As well as half a billion pounds to improve citizen services and reduce analogue provision, spending review gives tax department an additional £1.6bn to upgrade core computing and data infrastructure

HM Revenue and Customs has been given £500m of Spending Review money to improve its IT and online services – with the expectation of delivering a big increase in the proportion of citizen interactions conducted digitally.

The half a billion pounds for front-end tech upgrades includes £210m in 2026/27 – and a further £88m the following year – awarded via the wider £3.23bn Government Transformation Fund previously announced in chancellor Rachel Reeves’ spring statement. The near-£300m chunk for “improved HMRC customer services and IT” has now been signed off in the long-term departmental funding plan set out this week.

The overall package of £500m is intended “over this SR period to make HMRC a truly digital-first organisation”, the full Spending Review document says.

This will involve the department delivering a significant amount of progress on channel shift. By the 2029/30 year, the Treasury expects that “a minimum of 90% of [HMRC] customer interactions will be digital self-serve – up from around 70% in 2025”. The department has also been set the task of delivering a drastic reduction in the number of letters it sends.

“This investment will improve digital services so people can easily get the information they need without having to call or write to HMRC,” the SR25 document adds. “It will enable the use of AI to help taxpayers with their enquiries and to raise productivity within HMRC. The government will continue to ensure alternative channels, including phonelines, are still there for those who need them. HMRC will eliminate all outbound post, with limited exceptions such as letters which generate revenue for the Exchequer, reducing the number of letters HMRC sends by 75% and saving £50m a year by 2028-29.”

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Alongside the cash committed for better services and upgrades to front-end IT, the tax department will also receive £1.6bn of capital funding in the next four years “to modernise and reform HMRC’s IT and data infrastructure”.

“This investment will ensure HMRC is a productive and resilient organisation, generating significant efficiencies,” the review says.

For the current fiscal year, the tax agency’s overall resource funding for day-to-day operations stands at £5.9bn. Beginning in 2026/27, this will rise sharply for the remainder of the SR period: to £6.4bn; £6.5bn; and £6.4bn, respectively.

A further £900m is available to the department this year and next for capital investments – but this figure will shrink to just £300m in 2029/20, the Spending Review indicates.

By that point, the initial upfront investments and the ongoing resource support – covering both digital improvements and new staff – are forecast to deliver billions of pounds of money back to exchequer in extra tax yield.

“[The extra resource allocation] funds HMRC to deliver the most ambitious ever package of measures to close the tax gap, first announced at autumn budget 2024,” the review says. “This package – including measures to modernise HMRC’s use of data, increase the use of digital tax services, and fund an additional 5,500 compliance staff and 2,400 debt management staff – will raise £7.5 billion additional tax revenue a year by 2029-30. This settlement reflects the importance of HMRC in collecting tax revenue to fund vital public services, and all five of the government’s missions in the prime minister’s Plan for Change.”