COMMONS

Government must learn from catastrophic failure of tax credits contract

06 April 2017

The Public Accounts Committee report says that problems with the tax credits renewals process which caused hardship and distress for claimants were entirely predictable.

"Unnecessary hardship and suffering"

In the report the Committee concludes that while neither HM Revenue & Customs (HMRC) nor its contractor Concentrix is prepared to take full responsibility for mismanaging the process, it is beyond doubt "that between them they provided a totally inadequate service to claimants".

The Committee highlighted the "unnecessary hardship and suffering" faced by claimants in its report on HMRC's performance in 2015–16 and urged the authority to identify quickly and act on lessons learned.

This report, which describes the contract as a catastrophic failure, examines concerns arising in more detail.

Chair's comment

Meg Hillier MP, Chair of the PAC, said:

"The dreadful human consequences of this contract are well-documented but the story does not end with its termination.

Having taken the work contracted to Concentrix in-house, it is critical that HMRC now delivers for tax credit claimants.

HMRC is undergoing significant change and, as our Committee has previously documented, in recent years experienced a disastrous decline in its own customer service.

This must not be repeated as HMRC faces the challenge of providing an improved and consistent service for people claiming tax credits.

It must also put right the damage done. That means fully reinstating the awards of all claimants who wrongly lost their tax credits and ensuring they are properly compensated for any impact on their entitlement to other benefits.

But there are broader lessons too. HMRC was woefully ill-equipped to design this contract.

Clearly it placed too little importance on customer service. But it was also driven by an inappropriate payment-by-results model, was renegotiated on terms less favourable to the taxpayer, and ultimately achieved less than a fifth of the savings expected.

This lack of commercial expertise in a critical decision-making function of Government is sadly familiar to our Committee.

HMRC does not plan to involve the private sector in this area of work again but it must demonstrate it has the capability to prevent a similarly dismal performance in any future contracts."

Report summary

HM Revenue & Customs contracted with Concentrix in May 2014 to provide additional support to check for error and fraud in tax credits claims.

Neither HMRC nor Concentrix are prepared to take full responsibility for the catastrophic failure of this contract. Both parties have different views as to the causes of the failure and look to blame each other.

What is beyond doubt, however, is that between them they provided a totally inadequate service to claimants. Many claimants were confused by the communications they received and were unable to get answers from Concentrix to their letters or calls.

Despite claimants facing these problems, during the 2016 renewals process, HMRC chose to suspend 45,000 awards. This caused unnecessary hardship and distress and HMRC later reinstated some 30,000 awards to which people had been entitled.

HMRC lacked commercial capability  

HMRC lacked the commercial capability to design the contract effectively, agreeing to nearly triple the commission paid to Concentrix even though the service was so poor.

HMRC now accepts that the payment-by-results mechanism used in this contract was wholly wrong for this type of service.

It does not intend to involve the private sector to conduct tax credits error and fraud checks in the future. 

Further information

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