Host

Philippa Lamb

Guests

• Iain Wright, Managing Director, Reputation and Influence, ICAEW
• Ed Saltmarsh, Technical Manager, VAT and Customs, ICAEW

Producer

Natalie Chisholm

Transcript

Philippa Lamb: Hello and welcome to Accountancy Insights. I’m Philippa Lamb. This is your regular monthly round-up of news specifically for the accountancy profession. First up, we’ll be discussing President Trump’s proposed tariffs with Iain Wright, Managing Director of Reputation and Influence. Mr Trump has his eyes on specific countries and goods, and there’s even talk of a universal tariff on all imports, but with tariffs levied and then suspended on both Canada and Mexico this week, how much of this is just negotiating tactics? And following the publication of a joint ICAEW/Chartered Institute of Taxation report into HMRC service standards, Technical Manager Ed Saltmarsh will be explaining what is actually behind those long wait times that many listeners will be familiar with and looking at possible solutions. Iain, should we start with the tariffs? I should say we’re recording this on February 6. Events are moving fast, aren’t they? So there may be fresh developments before this podcast actually airs, but for now, can you just recap where we’ve got to so far on tariff trade manoeuvres to date?

Iain Wright: On 1st February, President Trump issued three executive orders imposing tariffs on Canadian, Mexican and Chinese goods. They were due to come in force this Monday. There has been a 30-day delay, subject to further negotiations. For Mexico and Canada, there were going to be 25% tariffs. Chinese imports are meant to be subject to an additional 10% duty rate, and as we’ve seen in the last day or so, China has retaliated by putting in place their own duties and tariffs, and also provided a range of different restrictive practices when it comes to things like the trade of critical minerals. And indeed, have put in place company investigations on certain US firms as well.

PL: Yes, Google, notably.

IW: Exactly, yes.

PL: Interesting timing.

IW: Well, it’s, I mean, it’s a retaliatory act, isn’t it?

PL: Where is that going to go, do you think?

IW: This is a different type of … warfare is a strong word, but it’s a case of nations trying to impose their own views upon other nations. And this is just a, this is the trade arm, or the corporate arm, of how that is taking place.

PL: And obviously we’ve seen the TikTok debacle in the States as well, so it’s tit for tat, isn’t it?

IW: Exactly, yes.

PL: So those tariffs, the Chinese tariffs, two-way tariffs, they’re in play now. Do you think the Mexico and the Canada tariffs will come into force?

IW: Possibly. I know that doesn’t sound like a particularly conclusive answer. I think what we’ve seen already, from a week or so since the announcement from President Trump, is some degree of negotiation. And so what you’ve had is Mexico providing some additional support for border control in order to stop the flow of migration and from Canada, one of the things that President Trump had been saying is, how do we stop illegal drugs from entering the United States?

PL: It’s fentanyl, in particular, isn’t it?

IW: Yes, so Canada’s put in place a fentanyl czar in order to try and control that. So in many respects, this is how do we use trade and the threat of tariffs to maybe put in place other factors relating to national security.

PL: Thinking about Europe, closer to home, Trump has alluded to the US trade deficit with the EU. He’s talked about tariffs happening pretty soon. Do we think we’re going to see those?

IW: I think yes. There is a trade deficit between the US and Europe when it comes to goods. So the US buys more goods from Europe than Europe provides. I think it could be part of the same type of negotiation, and I think it will be based on NATO spending.

PL: Defence spending.

IW: Yes. So it’s a case of, if you (Europe) don’t increase your defence spending and get up to a 3% target for NATO, we’re going to impose trade tariffs.

PL: Yes, because this has been an ongoing complaint from President Trump, and it is fair to say that America spends considerably more.

IW: Exactly. And so, you know, we’re still living to a large extent with the post-1945 settlement for a whole variety of different things, of which defence of Europe is one of them. And I think President Trump and his administration’s going ‘is this still appropriate?’ What can we do to make sure that European states are actually putting in place means to defend themselves?

