Wednesday, July 23, 2008

Smashing Up The Taxman

Integration strategy in action

As regular readers will know, Gordo has done incalculable damage to Britain's taxman (eg see this blog).

It was Gordo who smashed together HM Revenue and HM Customs and Excise into mega department HMRC (directly answerable to him) with absolutely no idea how it was supposed to work; it was Gordo who dreamed up taxes (and tax credits) of such mind-boggling complexity even his officials can't fathom them; and it was Gordo who imposed the half-baked Gershon cuts on an organisation already reeling from all of the above.

The entire HMRC operation is now in chaos, barely able to lurch from one crisis to next.

We've blogged this many times of course (eg see here and see also Ken Frost's splendidly restrained dedicated blog HMRC Is Shite). But it's worth recapping:

  • Tax credit fraud and overpayment - currently running at £1.3bn - £1.5bn pa (7.2% to 8.4% of the final value of awards (see here)
  • Missing Trader VAT fraud - last officially estimated at up to £1.9bn pa (see previous blogs, eg here and here)
  • Incorrect tax assessments - 1.6m people over or undercharged income tax as a result of processing errors at HMRC. The total sum involved was £0.6bn, or around 400 quid each
  • Inadequate accounts - HMRC accounts have just been qualified by the NAO for the sixth successive year - any private sector company that bad would have been closed long ago and the directors jailed
  • Hopeless IT systems - over 250 separate "major" computer systems (actually, some estimates say 850 separate systems)
  • Ramshackle organisation - hundreds of disparate local offices
  • Wildly unrealistic Gershon staff cuts- Pacesetter programme cutting 8,500 jobs soonest
  • Half-baked management- introducing "lean production" methods, originally designed for car manufacturing, and including whacky rules for positioning bananas on desks
  • Rock-bottom staff morale- some offices now suffering annual sick leave averaging 23 days, or nearly five weeks pa (the private sector average is just 6 days pa); so many people have left, some offices are 25% staffed by temporary contractors
  • Non-existent security - 25 million personal records, including bank account details, gone walkabout... and that's just the known known.

This is an operation so bad, it's on its third head in two years, the last having been "resigned", and the one before that having been abruptly "moved". Mind you, that didn't stop the last one getting £400,000 compensation for said "resignation" (see this HMRC Is Shite post). Nor did the unmitigated catalogue of disasters stop HMRC staff receiving bonus increases of 60% last year.

Now, the National Audit Office has just taken a look at HMRC's "Transformation Programme". Its findings are not very pretty.

The much hyped Transformation Programme is going to cost us £2.7bn (including the usual wad for consultants), and is supposedly going to bring benefits of "£11.5 billion by 2011, giving a benefit: cost ratio of 4.3:1, with further benefits beyond that date".

Hah hah.

Does anyone believe that? No, of course not.

According to the NAO, the truth is that the programme is all over the place, a bundle of vague hopes rather than a clear plan for getting stuff done. And although it's only been going since 2006, it's already had its budget seriously squeezed by Gordo, and has been chopped and changed a number of times.

Also, just like Gershon, it's been artifically plumped up by including all manner of detritus that has nothing to do with the grandiose Transformation Programme at all - projects that were already in train, "projects" that are little more than day to day management, etc etc.

But the bit that really catches Tyler's eye is the following chart. It shows HMRC's projections of the increase in tax revenue it expects from its punchy sounding Compliance and Enforcement Change Programme, against the loss in revenue it expects from staff cuts:

As we can see, the increase from the programme is put at over £4bn pa by 2010-11, more than compensating for the c£2.5bn pa losses anticipated from staff cuts. A net gain of nearly £2bn pa. Nice.

Except... umm... how much did they say they're going to save in salary costs from those staff cuts? According to para 2.21, 18,000 staff will go, saving £600m pa by 2010-11. So that's... Have I got this right? That's £600m pa saved on staff cuts, against £2.5bn pa lost on the consequent loss in revenue. Or a net loss of almost £2bn pa.

What genius thought that would be a good idea? Why would anyone cut staff if they lost more than they saved? Would Terry Leahy do that at Tesco?

And hands up anyone who thinks the genius reponsible should be in charge of tax collection.

Or anything else, come to that.

It's a classic example of Gordo micro management - he's set HMRC so many conflicting targets and boxes to tick, they've forgotten what it is they're meant to be doing.

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