The catastrophic loss of the personal data of 25 million child benefit recipients by HM Revenue & Customs has merely highlighted the deep-seated problems facing the taxman, advisers have warned.

Bedding down the merger between Customs & Excise and Inland Revenue and meeting tough budget and staff cuts has taken its toll on the organisation, leaving it vulnerable to mishaps such the loss of the two discs containing the data.

‘When you merge two large entities into a single entity you lose experienced people. The experienced people who would have known how to handle transferring data to the NAO were not there when all this information went missing,’ said Richard Mannion, national tax director at Smith & Williamson.

Mannion said HMRC was ‘trying its best’ to operate under the constraints placed upon it and would have been better off waiting for the merger to settle down and only then cutting overheads.

HMRC has been placed under intense pressure from government to create savings efficiencies since the April 2005 merger.

The department will have to have made 12,500 job cuts by 2008 and the possibility is looming that a further 12,500 cuts will have to be made by 2011. Budgets, meanwhile, will be slashed by £500m by 2008. Further cuts of £700m may have to be achieved by 2011.

Alistair Darling has argued that the lost discs had nothing to do with the HMRC efficiency drive (the chancellor said it was a one-off error by a junior official who flouted procedure) it now appears that budget constraints had everything to do with the issue.

An exchange of emails between the NAO and HMRC, released last week, showed that a senior HMRC official had been copied in on an email from the NAO asking the taxman to strip out sensitive information from the data and send it ‘as safely as possible’.

This request was denied on the grounds that stripping out bank account details and other sensitive information would have been too expensive.

If taking the utmost care of millions of people’s personal details does not warrant additional expenditure, what other crucial parts of HMRC are suffering from a lack of resources?

The two missing discs may be just symptom of far deeper concerns.