HMRC’s first annual stakeholder Conference
Speech by David Gauke to open the first annual HMRC stakeholder conference on 18 July 2013.
I was very pleased to be asked to – if you will – open the batting here on the morning of the second Ashes Test.
And I hope that my contribution to the conference will be as absorbing as events at Lords. If it isn’t, you can rest assured I won’t be going on for five days!
So this is HMRC’s first ever Annual Stakeholder Conference.
And In future, I imagine that these events will provide an opportunity for attendees and speakers to reflect on the year bygone for HMRC. But as this is the first such event, I’d like to use my time this morning to reflect on the last three years for the organisation, since I first came into office.
I’d like to reflect on the many changes and successes we’ve seen here during that period. And I’d also like to reflect on the changes and challenges I envisage HMRC facing – over the next three years and beyond.
Inheritance
So, when I was first appointed Exchequer Secretary back in May 2010, I think it’s fair to say that the media interest in HMRC was focussed almost exclusively on customer service. And it wasn’t a positive focus.
Because to put it mildly, the first five years of HMRC’s existence – post-merger – had not been easy.
The bringing together of the Inland Revenue and Customs & Excise was challenging. Having responsibility for tax credit imposed upon it was a considerable burden. And – although I would be the first to argue that job reductions need not result in a decline in service – the reduction in enforcement and compliance coverage at that time risked revenue yield.
Add to that the loss of child benefit data – and its consequences in terms of public perception and management resignations – and HMRC was an organisation that could be seen as, at best, recovering from crisis.
Staff morale was the lowest in the civil service, and customer service – in terms of phone calls answered and response times for post – was very poor.
Of course, not every criticism of HMRC was fair. In September 2010 I saw for myself how newspapers portrayed an attribute of the PAYE system that had been in place for 66 years – End of Year Reconciliations – as a new HMRC failure. In truth it was neither new – nor, strictly speaking, a failure.
And I want to acknowledge the vital work undertaken by the late Dame Lesley Strathie and Dave Hartnett in stabilising HMRC over that period, and helping the organisation to turn the corner.
But let’s return to the present day.
And yes, there continue to be significant challenges in respect of HMRC’s customer service – although on pretty much every measure there have been improvements. There is certainly more to be done – and I’ll return to this later.
What has changed though; is that the spotlight on HMRC’s work is now much more focussed on their role in dealing with tax avoidance and tax evasion.
And in that context, the scrutiny of HMRC has never been more intense.
In fact, it’s hard to pick up a paper these days that doesn’t have an article exploring the tax arrangements of a certain celebrity or multinational company.
But I don’t think we should be surprised that HMRC finds itself under such a high level of media and public scrutiny.
After all, it has more revenue than perhaps any other organisation in the UK. It has more customers – both at an individual and a business level – than perhaps any other organisation in the UK. And it employs more members of staff than all but two other Government Departments.
So even during what I guess you’d call ‘quieter times’, it’s work should be under real scrutiny.
And given the current financial and political climate:
A climate in which the Government is working hard to reduce the deficit, And in which many individuals and businesses find themselves in difficult financial situations It is completely understandable that people are paying even closer attention to the work that HMRC does.
So these last three years have seen HMRC operating under some pretty intense scrutiny.
But I’m very glad to say that the last three years have also seen HMRC delivering under some pretty intense scrutiny.
And it’s worth spending a couple of minutes considering the progress that has been made.
Business
First, HMRC has helped to deliver the changes to the UK tax system that have had a real impact on boosting business activity.
Reducing corporation tax rates;
Reforming our rules on Controlled Foreign Companies
Introducing innovations like the patent box; and
Providing reliefs for some of the key industries that we want to see in the UK.
And these are measures that have seen companies keep their operations here.
They are measures that have seen companies move their operations here, like WPP and Rowan and Lancashire.
And they are also measures that have seen companies expand their operations here. The Patent Box for example, was crucial in securing an investment of £500m by GSK, which is set to create one thousand new jobs in Cumbria.
So the work of HMRC in implementing and overseeing these policies has played a huge role in making the UK a more competitive environment in which to do business.
Yield
Second, HMRC has managed to significantly increase yield.
Over the course of this Spending Review period, we’ve committed almost £1 billion to tackle tax avoidance and evasion, and to reduce losses from fraud, error and debt. And that £1 billion of investment will bring in an additional £9 billion a year in tax revenue by 2014-15.
In fact, I can announce today that HMRC has already topped £1 billion in court wins against corporate tax avoidance this year, following a judgement worth almost £88 million, involving the use of loan notes by a company called Vocalspruce.
This follows other straight wins in 2013 against Abbeyland, P&O, WHA, Bristol and West and Land Securities.
Schemes like this are complex and intricate, and without the technical skills, resources and commitment of HMRC’s specialists they would go unchallenged, costing the country billions of pounds every year.
But – working alongside Government – HMRC has continually taken swift and robust action wherever they have been identified.
In fact, just last month a Stamp Duty Land Tax avoidance scheme was closed down, with retrospective effect back to March last year.
And actions like that have helped to close down a number of other newly identified loopholes. The closures we made at this year’s budget alone are set to yield £600 million over the next five years.
The important thing to remember here –as I’ve said before – is that this increased yield isn’t a consequence of a splurge in spending. Yes, we have invested £1bn in tackling avoidance and evasion. But HMRC has managed to fund this investment from efficiency savings made elsewhere in the organisation.
And the results – in terms of that increased yield – have been there for all to see.
So we have seen some real achievements from the organisation over the last three years in helping this Government to deliver its priorities.
But we also know that the next three years – and beyond – will present some further challenges that HMRC has to be ready for.
