Along with the 2021 Budget, on 27 October the Chancellor will unveil details of a three-year Spending Review, setting UK government departments’ resource and capital budgets for 2022-23 to 2024-25.
Ahead of the announcements, ICAEW Insights spoke with Justin Holliday, Chief Finance Officer at HMRC, to find out what the main challenges are for a finance director in central government, what lessons the tax department has learned from the pandemic and what role HMRC’s finance team plays in implementing structural change to the tax system.
How does HMRC go about making bids for money under the Spending Review (SR)?
Our starting point for the SR is HMRC’s strategy. We’ve set out a clear 10-year strategy for building a trusted, modern tax administration system that is more flexible, resilient and responsive. It’s about helping people to get their tax right first time, making it harder to bend or break the rules and providing more targeted support in the face of future national crises like COVID. While it is evolving and iterating, it provides us with a destination and clear waypoints on the journey. Every aspect of our bid therefore stems from what we need to do to achieve that strategy and its accompanying strategic outcomes. Even our “core” bid, the money required just to run the department, is considered in the light of this strategy, taking account of things like changing workforce plans, the advance of automation, the changing role of HMRC and taxation in society.
All aspects of the SR are based on evidence and analysis. This means starting from strategy, reviewing ideas, assessing their worth, joining up bids, refining them, looking in increasing detail at design, then getting into extensive impacts on customers, the environment, policy, economy, wider government priorities and, of course, our own strategic intent. There is extensive evaluation and assurance of figures and rationale before any final set of bids discussed with Ministers and Treasury colleagues are finally submitted and subjected to further testing and validation. It’s a stringent process and reassuring given the usage of public funds.
There seems to be greater focus on a wider range of outcomes across government these days. How does this translate in HMRC?
There is an increased focus on a wider range of outcomes – so not just on the financial outcomes but on how the outcomes impact customers or staff or green issues or the tax gap etc. What steps are finance teams taking to try and give a full picture of HMRC activity – not just the finance numbers but on a wider set of KPIs?
In HMRC we’ve always measured and evaluated such things as how many calls we answer, and how quickly; levels of tax debt and the pace at which we are managing it down. These things are, and will remain, critically important but we are also starting to incorporate and look at a wider variety of measures aimed at maximising value and improving outcomes for our citizens, and our own analysis on how to create a healthy tax administration system. For example, we are increasingly looking at how easy it is to pay the right tax as measured by customer satisfaction, customer costs and HMRC costs; as well as to what extent the tax system is demonstrably fair and perceived as such, as measured by independent surveys of customer trust and public opinion.
With these in mind, and with the introduction of our new Strategic Objectives this year to support our vision of a trusted, modern tax and customs department, we have taken the opportunity to refresh our Performance Framework, increasing the focus on outcomes rather than outputs, encouraging greater cross-departmental thinking, and integrating and embedding customer experience more comprehensively.
What are the lessons learned/best practice for financial teams following COVID and Brexit?
We’re really proud that we were able to keep the tax system running whilst also providing vital financial and economic support to millions of individuals and business. Our payments function was at the heart of HMRC’s COVID response, funding and making the government’s support scheme payments at the same time as handling its usual workload of payments received from and made to HMRC’s customers and helping customers with payment enquiries.
Our priorities were to support our customers and our own colleagues – and we achieved both by rapidly giving our workforce IT and home-working kit and advice so they could keep our services running while looking after each other with real camaraderie and digitising the few remaining paper-based processes in payments so these could be operated remotely. From case-working to large-scale change programme design and delivery, we adapted a whole range of our activities. We are stronger and more robust as a result, having tested the resilience of our business and the ability of people to adapt and innovate, even in circumstances as worrying for many of them as for so many others up and down the country.
There are fundamental structural changes proposed to the tax system – such as change of basis periods, Making Tax Digital, change of tax year end, etc. What is the role of the finance teams in HMRC in supporting the implementation of such massive changes?
We ensure full integration into each change programme, with dedicated finance resources. We adopt a collaborative approach, working with the programme director to ensure timely delivery and value for money, working with and supporting commercial, legal, Treasury, and Cabinet Office, through the programme lifecycle. Part of the process is also about stress-testing and challenging the costs, benefits and deliverability of each programme.
There is an increased focus by Treasury on better balance sheet management. What do you think will be the impact of this increased focus on HMRC?
Effective balance sheet management means a focus on quality information and improved visibility of departmental assets and liabilities. Our major balance sheet entry is debt, and we have, hopefully unsurprisingly, always focussed on that – bringing in the money is the key job. The wider focus on the balance sheet is helping to ensure that we do look right across all of our assets and liabilities, which is a helpful prompt and will lead to better decision-making.
The HMRC financial statements for 2019/20 are 332 pages long. Who are the primary users of these accounts?
The primary user is Parliament. We must lay the accounts in Parliament, and they are scrutinised by the Public Accounts Committee. MPs take an interest, and we get a lot of questions from them. They do pack in a lot of information, including a long form report from the National Audit Office, and we think of them as being an important record for the future. More broadly the financial press, tax agents and intermediaries, tax advisors, think tanks, and a wide range of other interested parties use the information we provide to help shape their thinking on all matters tax related. And, of course, the Annual Report is publicly available, and offered as a free and extensive source of information for any interested member of the public.
What are the main challenges for a finance director in central government going forwards?
The mantra of the government Finance Function is that finance should be at the heart of decision-making and that’s why I enjoy finance roles. A major element of that is built around really understanding in detail the business that you serve and being able to describe business performance to line management, helping government to make good decisions in managing public services. So, the challenges are those faced by any finance directors: having the right measures and right insight and then presenting and explaining them well. There is so much to do but funding is tight. Finance has a critical job directing the money we do have to where it is needed and to ensure that projects and day-to-day activities are spending money well.
What’s been the greatest challenge for finance teams in 2021?
In 2021 we delivered all the usual finance work as well as key projects and additional programmes in a period of challenging financial circumstances – with the significant added complications of COVID. Our finance teams have played a central role in designing and delivering the COVID support schemes, with enormous flows of money into and out of HMRC needing to be controlled securely. Like so many others across the country, when the UK went into lockdown last year, we had to bring entirely new ways of working up to speed very rapidly without dropping any balls. This has actually worked well overall, and we will be retaining many of the benefits of increased connectivity and digitisation as we move back to more hybrid ways of working.
What are your priorities for 2022?
Leading through example to a hybrid way of working, making sure that we learn well from the different ways of working we have found over the last 18 months, helping finance colleagues support the delivery of HMRC’s ambition and encouraging colleagues to be kind to themselves and each other.
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