Saturday, 4 September 2010

The flaws in the tax system and the falsehoods of the cuts agenda

HM Revenue & Customs have revealed that their new computer system has identified discrepancies in nearly 6 million tax records. At the same time, the revelation adds to the case that, if the government genuinely wants to reduce the deficit, it is aiming in entirely the wrong direction.

According to BBC News, 4.3 million people have overpaid tax and are due a rebate, whilst a further 1.4 million have underpaid at an average of £1,500 each.

Considering that there are around 30 million taxpayers in Britain, this is actually a relatively low margin of error. Moreover, it is one caused by the change in peoples' working patterns and the routine of modern life rather than an explicit error.

As the BBC explains;
Discrepancies arise when the amounts deducted in tax and National Insurance by employers using the PAYE (Pay as You Earn) system do not match the information held on HMRC records.

This most often occurs when individuals change jobs, have more than one job at the same time, or because employers are using the wrong tax code.
Obviously, this is occuring more often now with the casualisation of labour, employment becoming less permanent or long-term, and more people having to take multiple jobs in order to survive. It is, quite simply, becoming harder to keep a roof over our heads or remain in stable employment.

As a result, "the new computer system was introduced by HMRC in 2009 to cope with changing working patterns."

A blog for computer weekly, from January, explains the changes;
Disparate tax records on the old Fujitsu-based COP [Computerization of PAYE] mainframes have been brought together on the more modern Accenture/Capgemini National Insurance Recording System (NIRS2), based at Newcastle.

Since NIRS2 holds one record on every individual in the UK, information on various employments can reside in that file.
So, for the first time, HMRC's tax officers are able to see at a glance when a person has more than one employer.
As such, the discovery of these discrepancies should be the first step towards perfecting the PAYE system and avoiding such errors and over/underpayments in the future.

But the new system was dogged by errors from the start.

Computer Weekly cites the Chartered Institute of Taxation, who tell us that "HMRC is issuing around 25 million tax coding notices this year, double the number issued last year." Which would be fine, except that "a significant proportion of these are wrong."

A month later, the BBC received word from anonymous Revenue employees on the reason for this;
Frontline Revenue staff who use the new system have told BBC Radio 4's Money Box programme how bad the problems are.

They said that the computer cannot be relied upon to generate the correct tax codes in numerous cases.

One employee - who spoke on condition of anonymity - said the situation is getting worse

"When it first started, we were all getting terribly frustrated with the new system, and we didn't know if it was us or it that was the problem," she said.

"But as it's gone on and on it's evident it's the system.

"We're waiting to see if things are put right in April.

"But none of us believe that they will be, because we've heard it all before."

Pensioners could over-pay

Another Revenue worker who deals with customer problems said more than half a million people who started claiming their state pension this tax year could automatically have too much tax deducted from their income, next tax year.

The system assumes the pension was paid for a whole tax year, rather than for part of one.

It then concludes that not enough tax has been taken, and collects it by reducing the tax code in 2010/11.

The Revenue said it has now fixed this problem and corrected affected records. However many people will have already received an incorrect tax code.

Marriage allowance at risk

The employee also said that married couples and civil partners aged 75 or more - who can still get a married couple's allowance - may find it dropped from their tax code.

"If our computer doesn't have their partner's name or national insurance number, as soon as it recodes for next year, it's taking the marriage allowance out.

"We've then got to write to these people to ask for their partner's name and national insurance number." 
In 2008, the National Audit Office predicted (PDF) that "MPPC" - the "Modernisation of PAYE Processes for Customers" - would cost £140m up to 2011, and deliver £93m savings over that period.

But the value of the savings may be exaggerated, given the volume of work that the new system has generated. It is, after all, the staff within HMRC who will be finding and issuing the over and underpayments of tax. All that the system itself can do is generate work items.

As John Stokdyk of Accounting Web notes (via the delightfully-named HMRC is Shite);
The capability to reconcile many of these discrepancies within the new system was not available until the third phase of the project in April 2010, which meant that more than 7m over- and underpayments were unreconciled when it came to run the 2010-11 annual coding exercise. These records will now be processed from August 2010, although it is not yet clear how many cases will clear automatically and how many will be left for manual working.

When the new system encountered an employee that it could not match to existing employment data, it automatically generated a new, erroneous employment record. So many new items were appearing that when HMRC processed 2008-09 data on the system, it exceeded its 12.5m capacity for open items. The 7m work items arising from 2008-09 returns had to be removed from the workflow queue rescheduled for processing in August 2010.
Thus, whilst the likes of Tim Worstall might presume that "if you’ve just automated some function you simply do not need as many people as you used to," the reality here is quite different.

He is delighted that the government can sack Revenue employees, allowing them to "go off and do something else" as he puts it. But whilst they join an ever-growing dole queue created by austerity measures, the tax affairs of those still working become ever more fucked up.

If there is a drain on resources in HMRC, then surely it senior management. They have fostered a low morale which saw HMRC score lowest of all government departments on the 2010 civil service People Engagement Survey (PDF).

As the 2009 Capability Re-Review noted;
Current efforts by the senior leadership team to tackle poor staff engagement and improve visibility and communications are not working and this is affecting the productivity of staff. HMRC has a very high rate of sickness absence.
The result is not only a decline in the health and performance in the staff, but also in the service offered to taxpayers. Since it is the staff, if anybody, who will be sorting out the records of the 6m people not paying enough tax, this doesn't bode well at all.

The sensible alternative to this mess, and the dogma of "cuts, cuts, cuts" which has brought us to this point, is to make sure that there are enough staff to get things right first time.

This would help to put the tax system right, ensuring in the future that several million people aren't faced with a tax bill they can ill afford. But it would also mean that the deficit could be addressed without having to attack the working class with job, public service, and benefit cuts.


But we should be under no illusion that we can argue for such a situation using reason alone. The government's agenda is driven not just by a desire to reduce the deficit, but by an ideological need to make the working class pay for the crisis of the rich.
That is why the PCS union are leading the fight for tax justice, lobbying and campaigning for the closure of the tax gap over the closure of tax offices. It is a laudable aim, which in the short term could help countless working class people cling onto their livelihoods, and keep a roof over their heads and food on their table.

At the same time, we need to be sure that we don't lose sight of the long term. Ultimately, there is no such thing as "fair" capitalism. As long as the working class are under the heel of the state and capitalism, the welfare state is our only (weak) protection and the threat of its removal will be ever-present.

Lobbying, petitions, and campaigns such as the one for tax justice need to be the beginning of our fightback, not the end. Ultimately, our only real defence will be in direct action.