INTRODUCTION
AND
LIST
OF
CONCLUSIONS
AND
RECOMMENDATIONS
1. The Government is committed to making the United
Kingdom the best place for doing e-business, and has set a target
that all its services should be available electronically by 2005.
The Inland Revenue is at the forefront of the development of e-services
in the public sector, and aims to open up the opportunity for
taxpayers and businesses to communicate and resolve their tax
affairs electronically.
2. On the basis of the Report by the Comptroller
and Auditor General,[1]
we looked at the Inland Revenue's progress in introducing e-services,
the need to manage development and implementation risks, and cost-effectiveness.
3. In the light of this examination, the Committee
draws three overall conclusions.
- The Inland Revenue plans to have all its services
available electronically by 2005, but is unlikely to achieve its
target of 50 per cent take-up. Some factors are outside the Inland
Revenue's control, such as access to the internet or digital TV.
To promote a significant improvement in take-up the department
will need to develop easier to use e-services that offer greater
incentives for taxpayers to switch from existing paper-based systems.
Users will also need to be confident that its e-services are fully
secure.
- Innovation in introducing e-services involves
identifying and taking managed risks, and some teething problems
are to be expected. But systems that do not work well initially,
or are insecure, sap public confidence and this takes time to
rebuild. The Inland Revenue needs to pilot and test new systems
more systematically, to minimise the types of teething problems
experienced on the self assessment internet service. It also needs
to tackle the backlog of evaluations of systems already introduced
to ensure that lessons are identified, learned and disseminated.
- In the drive to meet the 2005 target, the Department
should not compromise on the need to develop rigorous business
cases for each service and for the overall e-strategy. These will
enable the Inland Revenue to identify the relative costs and benefits
for options for delivery, to see how benefits can best be delivered,
to identify and manage the risks, and to monitor delivery of benefits
and savings.
4. Our more specific conclusions and recommendations
are as follows.
(i) The Inland Revenue's target of a 50
per cent take up of its e-services is ambitious, but does not
take into account the likelihood that the speed of take-up will
vary across different services. The department should complete
its work with the Treasury in setting more specific take-up targets
for each e-service.
(ii) The Inland Revenue's internet service
for self assessment was developed quickly in order to meet the
Chancellor of the Exchequer's commitment that it would be available
in April 2000. Take-up has fallen well short of expectations,
partly because teething problems made it difficult for interested
taxpayers to use the system, and potential users lacked confidence
in it. The Inland Revenue should make time for controlled piloting
before implementing e-systems.
(iii) Currently the internet service for
self-assessment offers insufficient added value to encourage taxpayers
to use it instead of the paper based system. Further enhancements
are planned in 2002, for example context sensitive help and an
online calculator, but it will be some time before users can access
their tax records. The Inland Revenue should develop new systems
in closer consultation with users, so that their needs and aspirations
can be taken into account.
(iv) Experience to date suggests that some
customer groups, such as people living outside London and the
South East of England, retirement pensioners and the disabled
are less likely to use e-services. The Inland Revenue should develop
a strategy to improve access to e-services and encourage take
up for these customer groups.
(v) The Inland Revenue do not know why take-up
of the internet service for self-assessment by agents representing
some 4 million taxpayers has also been slow. The Departments should
maintain close contact with users so that it understands the barriers
to take-up and can respond to them. The new Customer Relationship
Management system, which the Inland Revenue plans to buy this
summer, should provide better tools and management information
to help the department do so.
(vi) There is a wide range of risks to the
successful implementation of e-services. In addition to poor quality
service and the lack of added value, concerns about system security
over each taxpayer's data could reduce user confidence. The Inland
Revenue's investigation into recent security weakness in the internet
service for self-assessment will need to address issues of public
confidence, as well as the technical problems.
(vii) The Inland Revenue has introduced
arrangements to manage the failures that have affected other public
sector IT projects. Yet the department had still not completed
formal evaluations for 13 of the products delivered since June
2001. It should complete these as soon as possible and disseminate
the lessons.
