The next round of cost-cutting targets for the taxman to face has been announced.

HM Revenue & Customs, which is battling to make annual savings of £500m by 2007/08, mainly through cutting 12,500 jobs, will now have to achieve net annual savings of £700m by 2010/11.

The targets are in line with earlier projections of 5% savings in real terms across the chancellor's departments, which include HMRC, the Treasury and National Savings & Investment.

But there are other problems. The government's watchdog, the Public Accounts Committee, has questioned the veracity of claimed efficiencies by the departments.

And the taxman has been battling against an increasing VAT gap, and bugs in its IT systems. Morale in the department has recently hit an all-time low, according to public sector unions.

What's happened

HMRC bosses said the department was on target to meet its 2008 efficiency targets, while also improving service levels. Yet in April the Public Accounts Committee heard from tax advisers and unions about problems caused by staff cuts at HMRC.

Routine requests by advisers were taking longer to process, claimed PricewaterhouseCooper's John Whiting.

'Staff feel undervalued,' said Peter Lockhart, HMRC group secretary for the Public and Commercial Services Union. 'Our members feel there isn't a great deal of certainty or future.'

Upgrading HMRC's PAYE systems has proved difficult and glitches led to an extension of PAYE's end-of-year filing deadline. But while HMRC repeatedly stated it was on track to meet its savings, PAC said last week that figures across government were questionable.

Of a total of £13.3bn efficiencies claimed by the government, the PAC believes only £3.5bn of those savings are robust, and there was evidence that the cost efficiencies had reduced service levels.

What's going to happen

The new targets for HMRC and the rest of the government, revealed in the pre-Budget report, have already seen the PCSU in aggressive mode.

It said the targets for HMRC and DWP would hit frontline service through mass job cuts. The cuts have heightened the possibility of further strikes among civil servants.

The PAC, following its scathing findings into the government's efficiency figures, has called on the Treasury to work more closely with departments to put in place a more coherent framework to manage the programme going forward.

Using IT to drive efficiency at HMRC will now be the responsibility of Deepak Singh, who has taken over as CIO following Steve Lamey's promotion to COO.

For more go to www.pcs.org.uk and for the PAC report go to www.parliament.uk