NAO report blasts HMRC over customer service

The report by the National Audit Office reveals that callers to HMRC spent a cumulative 798 years waiting on hold in 2022-23 – more than double that of 2019-20. The department is looking to move more callers away from helplines to digital platforms as it attempts to cut staff numbers by an unprecedented 14% in 2024-25.

The NAO recommends HMRC develops “more realistic plans” for cutting services and adopts a more customer-focused approach.

Background

The report explored how, in 2022-23, HMRC spent £881 million on customer service, with more than 21,000 full time staff. However, they said performance has been “below expected levels” for telephone and correspondence for “almost all” of the last five years.

In February 2024, the Public Accounts Committee said customer service levels had reached an “all-time low”, with HMRC not being provided with resources by the Treasury to meet its service standards.

Data analysed in the report shows HMRC answered just two-thirds of callers’ attempts to speak to an adviser in the first 11 months of 2023-24, well below the target of 85%. Those who did get through waited on average nearly 23 minutes in the same period, up from five minutes in 2018-19.

Complaints also rose by 39% up to 91,217, but the total time spent by HMRC advisers on calls reduced by 6% between 2019-20 and 2022-23. Customers spent the equivalent of 798 years (7.0 million hours) in 2022-23 waiting to speak to an adviser, up from 365 years (3.2 million hours) in 2019-20.

Move towards digital platforms

The NAO report said shifting more customers away from helplines towards digital platforms forms a “key part” of HMRC’s plan to achieve efficiency targets, “freeing up remaining staff to help those with more complex queries or who need extra support”. HMRC estimate that 66% of telephone calls in 2023-24 could have been dealt with online instead. HMRC closed or reduced the queries they handle on four helplines in 2023-24, including closing the Self Assessment helpline for three months, which freed up 350 staff.

Digital services introduced in 2023 include the ability to pay Self Assessment tax via open banking, view employment history in the HMRC app and claim and manage Child Benefit online. HMRC estimate that around 60% of customer transactions are now carried out digitally, but the NAO said HMRC “has not yet been able to realise significant reductions in customer service staff numbers”.

It added that this may be due to a low level of awareness, with figures from November 2022, HMRC’s most recent data, showing just 29% of customers were aware of the PTA or the Business Tax Account. Similarly, only 21% of taxpayers were aware of the HMRC app, with 2.3 million people, or 7% of income taxpayers, using it in 2022-23.

Staff reductions

The NAO explains in some detail the savings or cuts HMRC has agreed to make.

HMRC agreed under the 2021 Spending Review to make annual efficiency savings of £75 million in customer service by 2024‑25. During 2022-23, the government undertook an efficiency and savings review to help manage pressures on public spending from higher inflation. In accordance with government commitments at Autumn Statement 2022, HMRC sought to protect tax compliance activity. It therefore planned to make most of the additional savings it needed from customer service, doubling the required savings to £149 million by 2024-25.

By 2023-24, the NAO explains, HMRC was £22 million short of its revised targets. HMRC reported it had achieved £53 million of savings, including up to £33 million of recuring savings. HMRC’s efficiency targets included reducing levels of staff sick leave and the proportion of staff in managerial and support roles. While HMRC made some progress, this was not as much as it needed. To support telephone and correspondence performance in 2023-24, HMRC used an additional £36 million to pay for extra temporary customer service staff, an average of around 1,000 additional staff across the year. It transferred £20 million from its transformation budget, and HM Treasury provided a further £16 million in June 2023, primarily to maintain helpline opening hours.

The additional £62 million of savings set for customer service for 2024‑25 during the efficiency and savings review, plus the shortfall in achieving efficiencies in 2023-24 meant that, at the start of 2024-25, HMRC customer service would need to find at least £116 million of new savings during the year, the report continues. “At the start of 2024-25, HMRC needed to reduce its overall customer service workforce by 14% in-year to live within its budget,” the report adds. “It only achieved a 9% reduction between 2019-20 and 2023-24, over which time its call-handling performance significantly worsened.”

The report sets out that, at January 2024, HMRC estimated that, without further efficiencies or service changes, it would need 4,150 more staff than budgeted to meet expected customer demand and achieve its public targets for answering the telephone and handling correspondence. HMRC’s change programmes and other initiatives would close some but not all the gap.

At January 2024, HMRC expected the customer service changes it had already planned for 2024-25 would reduce demand by the equivalent of around 1,300 staff across the year, the NAO report. Around 900 of the reduction in 2024-25 was to come from its Income Tax Service Transformation initiative which covers a range of change programmes and activities. This initiative aims to improve the range and quality of services for PAYE and National Insurance customers. The initiative only started in 2022-23 but HMRC expects progress to accelerate quickly, so that the initiative achieves around 1,700 full‑time equivalent staff reductions by March 2025.

Plans announced in March this year to close or restrict further taxpayer helplines were swiftly reversed following criticism from stakeholders. The NAO report says: “HMRC had expected closing the helplines would release approximately 520 staff to work on other helplines and tackle processing backlogs.”

HMRC’s plans as at January 2024 estimated it would still have on average around 950 fewer staff (6%) than it needed across 2024-25, even if it delivered all the efficiencies and demand reductions it expected at that time. Although HMRC has not yet updated its modelling, the reversal of plans to close and restrict helplines has increased this gap further

The report states that HMRC is “not expecting” to meet its telephone performance target in 2024-25.

Conclusion

Concluding, the NAO says: “HMRC’s strategy to replace traditional forms of contact with digital services makes sense in many ways. However, they do not currently allow customers to resolve more complex queries.

“So far, digital services have not had the effect HMRC hoped for. While many of HMRC’s digital services work well, they have not made enough of a difference to customer contact levels. HMRC and customers have been caught in a declining spiral of service pressures and cuts.

“HMRC needs to allow more time for new services to bed in, understand the difference they make, and then make staff reductions when the benefits are demonstrated. Otherwise, services will continue to suffer, and unnecessary service pressures and contact will remain.”

Recommendations

On developing realistic plans:

• A HMRC should reassess what levels of customer service performance are needed to achieve value for money by balancing costs to HMRC and customers with the value of contact.
• For future spending reviews, HMRC should only plan to realise staff reductions from changes to its digital services once improvements have taken effect and the benefits can be estimated with confidence.
• HMRC should ensure it understands how new digital services will support the shift from telephone and correspondence, and manage increasingly complex queries.
• HMRC should invest in raising awareness of its digital services. It should be clear with customers about what services are available and what tasks and queries customers can and cannot do digitally.
• HMRC should develop a plan for how it will support customers to use and keep using digital services.

On achieving savings:

• HMRC should reduce avoidable, unnecessary and expensive forms of contact.
• HMRC should develop a better understanding of the costs and benefits of its services.

On introducing digital services:

• HMRC should identify and apply learning from the implementation of its digital projects, including using experienced practitioners to lead projects and designing services to handle complex customer journeys and needs from the outset.
• HMRC should ensure a more consistent approach to introducing major service changes, particularly those to stop or reduce existing services.
• HMRC should look at cases of taxpayers failing to take reasonable care, to understand the main reasons and identify whether there are changes it can make to its services and systems to reduce occurrences.
• HMRC should develop a better measure of the financial consequence of procedural errors in the handling of calls and processing of claims, and use this to bear down on customer service errors affecting tax revenue.

Read the full report.

The NAO report was finalised before the announcement of an additional £51 million for HMRC’s telephone helplines on Monday.