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.