PL: There is even talk of this universal tariff, isn’t there? I think the treasury secretary in the US talked about maybe 2.5% universal tariff. Larger numbers have been floating around.

IW: I don’t see the logic of a 2.5% universal tariff other than it makes consumers poorer. It makes the economy weaker, because everyone has to pay a lot more for their goods. So what’s the advantage in that?

PL: Economists say this, don’t they, very clearly? But Mr Trump doesn’t seem to be engaged with that idea.

IW: It’s really interesting what he’s trying to do. I think part of it, and we’ve touched upon that, is he’s a dealmaker. It’s all about the art of the deal. So he does want to extract concessions in many respects, but also, Philippa, it’s worth saying that President Trump and certain parts of his administration do believe, because the focus is on goods, maybe will come on to services, is by imposing tariffs, manufacturing will return to the US. That’s a genuinely held belief. So, you know, it’s a multifaceted response to a problem the Trump administration thinks about. But I do think part of it is, first and foremost, how do we get a deal out of this on a range of things, defence spending, border control, but also, and you’ve seen this elsewhere, not just on tariffs and trade, there’s been this blizzard of executive orders that Trump has put in place in the two or three weeks since he assumed office again. There’s just this real sense of activity and frenzy and, you know, energetic start to the administration. But what he wants to do is to say I’ve been successful. So when you think about some of the Canada stuff, this fentanyl czar, it’s not that much different to what was there before. But he can be able to claim, look, I’ve got a lot out of the Canadians. So there is a bit of smoke and mirrors, in many respects.

PL: Feels like a win. And as you say, it’s about goods, isn’t it, because we’ve heard about the possibility of goods-specific tariffs – steel, aluminium, copper, computer chips, semiconductors, all the sort of things you’re talking about, which would possibly bring manufacturing back to the US.

IW: Yeah, it’s a strong political matter. You know, in terms of the Rust Belt, how do you revive it? Can we bring manufacturing back? And over the last 10 years or so, there has been some return to manufacturing as a result of fracking and energy costs. And also the Biden administration: the Inflation Reduction Act had a major impact in helping to re-source manufacturing capability back into America. So that is a reasonable thing to consider. But there are a whole variety of different reasons why Trump’s trying to do this.

PL: The general sense is we’re in a nothing-for-nothing environment with the US now. He’s been talking about rare earths in Ukraine now, and the possible link between US access to rare earths and the continuation of military aid there. It’s a much clearer link, isn’t it, between what are you going to do for me if the US is going to help you?

IW: Exactly, it is very much a negotiating stance, which is what else can I think about when it comes to economic and security policy, and I’m using tariffs as a weapon in order to extract concessions.

PL: So thinking about how other countries are going to respond to this, I mean, is there any sort of positive? Could it hasten economic co-operation between nations outside the US?

IW: I think there is a possibility of that. The EU is putting in place some sort of deal when it comes to Southern American countries, but I don’t want to sort of accentuate any positive here, Philippa. Tariffs is bad. It increases inflation. It distorts economic reality and ultimately makes consumers worse off.

PL: Thinking about the UK, the political mood music so far, and obviously all this is very new, has been quite positive, hasn’t it? UK government’s been making overtures to the US, and David Lammy has been out to see I think it was Vance, wasn’t it? That’s all rolling forward. There hasn’t been any talk specifically of UK tariffs, but it’s still definitely hanging in the air, isn’t it?

IW: See, I think this is really interesting, and maybe we don’t want to talk about this too loudly. We’ve got a surplus, a trade surplus. Now, let me caveat this, because it depends on how you measure it. The States differ to us in how we measure trading, but ultimately we have got a surplus in goods. We sell about £58 billion of goods to the Americans. Tends to be cars and pharmaceuticals; we tend to sell our Jaguars and Land Rovers and GSK and AstraZeneca goods.

PL: OK.

IW: And we import about £56 billion, and it tends to be power generation and crude oil. We’ve got a small surplus of about £2 billion there. In terms of services, that’s a whole different ball game. We sell £120 billion of services – tends to be banking, finance, accountancy, really strong. And we import about £55 billion from the Americans. So we have got in services a trade surplus of about £65 billion. So if Trump is going to talk about tariffs, long may it continue to be on goods rather than services.

