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- HMRC’s target for prosecution ‘charging decisions’ to be set 20% above the rates achieved in 2023-24. These rates have collapsed since pre-pandemic. It will be 2029 before HMRC’s target returns to the rate achieved in 2019-20 – a lost decade, even if this is met.
- The time for tax cases to come to court means new cases are added to the justice system dealing with unprecedented backlogs, undermining the deterrent effect of swift convictions.
- ‘Extra’ staff are being planned for tax debt collection and compliance – but the numbers don’t make sense as the department’s outturn expenditure and budget for this year and next have been restated downwards by £700-800 million per year since Reeves’ October Budget.
- The impression the Chancellor gave in her speech is that the Department was a winner in terms of more resources, but the reality is the operating budget is flat next year, and 12% down in 2024/25 – whilst it’s being expected to deliver more than ever.
- It’s also not clear where these additional staff will come from given the time it takes to train staff into technical roles. HMRC have been losing current staff quicker than they could recruit new colleagues into the department in recent years as a brain drain has afflicted the department.
The casual listener to Rachel Reeves’ second fiscal event as Chancellor would be forgiven for thinking that HMRC were one of the departments ‘winning’ from the Spring Statement which overwise saw a new round of cuts in public spending dressed up as efficiencies against a challenging fiscal outlook. But appearances can be deeply deceptive – whilst the Spring Statement document mentioned hundreds of new staff joining the ranks of the Department’s compliance and debt chasing divisions it’s unclear how the department are going to pay these experts or where they might be drawn from. What’s for sure is that additional budget hasn’t been created for their salaries – the costs of running the department last year, this year about to finish and the budget for next have all been revised down by £2.2bn, or over 10% in just 5 months! Maybe these new staff will be so efficient that their salaries will be more than covered by the additional revenue they are expected to help collect that the OBR have considered the project on a ‘spend to save’ basis. There is at least a risk of optimism bias here.
Leaving aside the issue of more roles but no money to pay additional staff, the other bamboozling question is where the Department hope to get these new colleagues from. Last year the staff in post fell as HMRC couldn’t recruit new starters quickly enough to offset the rate experienced staff were leaving (as we explain in last year’s SOTA report). The time taken to train and upskill into these roles is measured in years, and mentoring newbies requires experienced staff to take time out of frontline duties. HMRC don’t normally expect compliance officers to yield any net revenue for the first couple of years. The risk is that if the retention crisis isn’t fixed there isn’t an overall boost to revenues. Pay and conditions are heavily linked to morale and performance.
The other major area that the OBR have estimated to have real revenue impact is tax debt management and collection functions. The amounts have reached eye watering levels in recent years – with the Spring Budget disclosing nearly half of the amounts assessed as liable but unpaid more than a year later at £20 billion. Whilst TaxWatch hope that renewed focus and effort to collect these amounts yield results we are sadly sceptical. Debt collection has never been straightforward, had it been easy the situation wouldn’t have spiralled in recent years.
There have been a number of new consultations launched this afternoon to strengthen HMRC’s ability to take action against those tax advisers who facilitate non-compliance from their clients and tackle promoters of marketed tax avoidance. At first glance they look radical and if implemented well could represent a step change in the market for anti-avoidance which TaxWatch welcome and will watch these with interest.
