HMRC Accounts 2016-17 & Universal Credits Slow Progress

HMRC raised £574.9 billion of tax revenues this year1, an increase of £38.1 billion (7.1%) on 2015-16 and paid out £39.1 billion in benefits and credits (approximately one-fifth of the government's total benefit expenditure). The taxes that contributed to most of this increase were Income Tax and National Insurance Contributions which together increased by £14.9 billion (5.3%); Corporation Tax which increased by £5.6 billion (12.3%); and VAT which increased by £8.4 billion (7.2%). The annual cost of running HMRC was £3.3 billion in 2016-17.

HMRC’s estimated increase in error and fraud within Tax Credits is contrary to the significant reductions achieved in previous years, and the rate is expected to increase further. HMRC analysis shows that during 2015-16 the increase in estimated error and fraud was associated with the income, work and hours, childcare and undeclared partner risk categories. HMRC also expects the level of error and fraud to increase when reported for 2016-17, due to the impact of introducing the “Commercial with a view to a profit” self-employed test as well as the impact of the ending of the Concentrix contract.

HMRC will face further challenges in administering Tax Credits as claimants transfer to Universal Credit. Some 95,000 claimants have transferred to Universal Credit (62,000 in 2016-17), with a further 220,000 expected to transition in 2017/18. Full transition and migration of claimants to Universal Credit is not expected to be completed until 2022. Due to the long timeframe for the transition of Tax Credits claimants to Universal Credit, and relatively small numbers of cases transitioned so far, it is too early to conclude on HMRC’s performance in meeting the challenges this transition presents.

The 2016-17 estimate of error and fraud overpayments of 1.0% (£110m) of total spending on Child Benefit is a reduction from previous years (1.4% (£170m) in 2015-16).  HMRC has carried out detailed analysis of the cases where claimants do not respond to contact and their award is counted as error or fraud.  This work indicates that the rate of error and fraud may be lower than estimated. HMRC has identified further interventions that it is planning to introduce both over the next twelve months and in the longer term that will seek to reduce the rate of error and fraud further.

ABC Notes on the economy from UK Public Spending

In 2005 the UK “current budget deficit” was less that £20 billion. But then came the worldwide financial crisis of 2008 and subsequent recession. The budget deficit skyrocketed to £50 billion in 2009 and £103 billion in 2010. In the subsequent recovery the deficit has slowly declined, reaching £15 billion in 2017.

In terms of Gross Domestic Product, the UK “current budget deficit” in 2005 was less than 2 percent of GDP, and declined to about 0.6 percent GDP in 2007 and 2008. In the Great Recession the deficit ballooned, to 6.9 percent of GDP in 2010. Since then the deficit has steadily declined, to less than one percent GDP in 2017.

Public spending

Total UK public spending, central government and local authority, was increasing briskly, year on year, in the mid 2000s from about £400 billion in 2005 to £700 billion in the depths of the recession of 2009. But since the end of the recession total public spending has leveled out at a little over £700 billion per year.

Viewed from a GDP perspective, total public spending was steady at about 40 percent GDP in the mid 2000s and then jumped, in the recession, to over 45 percent GDP in 2009. But in the subsequent economic recovery total government spending has stead declined as a percent of GDP down to about 41 percent GDP in 2015.