House of Commons Treasury Committee Administration and effectiveness of HM Revenue and Customs
Sixteenth Report of Session 2010–12
Volume I: Report, together with formal minutes, oral and written evidence
Additional written evidence is contained in Volume II, available on the Committee website at www.parliament.uk/treascom
Ordered by the House of Commons to be printed 12 July 2011
HC 731 Published on 30 July 2011 by authority of the House of Commons London: The Stationery Office Limited £0.00
The Treasury Committee
The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of HM Treasury, HM Revenue and Customs and associated public bodies.
Current membership Mr Andrew Tyrie MP (Conservative, Chichester) (Chairman) Tom Blenkinsop MP (Labour, Middlesbrough South and East Cleveland) John Cryer MP (Labour, Leyton and Wanstead) Michael Fallon MP (Conservative, Sevenoaks) Mark Garnier MP (Conservative, Wyre Forest) Stewart Hosie MP (Scottish National Party, Dundee East) Andrea Leadsom MP (Conservative, South Northamptonshire) Mr Andy Love MP (Labour, Edmonton) John Mann MP (Labour, Bassetlaw) Mr George Mudie MP (Labour, Leeds East) Jesse Norman MP (Conservative, Hereford and South Herefordshire) David Ruffley MP, (Conservative, Bury St Edmunds) John Thurso MP (Liberal Democrat, Caithness, Sutherland, and Easter Ross)
Mr Chuka Umunna MP (Labour, Streatham) was also a member of the Committee during the inquiry.
Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.
Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/treascom.
The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in printed volume(s). Additional written evidence may be published on the internet only.
Committee staff The current staff of the Committee are Chris Stanton (Clerk), David Slater (Second Clerk), Jay Sheth, Peter Stam and Daniel Fairhead (Committee Specialists), Phil Jones (Senior Committee Assistant), Caroline McElwee (Committee Assistant), Steven Price (Committee Support Assistant) and Nick Davies (Media Officer).
Contacts All correspondence should be addressed to the Clerk of the Treasury Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5768; the Committee’s email address is [email protected]
Administration and effectiveness of HM Revenue and Customs 1
Contents
Report Page
Summary 3
1 Introduction 5 The origins of this Inquiry 5 Conduct of the Inquiry 5 Structure and content of the Report 6
2 Management of Resource Reductions 7 HMRC resources since formation 7 Efficiency savings 8 Revenue 8 Management of cost reductions 9 Displacement of costs 9 Cuts in anticipation 11 Long-term staff planning 12 Legal complexity 13 Spending Review 13 Reaction to the Spending Review 15
3 Staffing and management 17 Staff engagement 17 Job Losses 20 Organisational culture 21 Leadership 23 Accountability 24
4 The Future of PAYE 26 The National Insurance and PAYE Service 26 Reforming PAYE: Real-time Information 28
5 Service standards 31 Contact centres 32 Getting through 33 Getting the right answer 34 Cost of calls 35 Post 36 Face-to-face contact 37 Online communication 39 Use of email 42 Service standards and the efficiency programme 42 Looking ahead 43 Large businesses 43 Customer-centric contact 44 Demand management 45
2 Administration and effectiveness of HM Revenue and Customs
Future prospects 46
6 Compliance 48 Settlement of large tax cases 48 Debt management 50
7 Conclusion 52
Conclusions and recommendations 53
Formal Minutes of the Treasury Sub-Committee 62
Formal Minutes of the Treasury Committee 63
Witnesses 64
List of printed written evidence 64
List of additional written evidence 65
List of Reports from the Committee during the current Parliament 66
Administration and effectiveness of HM Revenue and Customs 3
Summary
There is considerable dissatisfaction among the public and tax professionals with the service that Her Majesty’s Revenue and Customs (HMRC) provides to taxpayers and benefit claimants. Three areas in particular stood out in the evidence we received: access to advice over the telephone; responses to post; and offline alternatives to internet-based filing and guidance. This dissatisfaction has been building for some years now, and was reported on by our predecessors in the last Parliament. As such, we do not accept the Department’s explanation that these problems are primarily the result of reconciling of multiple PAYE tax years at once. There is a serious risk that if communicating with HMRC becomes too time-consuming, difficult and expensive, respect for the tax system, and with it voluntary compliance, may be undermined.