PL: Well, yes, because it’s so interesting you’re describing this, because I was really into this measuring difference only this week, and I hadn’t understood it before, that there is a radical chasm between how much they view the deficit being compared to the way the ONS would measure it over here.

IW: Absolutely.

PL: We’re not talking small numbers, are we?

IW: No, we are talking billions and billions of trade flows in and out of the country. It’s huge. And it all depends upon about, you know, are you including crown dependencies in this? You know, a wide range of things. But in terms of ONS data, we’ve got a small, surprisingly small, surplus on goods and a very large surplus on services.

PL: As you say, it’s probably not something we want to do a lot of shouting about, is it?

IW: I don’t even want to talk about it in the podcast, Philippa.

PL: Let’s stop, stop talking about that. And then move to the whole is the UK going to have to pick a side, Europe or the US?

IW: I don’t want to make this a big issue, but I think you’ve just articulated the central foreign policy for the UK since the Second World War, which is where do we try to gravitate towards? Is it the US or is it to Europe? And I think maybe we can continue to play both sides. I think what the trade situation shows, and I’m trying to, I’m struggling to remember my A level economics here with, you know, David Ricardo and comparative advantage in specialism, but the trade situation is that, you know, we are good at services, and we sell that to the rest of the world, and we tend to import goods these days. You know, countries should do what they’re good at, but I think it’s a case of, if we can, by any stretch of the imagination, sort of box clever, work with the Americans, work with the EU, well, that puts us in a great position.

PL: You’re a former politician. This must be preoccupying Mr Starmer in a very major way, that delicate balance, because it is being presented as more one or the other, isn’t it, now than perhaps it’s been in the past?

IW: It is presented as one or the other. And, you know, you can think about post-Brexit, and it strikes me again when you look at trade and again, it depends on how you measure it, but both parties, either leave or remain, can claim, well, this is the way we need to go and have strong evidence to back them up. So, by quite some way, our biggest trading partner by country is the United States. About a fifth of all we import and export is through the States. I don’t know about you, Philippa, but that surprised me when I looked at that. The next trading country is Germany, about 10%. If you add up all the European Union nations, it gets to about 40%, so you can say, well, you know, as a single trading block, the EU is the most important. If you want to go by country, it’s the United States, so you can choose your argument and pick your evidence.

PL: Well, also Europe persists. It’s the long-term hold, isn’t it, whereas Mr Trump will only be in office for four years.

IW: Well, I think we need to have that long-term view. And, as I said, what are we good at in this country? And I do think our trading situation reflects it. We are exceptional, second only to the States, in professional and business services, and we export them around the world. And, actually, outside the EU, we have got a really strong trade surplus when it comes to services. When it comes to goods, and this is another podcast, I think, but you know, the last 40 years, we’ve sort of let our manufacturing slip. We’ve still got pockets of really strong manufacturing. Pharmaceutical is one of them, to some extent automotives, high-value manufacturing in terms of aerospace components, we’re good at, but in the main we tend to import goods. So that’s where we are, but let’s play to our strengths. Indeed, this is what the government’s industrial strategy is meant to do. Let’s play to our strengths. Let’s have growth sectors where we have a strong comparative advantage and there is going to be demand in the world in the next 20 or 30 years. And as accountants, we can say, as part of professional and business services, we are really strong in the UK, and we should be exporting more across the world.

PL: Much of what we’ve just been talking about, it was well trailed, wasn’t it, before Trump came to office. Did it show up in your latest ICAEW Business Confidence Monitor? I mean, where’s that at right now?

IW: The short headline, Philippa, in terms of our last BCM, which was published about two or three weeks ago, was it had dropped quite dramatically. It was still in positive figures, but it’d been the lowest it had been since October 2022.

PL: So that took the budget into account, that’s right?

