The Efficiency Of National Insurance Administration

HM Revenue and Customs has taken significant steps to improve the efficiency of National Insurance administration. It has managed to reduce staff numbers substantially while avoiding any major operational failures. However, HMRC needs to demonstrate more clearly that it is providing value for money from the £350 million it spends each year and take advantage of opportunities to secure further savings. In the area of HMRC with responsibility for maintaining National Insurance records there were 1,200 staffing reductions. But HMRC does not have a clear picture of the total costs of the system and how these have changed. During the period of change there have been no significant operating failures across the system of collecting and recording National Insurance contributions. Furthermore, there are examples of significant increases in productivity in processing information. However, HMRC has not achieved all of its National Insurance performance targets. In particular, while it has improved its accuracy in processing data, in 2009-10 the Department achieved 93 per cent accuracy against its target of 97 per cent. There are a number of ways in which HMRC could improve how the system of National Insurance functions. On accuracy, HMRC needs to ensure standards of accuracy for National Insurance records are applied consistently across all operations and take account of the longer term costs and consequences of inaccuracies in processing. On efficiency, although some improvements would depend on the availability of funding for IT enhancements, considering the system in its entirety would help secure savings

In May 2010, the Government announced the formation of the Efficiency and Reform Group within the Cabinet Office. The Group brings many of the functions of a typical corporate headquarters together in one place in the centre of government. Its priorities are improving efficiency in central government, and wider reform of the way public services are provided, in order to make the spending reductions required by the 2010 Spending Review. The Group is responsible for various new initiatives which are designed to increase efficiency, make savings and improve value for money. These include renegotiating contracts with major suppliers; implementation of a centralised procurement process; a review of major government projects; and a new Property Unit. The NAO's review details various challenges that the Group faces. It is too soon for the NAO to reach a judgment on its success in improving the value for money of government overall. The review is intended to provide an objective baseline against which progress made by the Group can be assessed by the NAO and the Public Accounts Committee.

HM Revenue & Customs' PaceSetter Programme, aimed at streamlining business operations, has improved productivity through new ways of working and may have contributed to greater staff engagement. However, the National Audit Office has concluded that the Programme is not yet value for money because the extent to which efficiency has improved is not clear; and some key principles of process improvement are not yet being applied strategically across the entire organisation and embedded into the Department's core processes. PaceSetter, introduced five years ago, is designed to help HMRC change the way it works, to deliver more for less resource. The Department has pioneered the use of process improvement techniques in central government. Improvements include the redesign of claim forms and the standardisation of procedures across offices. The Department estimated that PaceSetter produced productivity improvements, with over £400 million of resource savings and £860 million of tax yield. It is not clear, however, if reported savings represent overall efficiency improvements, in part because of the limited evidence on overall trends in business performance. The PaceSetter Programme has had a small positive impact on staff engagement but overall it is still low. HMRC does not have a full understanding of the costs of PaceSetter. The Department decided to monitor only certain of the costs excluding the salary costs of its own PaceSetter experts. NAO analysis shows a more complete assessment of costs brings the total spent on PaceSetter from £55 million to at least £115 million between 2005-06 and 2010-11.To maximise the benefits of PaceSetter, the Department needs to use the Programme to help it streamline its business operations in a more strategic way.

In Autumn 2009, HMRC reported it had achieved savings of some £300 million. The NAO examined reported savings in staffing, estates, IT and procurement which totalled £288 million a year, some 90 per cent of the reported total savings. The NAO rated 42 per cent (£121 million) as sustainable savings (green), 45 per cent (£129 million) as savings but with some uncertainty (amber) and 13 per cent (£38 million) as overstated (red). This report accompanies the broader NAO progress report on VFM savings (HC 291, 9780102965391)

HM Revenue & Customs faces a significant challenge in securing a £1.6 billion reduction in running costs over the next four years, at the same time as increasing tax revenues, improving customer service and achieving reductions in welfare payments. HMRC has reported savings of some £1.4 billion since 2005. To achieve its cost reductions it plans to implement 24 change projects and other measures including savings in the provision of IT services, improvements in productivity, reduced sickness absence and headcount reductions. The size and shape of HMRC will change substantially as it reduces staff numbers by 10,000 and significantly reduces the number of offices it operates. HMRC has established a clear vision and specified operational priorities and revenue targets. It has not yet sufficiently defined the business performance and customer service it intends to achieve by 2015. It has good information on the different costs it incurs but only limited information on the cost of its end-to-end processes and on the cost of servicing different customers groups. It also has a limited understanding of the link between the cost and value of its activities. This has restricted its ability to assess fully the impact of cost reductions on business performance. HMRC has made no allowance in its cost reduction plans for under-delivery or slippage, and currently has no reserve of proposals on which to draw. HMRC has begun to implement its cost reduction plans but has not yet assessed all the dependencies between projects and the critical path for delivery.

Dated May 2007