Richard Murphy

The recurring theme of these stories has of late had little to do with tax though. The most common story by far has been a tale of protest at the forthcoming closure of a local tax office. The Revenue’s plan to cut staff has seen protest from Truro to Wick (both being in the press on the same day recently for this reason) and all places in between.

Of course part of this relates to local and well coordinated action by the Revenue staff union PCS. You can’t blame them for not wanting to lose their jobs. But I doubt that it’s that alone. Indeed, I hope it’s not that alone.

I oppose the closure of local offices of HM Revenue & Customs. I believe it represents a serious error of judgement on the part of the senior management and politicians involved. Worse, I think it will be wholly counter-productive.

The plan is that between 2005 and 2010, three hundred tax offices will close and that by 2011 Revenue staff will reduce by 25,000 in total. That was more than 25 per cent of HMRC numbers when the process began. Whatever the merits of constraining growth in the civil service (and that’s an issue for separate debate) to reduce the staff of the one department that has the capacity to fund that service was always going to be of dubious financial benefit.

I have checked the facts. In 2006-07 HM Revenue & Customs cost £4,389 million to run if the costs of child benefits and children’s trust funds paid were excluded from its accounts. Of this total £2,841 million related to staff costs including pensions and employer’s national insurance payments. Total staff numbers in the year averaged 91,373 meaning each staff member cost £31,092 to employ. If the overhead cost was apportioned evenly then each cost £48,033 to engage. But the average yield in tax for each person employed was £4,636,588. That means each member of staff recovered 96.5 times their full cost of employment.

Of course, this is a simple statistic and relates to a complex organisation. If HM Revenue & Customs had many fewer staff the tax collected might still be substantial given that, as HM Revenue & Customs have themselves noted, maybe 50% of all people choose to be tax compliant and 40% might be capable of persuasion to be so. It follows that disproportionate numbers of staff are focussed on those who need to be persuaded to comply with tax law, and the 10% or more who choose not to be. By definition, that would seem to reduce the efficiency ratios.

However I estimate that at least £70 billion in tax is evaded in the UK each year. Let’s ignore the more sensitive issue of avoidance for now. That sum represents about 14% of all tax that HM Revenue & Customs should collect each year, a ratio that they themselves acknowledge to be correct with regard to VAT, excluding carousel fraud.

If this is the case then it would seem that the marginal situation where the cost of employing tax inspectors might exceed any benefit derived from doing so has not been reached. Indeed, the very opposite seems true. If any other organisation thought that it was losing 14% of the revenue due to it by wilful fraud, the last thing you’d expect it to be doing would be to cut its staff and to be pulling its people out of the communities where it knows that money might be owing.

But that is exactly what HM Revenue & Customs is doing. I resent this. I genuinely think most people do. The majority of people do pay their tax in this country. Of them the majority pay what they think they genuinely owe. Two things will annoy them. The first is that others don’t do the same. The second is that HM Revenue & Customs don’t seem to care.

It’s a PR disaster for the Revenue that they will not have local people working in local communities in this country once this closure programme is complete. It’s not just that they are the ‘eyes and ears’ on the ground for the Revenue, although they certainly were when I was first in practice. They are in a very real way representatives of that organisation in the community that real people might meet. By being so they make clear that the Revenue is represented by real, ordinary people with one head, just like all the rest of us, doing a useful and unpopular job, including that of law enforcement on behalf of the community.

Take away that awareness and you remove the vital feeling that there is any tax presence locally. Compliance rates will fall as a result, I’ll guarantee. That’s not just because of the loss of local knowledge, although that’s important. It’s also because the perceived link between paying tax and the benefit it provides for the community (which most, deep down appreciate) is broken.

One of the five roles identified for tax (of which only one is revenue raising) is reinforcement of the democratic process. Unless people realise that there is a relationship between them, their communities and the tax they pay then they are alienated from democracy. Put simply, they don’t see the reason to vote because they don’t think they can change the taxes they pay or what it is used to finance by doing so. Voting rates are falling in this country. There is increasing alienation from politics and the process of government. I am convinced that closing local Revenue offices contributes to that process. So I oppose it. Because I’m a democrat.

And, let’s also be honest, like all accountants, I also hate the replacement service I get from call centres. It’s not the staff there’s fault. It’s the system’s fault.

Let’s face reality: local is good. Please stop these closures.

Article Added Friday, 25 July 2008 | 1708 Hits

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