On 11 June 2025, the Chancellor of the Exchequer, Rachel Reeves MP, reported the outcome of the Spending Review 2025. The review sets the budgets for government departments until 2028/29 for day-to-day spending and until 2029/30 for capital investment.  

HMRC’s settlement 

HMRC’s settlement for 2026/27 is £7.3bn, an increase on 2025/26 of £0.5bn. This falls to £7.1bn for 2027/28 and £6.9bn for 2028/29. The average annual real terms rate of growth for the Spending Review 2025 period is 1.8%. The rate of growth across all departments is 2.3%.  

The government says that the funding will enable HMRC to deliver the package of measures announced earlier to close the tax gap. These include modernising HMRC’s use of data and recruiting an additional 5,500 compliance staff and an additional 2,400 debt management staff.  

Frank Haskew, Head of Taxation Strategy, ICAEW said: “HMRC has been allocated money to hire nearly 8,000 more staff. However, they will focus on compliance and debt management rather than front line services, which is a missed opportunity to improve services for all taxpayers.” 

Improving digital services  

The settlement includes additional funds of £0.5bn to “make HMRC a digital-first organisation”. The funds will be used to improve digital services and enable the use of artificial intelligence (AI) to assist taxpayers and improve productivity within HMRC.  

By 2029/30: 

• a minimum of 90% of customer interactions will be digital self-serve (currently, 70%); and 
• HMRC will have reduced the number of letters it sends by 75%. The government says that HMRC will “eliminate all outbound post, with limited exceptions such as letters which generate revenue”.  

The government says that it “will continue to ensure alternative channels, including phonelines, are still there for those who need them”.  

Frank Haskew, Head of Taxation Strategy, ICAEW said: “We need to understand exactly how HMRC will reach its target on digital self-service. It remains unclear what further measures will be introduced to achieve this target, other than the proposed use of AI. To meet its target on outbound post, HMRC will need to put in place a robust and user-friendly alternative system, and to cater for agents, otherwise HMRC will merely have reduced its own costs at the expense of a poorer service to taxpayers.” 

“Finally, the question of what will happen to inbound post remains, and the need to provide taxpayers and agents with the confidence that their information has been received and logged promptly by HMRC and that it is being acted upon. We should have a better idea of the proposed developments when HMRC publishes its digital transformation roadmap.” 

In a recent report, Parliament’s Public Accounts Committee said that HMRC’s reliance on its legacy IT systems was restricting its use and development of AI. The spending review allocates additional funds of £1.6bn for HMRC to modernise and reform its IT and data infrastructure.  

Efficiencies and savings 

The government says that HMRC has committed to delivering savings and efficiencies of at least 5% over the Spending Review 2025 period. 

A separate document published alongside the Spending Review 2025 explains that HMRC will deliver efficiencies of £773m per year by 2028/29 in the following areas: 

• moving to digital services;
• improving and modernising its IT estate;
• continuous improvement and productivity. This includes the anticipated benefits from bringing the functions of the Valuation Office Agency within HMRC;
• restructuring its physical estate by consolidating its offices into regional centres, exiting some sites and streamlining its facilities contracts. In 2030, HMRC expects 85% of its staff to be based outside of London; and
• increasing its focus on up-stream compliance to prevent errors from being made, rather than taking action after they have been made.