Last week Chancellor Rachel Reeves delivered the 2025 Spending Review in Parliament which saw HMRC awarded an additional £0.5 billion in 2026/27 to make it a digital first organisation. The Spending Review sets planned spending totals for all UK Government departments from 2026/27 to 2028/29 inclusive in addition to investment spending plans until 2029/30. Although there were no specific tax announcements in the Spending Review, speculation now continues that there will be further tax rises in the Autumn Budget later this year given the spending and investment plans set out.
The Institute for Fiscal Studies has now published a podcast setting out its analysis of the review whilst the Federation of Small Businesses says that the review lacked business focus. The House of Commons Treasury Committee subsequently announced an inquiry into the review.
HMRC settlement
The settlement includes additional funds of £0.5 billion in 2026/27 to “make HMRC a digital-first organisation”. This will be used to improve digital services and enable the use of AI to both assist taxpayers and improve productivity within HMRC.
Over the next three years, HMRC’s settlement is as follows:
- 2026/27: £7.3 billion, an increase from 2025/26 of £0.5 billion,
- 2027/28: £7.1billion, and
- 2028/29: £6.9 billion.
By 2029/30:
- 90 percent of taxpayer interactions will be digital self-serve, up from the current 70 percent; and
- HMRC will have reduced the number of letters it sends by 75 percent.
HMRC will “eliminate all outbound post, with limited exceptions such as letters which generate revenue”. However, it “will continue to ensure alternative channels, including phonelines, are still there for those who need them”.
The Institute looks forward to discussing how HMRC will achieve these very ambitious targets, including how inbound post will be treated, whilst also improving its current service levels as the taxpayer self-assessment population continues to grow because of fiscal drag.
More information on this is expected to be available in the coming weeks when HMRC publishes its Digital Transformation Roadmap which was delayed from the spring pending the outcome of phase two of the 2025 Spending Review.
The move to use more AI is interesting given recent comments by the Public Accounts Committee which said in a recent report that HMRC’s reliance on its legacy IT systems was restricting its use and development of AI.
HMRC’s settlement also aims to enable the department to deliver the package of measures announced previously to close the tax gap including modernising HMRC’s use of data and recruiting an additional 5,500 compliance staff and 2,400 debt management staff.
Alongside the main Spending Review publications, HM Treasury also published ‘Spending Review 2025: Departmental Efficiency Plans’ which explains how different departments will deliver efficiencies. According to this, HMRC will deliver efficiencies of £773 million per year by 2028/29 in the following areas:
- moving to digital services,
- improving and modernising its IT estate,
- continuous improvement and productivity which includes anticipated benefits from bringing the functions of the Valuation Office Agency within HMRC,
- restructuring its physical estate by consolidating offices into regional centres, exiting some sites and streamlining facilities contracts. By 2030, HMRC is aiming to have 85 percent of staff based outside London, and
- increasing focus on up-stream compliance to prevent errors from being made, rather than taking action after.
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