Sir Jim Harra, the head of HM Revenue and Customs (HMRC), attributed the agency’s declining customer service to an increase in inquiries from pensioners now subject to income tax. During a session with the Public Accounts Committee (PAC), he highlighted the challenges posed by frozen tax thresholds and a significant number of state pensioners encountering tax liabilities for the first time.
Increased Tax Liabilities Straining HMRC Services
Sir Jim explained that while the state pension has always been taxable, the combination of frozen tax allowances and the government’s triple lock policy has led to a growing number of pensioners whose total income exceeds the tax-free allowance of £12,570. He noted that the upcoming increase in the state pension by 4.1% in April 2025 is projected to add approximately 350,000 new taxpayers.
This influx of inquiries has created “upward pressure” on HMRC’s services, contributing to customer service levels falling short of expectations. Sir Jim remarked, “That is one of the reasons why our customer service levels have been below where we want them to be.”
Further exacerbating the problem was the decision to keep income tax thresholds frozen until 2030, bringing more pensioners into taxable income brackets. Former Prime Minister Rishi Sunak referred to this situation as “Labour’s pension tax”.
HMRC usually collects tax from pensioners with additional sources of income via tax codes. Otherwise, the agency uses simple assessment methods, often resulting in unexpected tax bills for new taxpayers.
How HMRC is Addressing Pensioner Confusion
Sir Jim acknowledged the potential for confusion among first-time taxpayers, emphasizing that many pensioners are surprised by their tax liabilities. As more individuals enter the tax system, the need for assistance increases, leading to what he termed “frictional contact” with HMRC.
Despite criticisms from the PAC regarding HMRC’s persistent failure to meet customer service targets, Sir Jim expressed optimism about improvements following government investment, which includes the hiring of 5,000 additional compliance staff.
Technology and Customer Experience
HMRC’s practice of automatically disconnecting calls after 70 minutes on hold has also raised concerns among MPs. Overall, last year, over 55,000 taxpayers were disconnected after long waits. Myrtle Lloyd, HMRC’s Managing Director of Customer Services, explained that this time limit was a technological necessity to maintain system performance during peak periods.
However, Labour MP Lloyd Hatton criticized the practice, suggesting that it gave a poor impression of customer care. In response, Ms Lloyd said the agency would consider introducing a warning system for callers approaching the cut-off time.
In addition to its commitment to improving customer service, HMRC continues to promote a digital-first strategy, encouraging taxpayers to use online services wherever possible.
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