IW: Exactly. And I think it was a business response to the budget. A sense of, you know, the burden that the budget placed on extra spending, extra taxation, falling on business. And you can’t narrow it down. All sectors, all regions, all sizes of company, interestingly, whether companies were exporters or not, saw a drop in confidence. Now, whether the tariff stuff that we’ve seen over the last few days feeds into the next BCM remains to be seen. It’s not necessarily a good thing. If you’re an exporter, you’re an exporter to North America, what are you going to do? You’re going to pause any potential deal, aren’t you, to see how this plays out? That’s not good for confidence and it’s not good for economic activity either.

PL: Yeah, watch and wait. So when is the next BCM?

IW: So for quarter one, the figures will be published round about April time.

PL: That’s going to be an interesting one, isn’t it? My sense is we’re going to be talking about all this sooner rather than later.

IW: Exactly.

PL: Thank you very much, Iain. On to HMRC service standards now with Ed Saltmarsh and Ed, these have long been the topic of discussion, haven’t they? ICAEW and the Chartered Institute of Taxation, there’s now this joint report investigating what’s going on. What prompted this latest investigation, though?

Ed Saltmarsh: So for a long time we have been receiving reports from members about poor customer service from HMRC. But the problem is that it’s always been anecdotal, and so HMRC haven’t always necessarily believed us to the extent of the problems. So what we wanted to do was actually gather that hard evidence of how poor HMRC customer services have been. So, jointly with CIOT, we recruited 31 member firms to record data about every time they tried to contact HMRC over a six-week period.

PL: And there were targets set, weren’t there, by HM Treasury?

ES: So to some extent, this evidence of poor service already existed. HMRC obviously collects all of its own data on various metrics, and the Treasury set target levels for five of HMRC’s priority metrics, and they missed all five of those targets. And in fact, the service performance declined from the year before in four of them. So that’s why we wanted to collect our own data to really support our assertions that the customer service isn’t up to standard, but we also wanted to put some context around it. How does this affect our members and their clients and the wider UK economy?

PL: So what were your findings, before we get on to what flows from that?

ES: Well, I think, interestingly, the first thing that we found was that 88% of calls to HMRC were actually connected to an adviser, which actually exceeded HMRC’s own target of connecting 85% of calls. But I think there’s two really important things to note about that. Firstly, we ran the exercise during a particularly good period for HMRC. We knew that their call connection rates were improving after a real low point in April 2024 when only 54% of calls were connected. That being said, obviously it’s great news that HMRC are connecting more calls, and they should be applauded for that, but just connecting callers to an adviser isn’t good customer service. Even when connected, we found that average satisfaction with HMRC phone lines was just 3.1 out of 5. And there were a few things that really limited customer satisfaction when calling HMRC.

PL: Wait times are jumping out at me.

ES: Firstly, the amount of time it took callers to get through to an adviser. So the average time spent on hold before being connected was 19 minutes.

PL: A long time…

ES: And so we saw that even getting connected didn’t mean that callers were happy. And then secondly, disconnection rates were too high. So, as well as 8% of calls being cut off by HMRC before the calls connected to an adviser, we saw 5% of connected calls being disconnected after getting through to someone.

PL: That would be exasperating, having waited 20 minutes to get through in the first place.

ES: Clearly, that’s frustrating, and I think there are a few reasons for it. Firstly, there appeared to be some technical issues with calls being dropped when being transferred between teams. But we’ve also heard of cases where the HMRC adviser would end the call, seemingly because they could not help and had reached the end of their script and had nothing else left to say and had no other option but to put the phone down, which clearly is a massive issue. And finally, and probably the key thing, in my opinion, is that too many calls were just not being resolved. So just taking into account connected calls, only 34% of those were marked as fully resolved.

PL: So only about a third.

ES: Only about a third, and it increases demand for HMRC customer services. Not only is it frustrating for the caller not to be able to resolve their issue, but they’re going to just call again or contact HMRC through another method, and it’s just placing further demand on a service that’s already …

PL: And contributing to the wait times, presumably?

ES: Exactly, yeah.

PL: I mean, this is where we’re at. Do we know what’s causing these issues?

