Source · Select Committees · Public Accounts Committee
Recommendation 3
3
Accepted
HMRC's compliance productivity has significantly declined despite increased investment.
Conclusion
HMRC’s compliance productivity has declined, despite its increased focus on prevention and investment in digital systems and higher–skilled staff. HMRC’s compliance work offers high returns and good value for money but its compliance returns have declined from over £1.4 million per compliance worker prior to the COVID–19 pandemic, to £1.27 million per worker in 2023–24 (both values expressed in 2023–24 prices). The decline has taken place despite: HMRC investing in digital systems; focusing more on upstream compliance to prevent problems before they happen; and employing more higher–grade compliance staff. The latter, contributed to an increase in the overall seniority of HMRC’s workforce, which added over £100 million to HMRC’s salary costs over the period 2019–20 to 2023–24. The government is providing HMRC with resources to recruit 5,000 additional staff to achieve £2.7 billion of additional tax revenue a year by 2029–30 (a productivity level of £0.55 million per additional compliance worker). HMRC considers that raising the average return across all its compliance staff is difficult, but it acknowledges that it needs to return productivity to the levels its experienced staff previously achieved. recommendation HMRC should write to the Committee alongside its Treasury Minute response, explaining the steps it will take to return compliance productivity to pre–pandemic levels as soon as possible and seek year– on–year improvements thereafter.
Government Response Summary
The government states HMRC has already written to the Committee. It confirms record compliance yield for 2023-24 and projected targets for 2024-25, committing to recruiting an additional 5,500 compliance staff by March 2030 and investing in system improvements to increase productivity.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Recommendation implemented HMRC has written to the Committee alongside this Treasury Minute response. In 2023-24, HMRC secured record compliance yield of £41.8 billion compared to £34 billion in the previous financial year. This exceeded the annual target of £40.5 billion and was higher than pre-pandemic levels of compliance yield performance. Pre-pandemic productivity in 2019-20 was impacted by two specific very large cases, which resulted in an uplift to performance. HMRC are on track to achieve the 2024-25 end of year compliance yield target of £45.4 billion, a further improvement in performance and productivity. Final figures for 2024- 25 will be released within the Annual Report and Accounts. HMRC set stretching annual compliance yield targets in accordance with a methodology agreed by HMRC, HM Treasury and the Office for Budget Responsibility (OBR). As announced at Autumn Budget 2024 and Spring Statement 2025, HMRC will recruit an additional 5,500 compliance staff by March 2030. This investment, alongside other measures to close the tax gap (such as investing in modernising systems, delivering policy reforms and tackling tax debt) will deliver £7.5 billion of additional tax revenue per year by 2029-30. This commitment alongside investing in improvements in HMRC’s systems risking capabilities is expected to increase productivity over the Spending Review 2025 period. The average rate of return of compliance activity to yield is just one factor HMRC considers when deciding how best to deploy its resources. HMRC will aim to increase productivity, while optimising deployment across compliance priorities.