The state of public services

One of the features of economic life in the era of the pandemic and social restrictions has been the wide variation in how different sectors of the economy have responded to the challenges that successive lockdowns have posed.  Some companies, some whole sectors have shown huge energy and initiative in seeking to survive and prosper despite the difficulties, whereas others have seemed more willing simply to throw in the towel and say that everything is too challenging.

Nor is it random chance which sectors fall into which category.  Indeed it has been widely observed that there is an almost perfect correlation between how competitive and profit-orientated a sector of the economy is and how quickly participants in that economic sector restored a full or near full service as soon as they were able to after the initial hard lockdowns.

For example, the travel, hospitality and entertainment industry has made huge efforts to return to near‑normality, as have retail companies generally.  Utilities and financial services companies, more secure in their market position and less dependent on passing trade for their revenue, have been rather slower: we have commented before on how slow the retail banking sector in particular was to restore acceptable levels of service.  And the public sector, and in particular the bureaucracies and agencies of central and local government – for whom of course the rules of a competitive market do not apply at all – have been among the slowest to revive their operations, move on from the emergency measures imposed so quickly in early 2020 and resume a full service for the general population.

Whether it is the Passport Office, the Driver and Vehicle Licensing Agency, the Land Registry, the Probate Office or many others, the delays in getting any service from them have ballooned, the backlogs of unresolved cases have stretched out to weeks and months, the hardships caused by missing paperwork, delayed authorisations and so on are real.

But one agency does seem to stand out for its inability to have weathered the storm, for the collapse of its usual response times and for the complete silence on any prognosis for their return to full working.  And this is HMRC, the tax office.  Anecdotes and personal experiences are not a substitute for analysis, but it is quite revealing that I currently have three separate cases that require a response from HMRC, and on all three there has been no progress at all – and they date from, respectively, September this year, May this year and October last year.

The last case is so overdue, so egregious that it prompted me to do a bit more research and digging.  And what emerges is slightly unexpected, as it shows not so much a picture of a dysfunctional agency, as an almost complete breakdown in the oversight and management they receive from their political masters.

In a nutshell, I made and reported to HMRC some taxable gains in tax year 2019-20.  Soon thereafter I incurred a taxable loss; this was also reported, and because I did so before the tax was due to be paid on the earlier gains, one can carry back the loss and use it to offset some of the 2019-20 tax.  Which I did, and paid the remaining outstanding balance due before the deadline.   This was all set out and explained to HMRC by my accountant.

HMRC are now chasing the balance of the 2019-20 tax that I didn’t pay.  Several letters have arrived with final demands, latterly with the imposition of penalties.  The letters get more threatening and HMRC hold open the prospect of a court summons to pay the tax they deem to be overdue.  After every letter my accountant both writes and rings up explaining why the money is not due, but it seems to have no effect, and a little later a further demand comes in.

The latest letter arrived last week and is yet more aggressive.  And the accountant once again contacts HMRC to try to clear this up once and for all.  And we discover that firstly, none of his letters have been actioned yet, as the office dealing with the case “is currently processing correspondence from late 2020”.  It is not even clear if the return we submitted in October 2020 has been recorded yet.  There is, naturally, no apology for this.

Furthermore, none of his previous calls have been logged on the system “due to staff prioritising other actions”.  So as far as HMRC are concerned, they have not taken place and therefore I as the taxpayer am accused of ignoring and failing to respond to their demands.

And finally, HMRC’s position is that until the form we submitted in October 2020 – ie, over a year ago now – is processed, the original tax is apparently still due, as it has yet to be cancelled by a subsequent HMRC decision.  Nor are they able to take the seemingly straightforward action of suspending their demand for the extra tax while the case is investigated.

On the surface, this seems a simple case of an overwhelmed and failing agency not coping with their workload and blaming everyone else – and in particular me – for not obeying their orders, whether or not they are correct.  A depressing mixture of  incompetence and arrogance that is hard to match, but sadly one which I suspect any of my UK readers who have had dealings with HMRC will be wearily familiar with.

On the surface … But what is more interesting is how HMRC have got here.  The senior management of HMRC is not stupid and not unaware that this is a catastrophic way to run the agency.  Unfortunately at too many turns their actions are forced by government ministers micromanaging them and issuing illogical instructions with blood-curdling threats if they are not met.

Take the diktat that HMRC are not allowed to exercise judgment over which debts they pursue, not able to pause their attempt to make me pay tax I do not owe (and which they will agree I do not owe when they finally process the form I submitted a year ago).  To understand this, one has to go back two or three years, when HMRC did have a degree of latitude over which tax cases they prioritised, and they (sensibly) used it to concentrate on winnable cases, while settling with taxpayers where there was reasonable doubt that they were right.

The tabloid press got to hear of this, and amid much righteous indignation had a field day with the story; it was deemed an “absolute scandal” that there should be “one rule for fat cats and another for ordinary taxpayers who cannot negotiate”, and attacking ministers for allowing such a state of affairs.  This led to ministers seeking to look tough by ordering HMRC to stop the practice, a kneejerk reaction to deflect the immediate criticism which totally ignored the fact that in many complex cases the right amount of tax is not self-evident, and a negotiated settlement is often not only the most efficient way to proceed but was proven to deliver the highest net tax-take (net after HMRC’s own costs).

(And why is the amount of tax often not self-evident?  It is because ministers have constructed such a grossly overcomplicated system that it is quite often open to interpretation if not outright self-contradictory.)

Or take the absurd situation that people taking a call do not log the call and record what was said.  Why not?  Because to ask call-centre staff to do this means they are spending precious time not answering calls.  Do HMRC know this is a nonsense?  Yes they do, but they have been ordered by panicking ministers to prioritise above almost anything else getting waiting times down on the calls.  And a call answered is a success, even if there is no outcome from the call because the call-centre staff cannot spare the time to follow up.  I am only surprised that they do not answer every call after nine minutes and 59 seconds with “Good afternoon, this is HMRC.  We are pleased to tell you that this call was answered in under 10 minutes and so met our targets.  Goodbye”.

And the general backlog and lack of resources?  In the last 18 months the government has created, and asked HMRC to implement, a completely new furlough scheme, not to mention an additional bonus to the Universal Credit scheme, a greatly increased level of stamp duty cases due to trying to support the housing market, and much else besides.  Those who might have expected such an increase in workload to be matched by an increase in staff resources are clearly unaware how Whitehall works …

In short, HMRC is subject to an appallingly bad and over-complex tax code, increasing workload met by reducing staff numbers to save money, illogical demands and incomplete orders from panicking ministers desperate to avoid criticism in the press and, last but not least and a direct result of the other three, disillusioned and demotivated staff.  On which toxic combination was overlaid working from home.

And we very much doubt that HMRC is the only agency that has suffered like this at the hands of ministers and Whitehall.

We opened with the observation that different parts of the economy have responded to the stresses imposed by the pandemic in different ways: parts of the economy have been shown to be resilient and flexible, while others have performed poorly and proved brittle, fragile or inadequate.   Some companies, some whole sectors of the economy can look back with some satisfaction, even pride, while others should consider where there is work to do.

The service provided by many of the the UK’s government agencies (the NHS apart), and the state of the relationship between them and their ministers, is one of the parts of society that has not come out of the challenges of 2020 and 2021 well.  Without doubt this failing would benefit from remedial attention; sadly, whether ministers are willing to do that, and in particular whether they are willing to consider that they may be part of the problem not part of the solution, is rather more unclear.