HM Revenue and Customs’ programme of closing district offices to concentrate staff in new regional hubs is at risk of becoming “woefully out of date” because of changes driven by Covid-19, according to a new report.
Members of parliament’s Public Accounts Committee said the tax-collection agency’s ongoing work to relocate staff to 13 regional centres and a small number of additional support facilities was in need of urgent review because of increased home-working prompted by the pandemic.
The report also expressed concerns about the economic assumptions underpinning the leases HMRC was securing on city centre office space, some of which lack break clauses and last for up to 25 years.
Committee members have expressed concerns about the hubs programme on several occasions since 2017. But their latest warning said changes in demand for commercial property could undermine HMRC’s previous arguments that it could lease out space that turned out to be surplus to its requirements.
“We strongly believe this is an out of date assumption that needs urgent revision in light of changing economic conditions,” the report said. “It is commonly accepted that some significant changes in working practices, with more staff working flexibly and less need for traditional office space, are likely to be here to stay.”
PAC members called on HMRC to set out its future plans on reviewing its estate strategy in light of Covid-19 “to ensure it can demonstrate value for money from its considerable investment should demand remain suppressed”.
Last month HMRC perm sec Jim Harra admitted that the hubs programme was causing the department to lose staff it would prefer to keep because of the need to offer redundancy packages to workers who lived too far from their nearest regional centre to commute there every day.
The latest PAC report also called on HMRC to “redress the balance” in its spending and use of technology away from patching up legacy systems and instead focus on modernising them.
“The Covid-19 pandemic has shown the importance of an effective tax administration system,” MPs said. “There is a strong case for investment in a modern IT system.”
The report said that as of September, HMRC had identified the cost of IT was the largest element of the additional expenses it had incurred in relation to coronavirus. MPs said the £53.2m figure for IT accounted for 80% of additional costs.
The PAC report added that HMRC accepted it spent too much of its IT budget maintaining its legacy systems and not enough investing in the future, and that its IT systems now constituted a “significant risk to the department” in terms of cyberattacks and catastrophic losses.
MPs acknowledged that HMRC had secured £268m in November’s Spending Review to help ensure its core systems were secure and to support better administration. But they added: “It remains to be seen whether this is sufficient to urgently address the long-standing issues the department has identified.”
They gave HMRC until the end of March to detail how it would refocus IT investment on modernisation for the future at the same time as retaining resilience.
Elsewhere in the report MPs called on HMRC to explain why it had been unable to offer Covid employment-support packages to more taxpayers, such as contract workers, alongside its furlough scheme for employees and the Self-Employment Income Support Scheme.
Committee chair Meg Hillier said the national system of revenue collection underpinned all public spending and services and the report had exposed areas of pressure for HMRC.
“As public spending balloons to unprecedented levels in response to the pandemic, out-of-date tax systems are one of the barriers to getting help to a significant number of struggling taxpayers who should be entitled to support,” she said.
“And the system is going to struggle, and in many cases fail, to capture or deal with those wrongly claiming it.
“HMRC needs to redress the balance in its spending and use of tech, and get ahead on the basic financial and economic metrics that we need to adapt and respond to this pandemic in real time."
Hillier added that there was also “a huge question" about how HMRC technology at the borders is coping, and will cope in the months and years to come.
"There isn’t really any breathing space – HMRC’s out of date systems need to catch up fast," she said.
A government spokesperson said that HMRC’s strategy of moving its operations to large modern offices was key to its transformation and aligned to the government’s “Places for Growth” agenda, which encourages the relocation of jobs from the capital and the creation of new roles in the regions.
“It helps HMRC to recruit and retain people with the skills we need and will enable colleagues to build good and meaningful careers in one location,” they said.
“All our regional centres are designated government hubs and are in great locations, where demand is highest.
“Independent qualified professional advice has confirmed that long lease terms offer the best value balance when building modern offices ‘hubs’. But our leases are flexible, including the right of assignment, subletting and sharing of occupation.
“We are already seeing increased interest from other government departments seeking space in the hubs.”
The spokesperson added that HMRC had delivered Covid-19 support schemes at unprecedented speed, protecting the livelihoods of millions of people.
“The government has done all it can to help as many people as possible, providing support worth more than £280bn and adapting our schemes to include as many people as possible – for example, by extending the cut-off date for the Coronavirus Job Retention Scheme, bringing in more than 200,000 employees to the scope of the scheme,” they said.