Jon Thompson, former permanent secretary of the UK Ministry of Defence, and now chief executive of HM Revenue & Customs: Exclusive Interview
In any ranking of the developed world’s most challenging government jobs, digitising the UK’s tax collection and challenging its civil service’s class system would stand high in the premier league. It seems that Jon Thompson has finally found a job more challenging than reforming Britain’s defence operations
The years between 2009 and 2015 were tough for the UK’s Ministry of Defence – and during that time, Jon Thompson held two of the ministry’s most challenging jobs. As group finance director, he plugged a £38bn black hole in the ministry’s budgets, engineered a vast efficiency programme and devolved financial control to the operational level; as permanent secretary, he cut spending by 20%, overhauled governance, oversaw the withdrawal from Afghanistan, ran the 2015 Strategic Defence and Security Review (SDSR), and carried through huge organisational reforms.
On 4 April, Thompson started work in a new job – and, against the odds, he’s found a still more testing role. As chief executive of HM Revenue & Customs, he must deliver what HMRC’s ‘single departmental plan’ calls “the biggest transformation of the tax system in a generation”, creating “one of the most digitally advanced tax administrations in the world.”
As if that’s not enough, he’s also the civil service’s ‘social mobility champion’, charged with broadening the leadership cadre beyond its traditional base in the privately-educated upper-middle classes. And this task – which pits Thompson and his allies against a highly resilient, 160-year-old Whitehall culture – may represent a more formidable hurdle than either his MoD or his HMRC jobs. Jon Thompson clearly likes a challenge.
From Norwich to Rome
On the social mobility front, he certainly has the right credentials. He joined his local council’s finance team as an apprentice straight out of school, and worked his way up via finance and management roles in businesses, local authorities and the civil service. On joining Whitehall’s ‘Top 200’ leadership group, he says, he was one of just six members who’d attended a ‘comprehensive’ – the non-selective state schools serving the vast majority of the population. “When I first started [in the civil service], people would literally speak in Latin to one another,” he recalls in his distinctive Norfolk accent. “I was slightly disconcerted, given that I don’t speak any Latin!”
The civil service leadership has changed a lot in the decade since. “In the past it was very much a pyramidal system where you headed up towards the top, but increasingly the exchange of people coming into the civil service, and then going out and coming back, has increased the diversity of that [Top 200] group,” he says. “The culture’s moved on quite a long way.”
Still, he doesn’t underestimate the work that remains to be done. Entrants to the Fast Stream graduate training programme, he points out, come from a narrower demographic even than Oxbridge’s famously-moneyed student group.
Within a few weeks the civil service will publish a social mobility strategy, he explains. There will be policy changes to, for example, expand the number of apprenticeships. There will be process changes: “We’re going to look at the entire people lifecycle: how we recruit, appraise, promote and so on”. And there will be cultural changes: “We have to get into the ways in which we lead and communicate and engage and inspire people.” The aim, he adds, is to “fundamentally shift the way in which the civil service is perceived”, making it more appealing to people from non-traditional backgrounds. Having worked up the draft strategy with a group of other permanent secretaries, Thompson says, “we took it to the Civil Service Board, and said: ‘We want to be this ambitious’.”
Thompson is no stranger to ambitious plans. At the MoD, he recalls, “we’ve had what [think tank] the Institute for Government said was the biggest organisational change programme in Europe.” Handed a tough Spending Review settlement by the 2010-15 coalition government, “we needed to resize everything by 20% – and that’s what we did.”
One of the biggest changes involved reforms to Defence Equipment & Support (DE&S) – the MoD agency that buys military hardware. “There are three fundamental problems with military procurement,” explains Thompson. “One, generally the programme is more ambitious than the amount of money you’ve got, and you’ve got to get these two things in balance. Two, while the requirements are generally set fairly well, on occasion they’re completely over-specified and you’ve got to have some mechanism for challenging that… And thirdly, you need a ‘match-fit’ DE&S”.
The original solution was to hive off DE&S as a ‘Government-owned, Contractor-operated’ (GoCo) business, giving it the autonomy to challenge over-optimistic spending plans and ‘gold-plated’ equipment specifications, and freedom from the civil service pay controls that constrain recruitment. But the search for a contractor failed, and the MoD adopted plan B: DE&S was given greater independence as an MoD agency, a ‘Joint Requirements Council’ was established to challenge specifications (see our video interview below for more details), and the agency was permitted to disregard some pay controls.