(viii) The Inland Revenue expects to spend
£200 million on its e-strategy by March 2004, but does not
have a full grip of the costs or potential savings for each e-service
or for its overall e-strategy. The department should prepare rigorous
business cases for all future e-services, in order to identify
the key costs and benefits involved, system-specific estimates
and targets for take-up, and action plans for delivering benefits
and cost savings.
PROGRESS
IN
INTRODUCING
E
-SERVICES
Progress so far
5. The Government is committed to making the United
Kingdom the best place for doing e-business, and has set a target
that all its services should be available electronically by 2005.
At November 2001 just over half of the 520 services which Government
departments routinely provide to citizens and business were available
on-line, although very few transaction-based services were available.[2]
6. The Inland Revenue is committed to meeting this
target,[3] and is at the
forefront of the development of e-services in the public sector.[4]
Some 40 per cent of the Inland Revenue's e-services are electronic
and the department is on course for half of its services to be
on-line by the end of 2002 and all services to be available electronically
by 2005.[5]
7. Early Inland Revenue projects have focused on
providing electronic versions of those services with a large customer
base. There are also a number of projects to transform the way
services are delivered so that the public can file their tax returns,
access their data, make payments and communicate with the department
electronically. The Inland Revenue is one of the first Government
departments to provide transaction-based services, for example
being able to submit tax returns electronically and to pay any
outstanding amounts over the internet.[6]
8. As the e-Envoy told us recently, there is no point
having services on-line which people do not use.[7]
The Inland Revenue has a target to achieve a 50 per cent take
up of its e-services by the end of 2005, but performance has been
disappointing. The target may be achieved for some customer groups,
such as large businesses, but is unlikely to be met overall. The
Inland Revenue considers that because the target was set at an
early stage of the programme to cover all e-services, it was too
crude and undefined. The department is now working with the Treasury
to set evidence-based, realistic targets for each customer group.[8]
9. We examined progress for three key groups:
- Self Assessment taxpayers who file their own
returns.
- Self Assessment taxpayers who rely on agents
or accountants to file a return on their behalf.
- Businesses and other organisations that regularly
submit Pay As You Earn tax data on behalf of their employees.
(a) Self Assessment taxpayers who file their
own returns
10. There are 9 million taxpayers covered by self-assessment,
of which 5 million submit their own returns. In July 2000 the
Inland Revenue offered this group the opportunity to complete
and send tax returns electronically via the internet.[9]
The service can be found at the Inland Revenue's website at http://www.inlandrevenue.gov.uk
11. The department estimated that up to 315,000 people
were likely to use the e-service in the first year (2000-01).
To encourage initial take-up, the Inland Revenue offered taxpayers
a financial incentive of a £10 discount if they filed their
return and paid any outstanding amounts electronically in 2000-01.
Although 119,000 people registered to use the system, only 39,000
taxpayers used it, and of those 31,000 qualified for the discount.
Despite a 94 per cent increase in 2001-02, take-up remains a long
way behind even the revised milestones that the Inland Revenue
need to meet to achieve 50 per cent take up (Figure 1).[10]
12. Among the key factors behind this low take-up
were teething problems in users gaining access. On average nearly
four out of five attempts to submit tax forms electronically were
unsuccessful. The service was not perfect when it was introduced,
but the Inland Revenue considers that many of the initial problems
were caused by minor keying errors. Some taxpayers found it difficult
to register because they did not know their tax number, and Mac
users were unable to use the service. Others pressed the submit
key repeatedly.[11] The
Inland Revenue did not consider that these teething problems merited
withdrawing the system, although they would do so if an unacceptably
high number of users found the system was incapable of doing what
it set out to do.[12]
Many of the problems have been remedied and 4 out of 5 attempts
to submit are now successful.[13]
13. Although take-up has been lower that planned,
the Inland Revenue's progress is not dissimilar to experience
in the private sector and in some public bodies overseas. For
example, First Direct and Abbey National expect take-up of their
e-services to grow by around 20 per cent up to 2005, while the
California Franchise Tax Board in the United States of America
has taken six years for its electronic tax return service to achieve
a 21 per cent take up.[14]
(b) Self Assessment taxpayers who rely on agents
or accountants to file a return on their behalf
14. The remaining 4 million taxpayers covered by
self assessment rely on accountants and other tax agents to file
their returns on their behalf. The Electronic Lodgement Service,
introduced in 1997 enables these agents to file returns using
an electronic data interchange. There is also an internet service
available from the department's web site.[15]
15. Here too, take up has been disappointing. Only
3,000 agents, representing 340,000 taxpayers used the Electronic
Lodgement Service in 2001-02 and only 1,194 agents used the internet
service. The Inland Revenue could not tells us why take-up was
so slow, despite the benefits of filing returns in the cheapest,
fastest and most economical way, but they plan to continue to
work closely with tax agents to encourage them to e-file.[16]
(c) Business and other organisations that
regularly submit Pay As You Earn tax data on behalf of their employees
16. The Inland Revenue communicates with more than
one million employers to administer the Pay As You Earn tax system.