Because as people change their lifestyles, their ways of working and their ways of communicating, they will also change their expectations of HMRC as an organisation. And so HMRC will need to make sure that they offer the right services, in the right places, and in the right format.
And so I’d like to spend a little time exploring the opportunities and the challenges that those changes and those expectations will present.
International
First. The HMRC of the future will operate in an increasingly international business world.
We’re well aware of the impact that free movement of goods and services and money and people has had on the business world. And the challenges that this globalised business environment presents any tax collecting authority have already been well-rehearsed.
At Government level we know that any attempt for the UK to act unilaterally in what are international tax issues would do us no favours as a location for business investment. And we also know that acting unilaterally would risk setting in train a disparate approach among our trading partners, which could have very serious consequences for international trade and growth.
So we’ve been using our international influence to promote a new global standard for reporting to – and for information exchange between – tax authorities.
And it is absolutely crucial that HMRC – as an organisation – lead the way in this work, so that we can bring other nations with us.
Digitisation
Secondly, the HMRC of the future will be operating in an increasingly digital world.
HMRC was actually a bit of a pioneer when it comes to digitisation. It launched its first online tax returns fifteen years ago. But despite that early foresight – and the large amount of online activity that currently takes place – there is still too heavy a reliance on customers using paper and the phone as their main forms of contact.
The issue is being addressed, but HMRC needs to go further and it needs to go faster as it does so.
And that’s why as part of last month’s spending round we announced that HMRC would be investing more than £200m in the digitisation of its services over the next three years, which will improve its online interactions with millions of SMEs and individuals.
We have to recognise that providing an online service which might have been ‘acceptable’ just a few years ago is no longer good enough. Especially for a public used to the flexibility and convenience of online banking and shopping.
In short, a 21st century tax system must give taxpayers the ability to have online tax accounts – and that’s what the Spending Round settlement will allow.
But that £200m is by no means the last piece in the jigsaw – or the last pixel in the picture. It is absolutely crucial that HMRC – as an organisation – stays alert to changing technologies, and the changing expectations of its customers that come with that. And it is equally crucial that HMRC continues to adapt to those demands.
Transparency
Third, the HMRC of the future will be operating in an increasingly transparent world.
Now, I know that when it comes to transparency HMRC can sometimes be in a difficult position. As an organisation they have – quite rightly – a duty of confidentiality which protects the affairs of all taxpayers.
And this can sometimes put them in a tricky position. Particularly when certain citizens or companies tax affairs are under intense public or media scrutiny, and HMRC are unable to comment on the specifics of their case.
But while I can understand the frustrations this can cause, it is of great importance that HMRC continues to honour its duty of confidentiality;
Any move away from that approach should be viewed with great caution, especially if it puts us in a different position to our competitors.
The truth is that the current approach to large business works well. We’ve seen – for example – how successful the practise of having customer relationship managers for our most complex and high risk companies has been. Not only has this increased the trust between HMRC and the UK’s biggest businesses, it’s also helped to recover over £23 billion in compliance revenues over the last three years.
And that hard work isn’t something we’d wish to undo.
But, while it protects the affairs of its customers, HMRC has to carry out its own work in as transparent a fashion as possible.
In fact – and I hope he won’t mind me talking about him while he’s sat so close by – that is why Edward’s role is so important.
By making sure that we apply the law consistently and in an even-handed way across all taxpayers, and by opening up our processes to greater public scrutiny, we can restore public confidence;
And we can also demonstrate very clearly that HMRC does not – contrary to some rather misinformed, and frankly discredited accusations – cut ‘sweetheart deals’ with any taxpayers.
This openness is absolutely vital, because mystery brings with it mistrust, while transparency brings credibility.
And we need to reassure the British people that the organisation collecting their taxes is doing so in the fairest and most efficient way possible.
Staffing
So those are three of the big challenges HMRC has to face not only in the rest of this parliament, but beyond.
That ability to operate in an international world, that ability to operate in a digital world, and that need to operate in a transparent world.
But of course to do that, the organisation needs to ensure that it has the right workforce to operate in such an environment.
As I touched on earlier, a modern tax authority – making proper use of digital technology – does not need the numbers of staff it once did.
But the staff it does have need to be properly equipped for the work it does.
So I’m very pleased to note that HMRC recently beat all banks and other financial institutions to win the 2013 title of ”Most popular graduate recruiter” in the Banking, Insurance and Financial Services category.
That victory shows that the organisation is in a good position to recruit some of the brightest young workers. And it also shows the progress it is making in building a workforce that is highly skilled and equipped for modern demands.
It is striking, for example, that the number of recruits to HMRC’s tax development programme has increased four-fold since 2010.
And if HMRC gears itself up with the right workforce and the right work systems, then we can make sure that HMRC does its job in the fairest, the most efficient, and the least intrusive way possible.
Conclusion
This will be a challenging time. At Government level, we expect to see HMRC bringing in evermore revenues, and we expect to see it do so with fewer staff.
But I know that HMRC has the capability to deliver on those aspirations.
By being tougher on tax cheats, evaders, and fraudsters; while more supportive to the vast majority of compliant taxpayers.
By remaining rigorous in closing down opportunities for wealthy people and businesses to avoid taxes by bending the rules; and
By becoming better at customer service, with a digital offer for all taxpayers.
So I’m sure that at future annual conferences Lin and Edward and – reshuffles permitting – myself will be able to stand at this lectern, talk about delivering those increased yields, improved customer service at greater value to the public purse.
I’ll look forward to hearing Lin and Edward’s thoughts now. And I’ll look forward to taking your questions shortly.
Thank you for listening.
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