departments to expect demands for further efficiencies later this month.
According to HMRC's annual report and accounts for 2021-22, the department had an average full-time equivalent headcount of 63,852 during the last financial year. Its 2015-16 annual report and accounts gave an average FTE count of 60,914.
Quizzed about HMRC’s efficiency plans today, Harra said his department was on track to meet the headcount reduction in 2024-25, which is the final year of the Spending Review period.
“Our SR2021 plan already brings us back to 2016 levels by then, so at a departmental level we met that objective,” Harra said.
“Like all departments, we did do work for July about what the different options are, but no decisions have been made on that.
“We wait to hear if the government has any changes that it wants to make to its spending plans this side of 2025, and also what its longer term spending plans might be.”
Harra told MPs that HMRC would look to make new efficiencies “wherever we possibly can” and that investment was in place to do so.
“The key way of making efficiencies apart from continuous improvement is to continue digitalising the tax system and making sure that customers don’t have to contact us by the older methods of phone or post but increasingly can self-serve online or be supported by digital assistants or robotics,” he said.
“That is the key way of continuing to deliver services with less resource over time, and we will obviously respond to any challenge that we get from the government around our spending.”
Harra said there was no realistic prospect of finding efficiencies in HMRC’s operations for the current financial year and that it would be “quite difficult” to deliver any further efficiencies to what has been planned already over the three-year spending-review period.
“However, we have been looking at whether we can go further by 2025, and we have got investment for the single customer account and looking at how we can prioritise reforming and digitising income tax and national insurance processes in particular. That drives a lot of contact from customers that could be handled online or with digital assistants, or contact where staff are required to process it where robotics could automate that.”
Harra said HMRC had no plans to “deprioritise” elements of its SR21 plans at present.
But in clear anticipation of the new chancellor’s 31 October financial statement, Harra added: “If our investment funding is cut, we will advise ministers, depending on what their priorities are, what you could defer and what the impact of doing that would be.”
Elsewhere in the session, Harra predicted that the cost-of-living crisis was likely to impact on HMRC’s ability to collect debts from customers and potentially fuel a growth in non-payment of taxes.
According to HMRC’s latest annual report and accounts, the tax gap – or the difference between tax owed to the government and tax collected – was £32bn in 2020-21, or 5.1% of total theoretical tax liabilities.
A major part of HMRC’s role is compliance work to make sure people pay the right amount of tax. Its compliance yield work in 2021-22 generated £31bn. However, Harra told MPs that compliance staff were reporting changes following the pandemic.
“We are seeing different payment behaviours from taxpayers,” he said. “And we do have to adjust compliance yield for what it is we think we can recover. That is definitely a concern in relation to the tax gap and our management of it.”
Harra said challenged household finances were also expected to pose new problems for compliance work.
“As a result of the cost of living crisis, first of all we will see people prioritising other spending over paying us,” he said.
“We might also see people taking second jobs or moonlighting – which they’re perfectly entitled to do – but which are more likely not to be declared to HMRC. Case by case, that tends to be quite small and is therefore quite challenging.”