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HM Revenue and Customs: Progress on reducing costs

In challenging circumstances in 2011-12, HM Revenue and Customs maintained its performance in key strategic areas at the same time as reducing its staff and spending. The Department improved its cost effectiveness and value for money in the year. While acknowledging these achievements, however, the National Audit Office, in a report today, has warned that it is too early to tell what the long-term impact of cost reduction will be on HMRC’s performance.

The challenge for HMRC will be to make more and deeper reductions over the spending review period while increasing tax revenues, improving customer service and introducing its ‘real time information’ project and changes to benefits and credits.

HMRC made £296 million of savings in 2011-12, exceeding its target by 19 per cent. This is about a third of the total savings it is required to make over the four years of the spending review period. HMRC exceeded its overall 2011-12 target for collecting additional tax revenues, maintained tax collection and reduced the level of tax debt. It restored customer service performance from a low point in 2010-11, but did not meet all of its customer service targets.

HMRC is spending £376 million in total on change projects across the four year spending review period to make sustainable savings of £411 million a year by 2014-15. However, HMRC expects these projects to save £162 million less over the spending review period than when the NAO last reported on this subject, in July 2011. This is partly because its forecasts are now more refined and realistic, and partly because, as some projects took longer to start, the benefits will take longer to be realised.

HMRC has strengthened how it manages its change programme in ways that address NAO recommendations and those of the Public Accounts Committee. The Department has also started to address the recommendations that it should improve its understanding of interdependencies between projects and of the cost and value of its activities though it has more to do in these areas.

HMRC needs to make new savings of £585 million a year by 2014-15 as well as maintain those savings already made. At September 2012, HMRC was on track to exceed its 2012-13 cost reduction target by £29 million. However, the reduction in planned savings being delivered by change projects means that HMRC needs to find £66 million more savings than it originally planned through other initiatives. As at July 2012, HMRC had not fully worked out where these additional savings in 2013-14 and beyond would come from.

"In one year, HMRC has managed to deliver a third of the savings it is required to deliver over the four years of the spending period, at the same time as maintaining performance in key areas such as maintaining tax collection and reducing tax debt. "HMRC is moving from making tactical efficiency savings and quick wins towards a more strategic approach to managing its resources. We recognise the importance of this change and note that HMRC is addressing PAC and NAO recommendations in the process. The big challenge ahead will be to make more and deeper spending reductions without impairing its performance."

Amyas Morse, head of the National Audit Office

Notes for Editors

  1. HMRC achieved its 2011-12 savings in five key areas: staff numbers fell by around 2,400 full time equivalents, saving £140 million; budgeted pay increases were frozen saving £29 million; HMRC reduced the price paid for IT equipment and services (such as IT helplines) saving £74 million; it vacated 118 buildings fully and 28 partially, reducing the size of its estate by 138,000 m2 and saving £26.8 million; and it reduced the costs of other contracts (such as postage and printing) saving around £26 million.
  2. Press notices and reports are available from the date of publication on the NAO website, which is at Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  3. The National Audit Office scrutinizes public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of more than £1 billion in 2011.

PN: 09/13