ES: Well, I think, firstly, it’s only fair to HMRC to acknowledge that they have regularly, over the last several years, been asked to do more with less. So there are many more taxpayers now than there were previously, because fiscal drag has pulled millions more taxpayers into income tax self assessment, and many of these additional taxpayers are of state pension age. HMRC’s own research acknowledges that these taxpayers will be more reliant on traditional customer service, such as their phone helplines.

PL: OK.

ES: Meanwhile, aside from some recent announcements around budgets for certain areas of HMRC being reinstated or increased, generally their budget has been cut in real terms.

PL: So considerable difficulties.

ES: Yes. But aside from that, I think many of HMRC’s problems are of their own making. We found that over a third of contact attempts to HMRC were agents progress-chasing queries or applications or any other correspondence, and if HMRC were processing these things more quickly, there wouldn’t be so many people chasing them. Look, I think we need to acknowledge that progress-chasing doesn’t really help anyone. I think most agents know when they call that they’re not going to achieve anything by calling, but they need to be able to show their clients that they are trying everything they can to get these things progressed. But also, I think more worryingly, is that we heard quite a few reports of correspondence being lost. So agents might submit something, wait a couple of months, call to see where it had got to and it’d just never been received or had been allocated to the wrong team. And so it’s, I think, perfectly understandable that agents will phone up to make sure that what they’ve sent in is in the right place.

PL: I mean, when you say correspondence, do you mean paper correspondence or email traffic?

ES: Could be anything. I think, particularly with postal communications, it could go anywhere. And, you know, it’s harder to keep track of. Someone has to scan it in, allocate it to the right team, that kind of thing. So that, I think, is probably the main culprit. But there are all sorts of things going missing, according to what our participants told us.

PL: In terms of actually getting queries resolved, what’s emerged about the technical knowledge of HMRC advisers themselves?

ES: I think in too many cases, the HMRC advisers don’t have sufficient technical knowledge. And again, I think we have to appreciate that not every adviser is going to be able to answer every query, but it just seems that in too many cases, they don’t know how to process these things and progress these queries.

PL: Pressure has been building around this, hasn’t it? The Public Accounts Committee weighed in in a slightly surprising way recently, didn’t they?

ES: Yes. So the Public Accounts Committee essentially accused HMRC of deliberately having poor customer service to push people towards their digital services, which I don’t think is something we would necessarily support. HMRC is a digital-first organisation, and has been since at least 2012 and I think it’s right that they do want to encourage people to use digital services. It’s the only way that they are going to, in the long term, improve their service, is to get people self-serving through digital services.

PL: But presumably, HMRC denied this.

ES: HMRC denied it, and I don’t think we’ve ever seen any evidence that they are deliberately doing this.

PL: Such a direct accusation does speak to the sheer level of frustration, doesn’t it?

ES: Yeah, and I think, you know, many people have had to interact with HMRC and not had the service that they would have wished for. Having said that, many people do get the service they need from HMRC, and we should acknowledge that HMRC does a very difficult job, and mostly does that very well. I think what we found from our exercise was that there is an appetite to use digital services. People want to use them where they are available, but in too many cases they are not available, they lack functionality, or a particular issue for our members is that agents can’t see and do what their clients can, so that if an agent needs to resolve something, they have to phone or contact HMRC through webchat or post because they don’t have access to that same digital service that the taxpayer does.

PL: Thinking more positively, your report comes up with 10 recommendations. Do you want to just run us through some of the key points?

ES: There are 10 recommendations in the report, but I think they can be grouped, really, into three broad themes. So firstly, given that over a third of contact attempts to HMRC were for progress-chasing, it seems obvious to us that HMRC should be investing in the ability for taxpayers and their agents to track queries, correspondence, etc, without having to call them. So we actually estimated that HMRC could save at least £36 million every year if it cut out progress-chasing calls, so a tracking mechanism could pay for itself several times over in the long run. This includes improving HMRC’s own internal tracking systems, but then linking those to an external tracking mechanism so that people can track their own queries. As well as that, they need to provide a clear route for agents, in particular, to escalate complex technical queries. We saw quite a few examples of queries just being passed from team to team, because no one quite knew to do with it.