Each month the employers send the department tax details for some
22 million employees.[17]
The launch of an electronic data interchange system in October
1997 enables the secure transfer of large amounts of data from
an employer's computer system direct to the Inland Revenue's computer
system.
17. Business interest in the electronic data interchange
service for PAYE tax has been promising. Some 660 organisations
contacted the Inland Revenue to inquire about this new service
and 49 are using it. The participating organisations represent
over 5,000 payroll schemes involving some 6 million employees.[18]
In response to the Carter Review, published in November 2001,
there will be a three stage move towards universal electronic
filing of employer returns, with incentive payments to assist
and encourage smaller employers to make greater use of IT.[19]
THE
SCOPE
FOR
IMPROVED
TAKE-UP
18. Progress in improving take up of e-services will
require further analysis of public attitudes and the perceived
barriers that deter people from opting to use the services. As
the e-Envoy recently told us, it is crucial that a department,
in delivering its services, understands the people to whom it
is delivering those services and responds to their needs.[20]
19. There is a range of factors that might discourage
people and businesses from using the Inland Revenue's transaction
based e-services. Our examination of NHS Direct found that some
groups, such as younger people, people over 65, ethnic minorities,
less advantaged social groups and people with disabilities are
less likely to use that e-service.[21]
And the profile for those self assessment taxpayers filing their
returns electronically tends towards white males living in London
or Southern England (Figure 2).[22]
20. The Inland Revenue promises further improvements
in take-up, by:
- Increasing, for self assessment taxpayers, the
extent to which electronic forms are pre-populated with personal
data - the tax reference number, the taxpayer's address and possibly
earning data from last year. There will also be page by page error
checking and an on-line calculator to help and to communicate
with the department by e-mail. However, the real benefit to taxpayers
will come when the Inland Revenue is able give taxpayers access
to their "tax account", to show what information they
already have on taxes collected and invite the user simply to
confirm the amounts are complete and accurate. The Inland Revenue
expect this will be possible by 2005.[23]
- Rolling out, for businesses, a Corporation Tax
portal to enable each organisation to see what payments they have
made and tax liabilities remaining.[24]
- Buying a Customer Relationship Management system
in Summer 2002, which should provide better tools and management
information to support customers.[25]
The department's approach is to target each taxpayer group according
to their needs and aspirations, and to tailor services accordingly.[26]
21. Developing contacts and approaches with a range
of intermediaries, such as Citizens Advice Bureau and in future
supermarkets to help people to use its e-services.[27]
22. As regards the case for and quantum of any future
incentives to encourage take-up, however, the Inland Revenue takes
the view that this is a policy decision for Ministers.[28]
MANAGING
THE
RISKS
OF
DEVELOPING
AND
IMPLEMENTING
E
-SERVICES
23. The Inland Revenue's e-strategy (July 2001) sets
out a challenging programme of work between 2001 and 2005 (Figure
3). Success rests largely on how the department manages the associated
risks, some of which are outside their direct control (Figure
4).[29]
Figure 3: e-Service projects
Inland Revenue has a range of future projects
to improve its e-services. This list illustrates the key projects
planned and the year they should be available to customers.