This model, says Thompson, has brought defence procurement “quite a long way” towards the ambitions of the GoCo strategy, and the agency is making “good progress” on corporate governance, management information, capacity and capability. In the event, liberating DE&S from pay controls has had the paradoxical result of cutting the staffing bill, as the agency can now attract permanent employees and reduce its dependence on expensive interims and consultants.
The “watershed moment” for DE&S, says Thompson, came when the Public Accounts Committee decided there was no longer a need for the National Audit Office to produce an annual report on the Defence Equipment Plan. “I’m not complacent,” says Thompson. “I’d say the job was two thirds done.” But he’s certainly pleased with how far DE&S has come: “So far, so good,” he comments. “The question is how far you can push this model – but we’ll continue to push it.”
No change to the endless change
The scale of reforms required during the 2015-20 Parliament, says Thompson, is “as ambitious as it was in 2010.” And the £9.2bn of savings demanded in the Spending Review present a huge challenge – but there’s one big difference this time round: thanks to the government’s promise to spend 2% of GDP on defence, MoD staff know that savings will be ploughed back into the organisation. In 2010-15, says Thompson, all the money was returned to the Treasury; but this time, “people knew that if they were creative, reforming, if they could drive efficiency savings, then that money was going to be recycled back into the priorities that they were putting forward.”
Those efficiency reforms lie in three broad fields, he explains. There’s a £2.1bn cut in the MoD’s annual £20bn supply chain spending. There’s a big land sales programme: “We have an unsustainably large estate,” comments Thompson. “We have more than 1300 sites in the UK; more than 1% of the land mass is in my control.” And most painfully, there’s organisational changes that will cut over 15,000 civil service jobs, bringing the civilian workforce down to 41,000 by 2020.
The military workforce will meanwhile grow by nearly 3,000, satisfying Conservative promises to protect armed forces jobs. Might it not be more efficient to retain cheaper civilian staff, cutting military personnel in back office roles? “It’s a democracy, and all reviews start with some policy framework within which the government of the day says there’s some preceding policy that we need to put through this SDSR. No review is ever completely blank,” replies Thompson carefully. “What ministers were very clear about was that they wanted to maintain military personnel numbers, but they were very open to us putting forward fairly radical army reform programmes in which we take those personnel and put more onto the frontline.” Ultimately, he explains, the UK will be able to field an expeditionary force of 50,000 armed forces personnel – a big increase on the current 30,000.
Preparing for a darker world
The requirement for this expanded force was set out in the SDSR, which anticipated what Thompson calls “a more uncertain, darker world”. The “direction of travel”, he explains, is away from “really significant, major interventions” and towards “more work on counter-terrorism; more fragmented, smaller operations overseas; more work with other countries in building up their capacity and capability; more international exchange.” Investment is going into special forces, surveillance and intelligence, force integration, and collaboration with overseas allies.
Indeed, the SDSR is itself a result of far better collaboration within the UK government, says Thompson: “For several parts of the SDSR, we joined up with other organisations and did an integrated submission.” The MoD and the ‘Single Intelligence Account’, for example, worked together to identify and champion their shared interests – “and that’s been a real step forward in the last five years; to be able to do that.”
Such collaboration sounds like common sense, but “there are still some countries where different agencies don’t share information”, he notes, arguing that the 2010 appointment of a national security adviser (NSA) marked a key milestone in UK defence collaboration. The NSA provides a “controlling brain”, ensuring with the chief of defence staff “that people debate and discuss at the permanent secretary level in order to explore all the options, so you get the NSA giving an integrated set of advice.” That in turn “means that organisations have to compromise; and it definitely leads to more collaboration.”
Thompson sounds much more confident about this SDSR than he did about its rushed 2010 predecessor – some of which was later unpicked as ministers reversed key decisions. “In 2010, the evidence base could have been much stronger,” he comments. “This time we spent 18 months gathering all the evidence, doing independent reviews, getting people to come in and challenge us – so we had that stock of evidence ready to engage ministers.”
So the SDSR and savings programmes will bring further major changes to the organisation – and Thompson is aware of the concern among defence specialists and unions who’ve seen few details on how these changes will be delivered. “Ministers are considering whether they want to publish a reform programme in 2016 to show how it all stitches together,” he says. “I can’t definitely commit to it, but I think it would be good to be transparent about the enormity of the change programme.”
Taking HMRC online
MoD’s enormous change programme, though, will be led by Stephen Lovegrove – the former energy department chief who’s replacing Thompson at defence. And Thompson is already getting stuck into his next enormous change programme: at HMRC, he’s tasked with introducing real-time, personalised digital tax accounts, whilst shedding thousands of case management staff and reducing “something like 178 offices down to 13 regional hubs”.