PL: OK.

ES: And if that agent had been able to escalate that earlier on, it could have cut out so much contact with HMRC.

PL: So it’s completely clogging up the system.

ES: Exactly. Secondly, HMRC needs to improve its existing customer service. No matter how good HMRC’s digital services are, there will always be a need for some taxpayers or agents to speak to a human, so they do need to improve their phone lines and webchats. They can’t rely on removing the need for that altogether. And this will include, we think, improving training, investing in recruitment and retention of those trained staff, but actually also empowering the customer service employees to resolve the queries, which, you know, I think would probably give them more job satisfaction. It must be equally as frustrating for the customer service staff to not be able to help the people that are phoning them up.

PL: No happy customers.

ES: Exactly. So giving them the skills, the systems and the autonomy to actually take ownership of a query and see it through to resolution should hopefully boost their satisfaction and boost their performance.

PL: Because issues around not enough autonomy, temporary contracts, these sort of very fundamental problems for people working there, they’re going to play into retention, aren’t they? So the problem is perpetuating itself.

ES: And again, some sympathy for HMRC here, because there has been uncertainty about their budgets. They do get allocated short-term funding.

PL: So they’ve had to, yeah…

ES: They’ve had to work with what they’ve got. So I think a longer-term plan for HMRC budgets would really benefit them. And then, finally, on the recommendations, HMRC needs to invest more in its digital services. They want people to use digital services, so they need to make sure that they exist, that they work, and that agents can use them to the same extent that taxpayers can. And this also includes maintaining and fixing legacy systems, so services that are due to be replaced by a more digital service on one of HMRC’s more modern platforms, IT platforms. At the moment, HMRC is understandably very reluctant to invest in those because it seems like throwing money down the drain for a service that’s going to be removed. But actually it’s a bit of a false economy to neglect these services, because people still have to use them, and if they can’t get them to work, they phone HMRC, and HMRC is just putting that money into customer service when it could be putting the money into digital services.

PL: And as you say, these are key means to improve the service, but they’re operating in an environment of very tight budgets. Realistically, how much progress do you expect to see, particularly in the digital arena?

ES: I think HMRC, to their credit, have taken our report very seriously and are keen to engage with us on making these improvements. I think that’s great, and I’m really keen that they do engage with us and other stakeholders, the other professional bodies such as CIOT who helped us with this report, and really prioritise where to invest, which digital services will have the most impact for the most number of people, and really take that pressure off the customer service teams. So yes, it’s a difficult challenge for them, I’m not denying that at all, but I think hopefully, by working with us and our members and other interested parties, we can hopefully see some long-term improvements.

PL: And for listeners who are closely concerned with this, they can read the full report on the website, can’t they, the ICAEW website, and there is an upcoming event, isn’t there, as well?

ES: So we are hosting a joint event with CIOT on 11th March that will be at Chartered Accountants’ Hall. And that event is marking 20 years of HMRC, since Customs & Excise merged with Inland Revenue. And there’s going to be some great speakers there. We have James Murray, the Exchequer Secretary to the Treasury, David Gauke, a whole host of other really great people speaking, and this report will be a topic at that event.

PL: This sounds excellent. Where do you sign up?

ES: People can sign up on the ICAEW website.

PL: There is also a recent Tax Track podcast, isn’t there, our sister podcast?

ES: Some of my colleagues discussed HMRC service standards in a recent Tax Track podcast, which is available wherever people listen to their podcasts.

PL: Thanks very much, Ed.

ES: Thank you.

PL: We’ll link to all of those resources in the show notes for this episode, as always, including that sister podcast, The Tax Track. That’s all for today. We’ll be back in early March. In the meantime, listen out for the next episode of Behind the Numbers. You can find it by searching for Accountancy Insights across any podcast app. Thanks for being with us. If you haven’t already subscribed to any or indeed all of the ICAEW podcasts, please do so. That way you’ll never miss an episode.