HM Revenue & Customs is not allowing any cash to be spent on “routine improvements” to its IT systems, according to a report by the National Audit Office.

The lack of technology funding for the entire financial year, as part of a clampdown on general spending, could cause serious problems in achieving efficiency targets set by Spending Reviews and coping with future growth in data, the NAO said in a report focusing on National Insurance processing. The only funding available was aimed at supporting legislative changes.

As CIO 100 ranked HMRC reduced its Natinoal Insurance staff numbers by between 16 and 31 per cent in each main operating unit, it was dependent on better IT and processes to operate successfully. But the lack of funding available is in part “constraining" crucial operational changes, the NAO noted.

Funding for new large IT schemes was also much “more stringent” and was somewhat holding back the “significant amount” of improvements HMRC would like to make, particularly in order to make better use of the reduced staff.

HMRC missed a key target of delivering 97 per cent accuracy in National Insurance data processing, reaching a score of 93 per cent.

Cutting some costs left “consequences” in the long term interests of having accurate records, the NAO warned, advising HMRC to target consistency across all its data. Twelve long-standing data issues remain, in particular concerning data mismatches between HMRC and the Department for Work and Pensions, which could affect people’s future pension and benefit requirements.

HMRC needed to consider how individual administrative procedures “might undergo a more fundamental change over the longer term”, the report stated, including through more automation and the reduction of paper-forms, in order to achieve optimum efficiency.

The NAO warned that a number of IT steps needed to be taken to avoid a “major” negative impact on the future management of National Insurance in particular. The first was to prepare for the inevitable growth of the relevant HMRC database, second to make clear statements on the accuracy of data required, thirdly to move to fully automated processing systems and online tax returns only, and fourthly to prepare to allocate more funding.

Amyas Morse, head of the NAO, said that staff cuts so far nevertheless demonstrated “how reforming processes can deliver savings for the taxpayer”. Using Lean management, under an “innovative” initiative called PaceSetter, there had been some success in improving productivity.

A year ago, the Public Accounts Committee lambasted HM Revenue & Customs for its inability to create an affordable system with a single view on each taxpayer. The system under consideration would have cost a quarter of a billion pounds.

Last November, HMRC switched off 19 systems in order to test changes to its pay as you earn system, stamp duty, VAT online and individual self-assessment.