A tale of two policies: Australia's OCI and HMRC-Concentrix

From small acorns…

Every policy starts with the kernel of an idea, the intent to rectify a problem or further improve a situation.

The premise for OCI was simple: if a benefit claim is at odds with the information held by the tax office, send a letter stating the assumed difference and ask people to challenge it.

The UK has similar processes in place, and not just for benefit debt; VAT assessments are automatically issued if returns are not submitted, and they are actively inflated by an increasing percentage each quarter to encourage compliance in submitting returns 3.

On paper, there is nothing wrong with this concept.

The devil is in the design detail

The key to intelligent process and policy design is bringing together the relevant expertise. I could give you 1,001 reasons why this doesn't always happen, along with a handful of examples where I have seen excellent governance in place to ensure that it does. The point is that without the right expertise, there is a high risk of failure demand in the resultant product or service.

To mitigate this risk, the UK created the Functional Model of Government 4, but it was not yet in place when HMRC launched its Concentrix contract to address fraud and error within the tax credits regime. When conducting its post-mortem, the National Audit Office (NAO) found that one small detail led to significant issues: there was a reliance on people to contact the authority and, where they did not, an assumption was made that the debt was real and thus it was pursued.

It is important here to understand how different experts view the world. Those working in fraud and compliance are far more likely to use a 'stick', whilst those working in debt management know that the 'carrot' is also necessary, in that not everybody will respond and that failure to get in touch is not evidence that the debt is due.

There is also a need to consider how success is measured - what are the KPIs driving the policy? If it is additional yield generation, especially if that intent is coupled with the assumption that 100% of people who receive a debt in error will get in touch, then it is easy to imagine a discussion resulting in less stringent controls on debt creation. The burden is passed to the customer in an effort to ensure that all wrongdoing is detected.

OCI had a similar issue insofar as it assumed that where no contact was made, the debt must be real, and so collections activity kicked in.

Much as the simple premise at the heart of HMRC's Concentrix programme was exacerbated by other flaws, so it was with OCI: the averaging out of income data led to spurious debts being created and pursued.

The role of specialist expertise in process and policy design

Both Australia's OCI and the UK's Concentrix initiatives were predominantly fraud and error compliance programmes that resulted in the creation of debt.

In the UK, the idea was announced in the Autumn Statement 2012 5 as part of " a package of measures to reduce tax credits error, fraud and debt ". Following a short pilot, 6 the HMRC Benefits and Credits, Error and Fraud Adding Capacity contract was awarded to Concentrix. 7

The key takeaway here is that the error and fraud element was separated from the debt element and the focus was clearly to " deliver a significant reduction in levels of tax credits error and fraud " 8, using a payment-by-results model that placed the financial risk with the supplier. 9

Thus, you have a policy that was both designed and incentivised to find as much fraud and error as possible, independently of any consideration of the debt created.

Let's be honest here, hindsight has 20/20 vision and it's easy to pick over the bones of what went before. The key point is that big programmes can and should reduce risk by including experts from the entire customer journey, to provide an understanding of upstream and downstream challenges.

Outcomes from Concentrix and OCI

The NAO found that 32% of the tax credit awards that Concentrix stopped or amended were overturned by HMRC following a mandatory reconsideration. It delivered a return on investment of 6:1, compared to the anticipated range of between 13:1 and 18:1.

While the Royal Commission on OCI is not due to report until April 2023, we have already seen a class action lawsuit result in an agreement to repay AUS$721m to 373,000 people.

Final thoughts

Having sat in countless policy design sessions over the years, I can honestly say that the best outcomes are achieved when policymakers invite and welcome scrutiny from their peers across multiple disciplines. If the expertise is not available internally, then it is critical to partner with external organisations, whose advice will pay for itself many times over if it helps to design and deliver a successful policy.

arum is an independent provider of advisory and professional services within collections and revenue across the public and private sectors. With over 24 years' experience in over 20 countries, organisations choose arum to prevent and resolve their problem collections and revenue challenges - whether executing strategic, operational and technical change within their organisations, choosing or implementing collections technology, navigating the inexorable move towards digital engagement, or improving customer treatment to achieve better outcomes.

Please get in touch with me directly if you want to discuss anything relating to this topic.