Source · Select Committees · Public Accounts Committee
Recommendation 8
8
Accepted
HMRC's costs increased due to funding gaps, IT under-investment, and rising taxpayer numbers.
Conclusion
Given the increase in costs reported by the NAO, we asked HMRC what progress it had made on its key strategic measure to reduce the cost of running the tax system. HMRC said the increase in its costs since 2019–20 had been broadly the same as the increase in tax revenue. It said that in 2019–20, it faced two unsustainable structural funding gaps: a reduction in its compliance staffing; and under–investment in its IT function. The 2020 and 2021 Spending Reviews provided HMRC with funding to address both issues. HMRC also told us that it faces an underlying upward pressure as 5 Costs reallocated to HMRC’s operational and policy business groups. 6 C&AG’s Report, paras 2.12–2.13 7 C&AG’s Report, para 1.9 and Figure 5 8 C&AG’s Report, paras 6, 2.5, 3.3 9 For most taxes, the number of taxpayers for 2023–24 is not yet known. C&AG’s Report, para 1.12 and Figure 1. 10 C&AG’s Report, paras 1.18, 2.3 9 the number of taxpayers in the system is increasing.11 The number of Income Tax payers had increased by 14% from 31.7 million in 2020–21 to 36.2 million in 2023–24. The increase was due to the freezing of Income Tax thresholds since April 2022 and population and employment growth.12 The Office for Budget and Responsibility estimates that threshold freezes could take the number of taxpayers above 40 million by 2027–28.13
Government Response Summary
The government agrees with the Committee's underlying concern about costs and commits to publishing HMRC’s Transformation Roadmap in summer 2025. This roadmap will detail plans to simplify tax administration and reduce the time customers spend on tax affairs through better digital services, including metrics for progress.
Government Response
Accepted
HM Government
Accepted
1.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2025 1.2 The government has committed to simplifying the tax system and taking this forward as part of its three strategic priorities for HMRC (improving day-to-day performance and the overall customer experience, closing the tax gap, and reform and modernisation). 1.3 In summer 2025, the government will publish HMRC’s Transformation Roadmap which will bring together HMRC’s strategic and transformation ambitions into a single, public document. The roadmap will set out how HMRC plans to transform and simplify the way it administers tax and customs to reduce the time customers spend managing their affairs through better digital services, simplifying tax rules and improving education and guidance. The Roadmap will include the metrics HMRC will use to report progress. 1.4 HMRC already publishes the cost for HMRC to collect each £1 of tax, within its Annual Report and Accounts, which has been stable at around half a penny since 2017-18. 1.5 HMRC publishes estimates of any significant change in administrative burden on businesses arising from changes in tax policy in Tax Information and Impact Notes. The estimates draw on insights and data from a range of sources, including evidence in HMRC’s Standard Cost Model (SCM), which contains data on the costs of existing obligations. HMRC is assessing the feasibility of updating the SCM to produce a publishable estimate of business taxpayers’ costs and is also considering measurement of administrative burdens on individual taxpayers.