MPs have lambasted HM Revenue & Customs over its customer service, raising fears that its “unacceptable” performance is having an adverse impact on the collection of tax revenues.
Meg Hillier, chair of the public accounts committee said: “It beggars belief that, having made disappointing progress on tax evasion and avoidance, the taxman also seems incapable of running a satisfactory service for people trying to pay their fair share.”
The allegation that HMRC is failing to collect taxes because of a failure to run a decent customer service is incendiary at a time when George Osborne is planning big spending cuts to plug the deficit.
Mr Osborne’s controversial plan to cut tax credits by more than £4bn – thwarted in the House of Lords last week – is even harder for the chancellor to explain if taxes that are due are not being collected.
The cross party committee said it was “unacceptable” that HMRC only answered 39 per cent of calls within five minutes in 2014-15, far short of its 80 per cent target.
Ms Hillier said her committee had previously described its performance as abysmal, but it was “now even worse, to the extent it could be considered a genuine threat to tax collection”.
The critical tone of the report is a sign that the committee does not intend to relax the pressure established by its predecessor, which launched blistering attacks on HMRC under the combative chairmanship of Margaret Hodge, a senior Labour MP.
The latest report complained that despite its previous recommendations, HMRC still did not report on how much cash was received as a result of its compliance work, give full details of tax reliefs, or estimate the scale of aggressive tax avoidance that exploited loopholes in the law.
The committee also criticised the number of criminal prosecutions for offshore tax evasion which it said was “still woefully inadequate”. It said: “HMRC’s investigations do not lead to sufficient prosecutions to provide an effective deterrent, particularly for wealthy individuals who hide their assets offshore.”
It said it was “incredible” that there had only been 11 prosecutions in relation to offshore tax evasion since 2010, and only one individual from the “Falciani list”, a list of Swiss accounts holders leaked by a former employee of HSBC, had been prosecuted. It noted that HMRC had now exhausted its use of the Falciani data, which did not meet the standards required for UK evidence.
The government has this year set a target to triple annual prosecutions for the most serious tax evasion to 100 each year. It plans to create a “strict liability” offence of offshore tax evasion, meaning an individual can be prosecuted regardless of whether there was an intention to break the law.
The report also criticised HMRC for failing to provide any indication of when or by how much its customer service would improve, “beyond a vague aim to improve year on year”. It said that HMRC acknowledged that people were more likely to pay the right tax when they found the system easy to deal with. With callers sometimes holding on for 40 minutes or more, the proportion of calls answered by HMRC fell to just 72.5 per cent of calls overall in 2014-15, down from 79 per cent the previous year. Over the first half of 2015 only half of calls were answered.
In June, HMRC said it was recruiting 3,000 more frontline staff to tackle the lengthy phone queues and busy-tones that have frustrated millions trying to contact HMRC about tax credits, codes and bills. It admitted that as many as one in three phone calls to the taxman had gone unanswered in recent months, prompting an admission that “standards had not been good enough”. Lin Homer, its chief executive, recently told the committee that “we are still struggling”.
In a statement on Tuesday, the agency denied that its customer service failures had affected its ability to collect taxes. “We are disappointed that the PAC has overlooked HMRC’s results, which include collecting a record £517bn in tax revenues,” it said.
The committee said it recognised HMRC’s achievement in increasing the amount of tax collected while also reducing its running costs over the past five years. It had improved its ratio of revenue collected per £1 of administrative expenditure from £138.14 in 2010-11 to £166.95 in 2014-15. It also noted that HMRC had reduced the amount of tax written off because there was no practical way to collect it and the balance of tax debt while paying out more in benefits and credits.