HMRC’s reform programme is designed “to build one of the biggest customer-centric digital businesses in Europe,” he comments. “The logic is that really world-class customer performance should drive yield. I’ve built a career on working for organisations in challenging situations, and I thought: ‘That looks really interesting – right down my street’. So when the chancellor asked me, I took it.”
So George Osborne came to you? “I’d expressed some interest in some other departments, then this vacancy came up and I was asked if I was still interested in it,” he replies. “I met the chancellor and had a conversation about it, and then I was offered the job.”
Although Thompson will be a first permanent secretary and accountable to Parliament for HMRC’s budget, he was not offered quite the same job as his predecessor Lin Homer. She ran the whole business, but Thompson will report to former second permanent secretary Edward Troup – now executive chair, and in charge of tax policy. “You’ve got to get the right balance between having someone who’s an expert in tax and having someone who can lead an organisation, and I guess in the end finding someone who can do both was quite difficult,” Thompson comments, pointing out that the leadership model has gone through various iterations over the years. However, he acknowledges that “there’s a lot of questions about how this is going to work. There is actually a document which I would like to publish that clearly sets out what the two roles are. My early recommendation is that we publish it, and then I think there’ll be some clarity.”
What is clear, though, is that the organisational change and digital reform briefs sit firmly with Thompson. Does HMRC’s strategy look uncomfortably like the kind of big government IT project which have gone so badly wrong in the past? “Let’s be up front: we’re entering into a period of incredible ambition, and there are a number of different risks we have to manage,” he replies. “There’s a huge amount of work to be done on the digital, people and property sides, and we have to integrate all that, and to radically change the organisation whilst still providing the service.”
Thompson has “read the papers that set out these decisions, and on the face of it, it looks like a perfectly manageable transition,” he adds, but “obviously, it’s an inherently risky thing to do.”
HMRC’s plan, he explains, “essentially finishes the very long-term mega-deal with the IT industry, and some of it’s being in-sourced”. So civil servants will take direct control of some of the required infrastructural and business process changes; meanwhile, private companies will be encouraged to build interfaces serving different customer groups, using ‘APIs’ to exchange data directly with HMRC’s systems. “There are people in the market who are developing solutions for small businesses,” Thompson notes. “KPMG has a small business tax service that costs £10 a month, and that gives you access to the kind of scale of IT system that you need.”
Asked to name the biggest attribute he’ll bring to HMRC, Thompson points to his experience running huge change programmes at MoD: “The secret of success is the people and the leaders; I’ve learned a lot about myself as a leader, and about how you motivate and engage and change an organisation,” he says. “I’m not a tax expert, but I reckon I can deliver an ambitious programme of change”.
And the biggest challenge he’ll face? When he took the MoD perm sec’s job, he replies, he’d already been the finance chief for four years – but here “I’m going in as the chief executive officer knowing almost nothing about the organisation, so the steepest curve for me is to learn the business. And that’s another reason for travelling and listening and learning. I just want to meet people and talk to them; to sit with the finance team and say: ‘What’s it really like handling this volume of transactions?’”
When he does so, he may face questions about his Christmas holiday: when Civil Service World magazine asked dozens of perm secs to name their favourite Christmas games, Thompson replied: “Jägerbombs and Twister”. The idea of the Ministry of Defence’s permanent under-secretary drinking boozy, caffeinated cocktails whilst playing a chaotic children’s game will have raised eyebrows across Whitehall, and was picked up by the Times newspaper. “That was a joke!” he says, laughing. “I assumed that everybody would say that they’d watch a film, and I thought: ‘What shall we say for a laugh?’ We didn’t actually play it!”
In fact, Thompson is – unostentatiously – a committed Christian, and Christmas passed without either Jägerbombs or Twister. But the fact that he made the joke speaks volumes about the approachable, down to earth nature; a nature which will give him the best possible chance of bringing people with him at HMRC. When compared to the relatively po-faced responses of his peers, it also demonstrates why he’s uniquely able to achieve one of his key goals on social mobility: to “fundamentally shift the way in which the civil service is perceived”.
It’s easy to see why, given his experience, his skills and his character, Thompson was given his twin missions: to dramatically change one of the civil service’s biggest organisations, and to radically broaden the narrow profile of its leadership. And he’s ambitious on both fronts – but he knows that neither is a foregone conclusion. The social mobility work, he says, “is a great thing to do: time will tell!” And on HMRC, he’s going in with his eyes open: “I’m not going to deny that it’s going to be pretty challenging,” he says. “That’s why I took the job!”
See our news piece on how removing pay controls has brought down staff costs at DE&S
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