The PAYE system itself has been the subject of negative publicity throughout the last year. The National Insurance and PAYE Service should ultimately make PAYE work more effectively and ensure efficiencies across the Department. However, the problems resulting from its flawed implementation have done significant damage to the public perception of HMRC and the tax system more generally. It is crucially important that the 2012 target for clearing open cases is met and that improvements in overall performance follow soon afterwards.
Looking further ahead, HMRC has committed to an ambitious timescale to deliver Real- time Information (RTI), driven in part by the importance of the project in delivering the Universal Credit. Implementing RTI before the system and its interface into HMRC have been properly tested could led to greater delays later on and further damage public confidence in the Department and the tax system. We recommend that the Government only go ahead with full implementation once the system has been fully tested, and that its preparations should be subject to a real-time external audit.
HMRC operates under significant pressures. It has to implement increasingly complex tax legislation, sometimes developed without full account of the practical consequences, whilst undergoing restructuring, delivering substantial resource reductions and job cuts. The Government has agreed a Spending Review settlement with HMRC that involves further reductions, offset by “reinvestment” in compliance and PAYE. Whilst genuine efficiencies have and will continue to be made, we are concerned that performance may deteriorate further if resource reductions are badly managed: we received disturbing evidence of job cuts being made before the efficiencies that were intended to enable them had been delivered, and of a culture of command and control that disengages staff and prevents potential problems from being dealt with effectively.
HMRC continues to face major difficulties with staff engagement. Whilst staff remain dedicated to their work despite the pressures HMRC is under, they have little confidence in the leadership of the Department or that change will be for the better. This has been a long- running problem for the Department. Whilst senior management are very aware of the problem and have made efforts to improve engagement, there has been little evidence of any positive impact to date.
4 Administration and effectiveness of HM Revenue and Customs
This report does not examine HMRC’s performance in ensuring it raises the correct amount of revenue in detail. We intend to report on this later in the year. However, we do agree with the Committee of Public Accounts that HMRC should examine how it can improve accountability regarding the settlement of large tax cases.
Administration and effectiveness of HM Revenue and Customs 5
1 Introduction
The origins of this Inquiry
1. In September 2010 Her Majesty’s Revenue and Customs (HMRC) announced that up to 4.3 million Income Tax payers would be receiving repayments and 1.4 million taxpayers would be receiving requests to address underpayment. These over-and underpayments had arisen because the amounts of tax collected from individual taxpayers under the PAYE system in 2008–09 and 2009–10 had not been checked. HMRC usually reconciles tax collected under PAYE with the tax actually due once employers and other institutions have provided actual information about taxpayers’ income after the end of the tax year.
2. Given the level of public concern and the number of taxpayers involved, we summoned senior HMRC officials to give evidence to us on 14 September. At the same meeting we agreed that the Sub-Committee should undertake a more detailed inquiry into the administration of HMRC.
3. HMRC as an organisation has undergone a continual process of change ever since its formation. This has been driven by the process of merging Inland Revenue and HM Customs and Excise, resource reductions, the changing responsibilities of the Department (for example, taking on the payment of tax credits), adapting to new technology and working patterns and responses to high-profile problems. On the ground this has meant the increasing use of technology and restructuring alongside job losses and office closures. At the top, the management and governance were revised following a highly critical Capability Review in 2007 and the Poynter Review into the loss of 25 million personal records in the same year. Both trends have involved a move away from a structure based around regional offices and towards one based around lines of business.
4. In the last Parliament the administration and expenditure of HMRC was subject to annual scrutiny by the Treasury Sub-Committee. These hearings identified a number of recurring problems with staff morale, service standards, IT and property contracts and the impact of institutional change within HMRC. Many of these issues are revisited in this report. In particular, many of the concerns raised with the Sub-Committee about the possible impact of the efficiency programme on service standards echo those raised with our predecessors as part of their work on The Efficiency Programme in the Chancellor’s Departments.1
Conduct of the Inquiry
5. The Sub-Committee’s inquiry focused on the concerns that have been raised with it about HMRC’s performance, particularly in relation to service standards and staffing. In this report we put down markers against which the Sub-Committee will measure HMRC’s administrative and operational performance during the Parliament. We have received
1 Treasury Committee, Eighth Report of Session 2006–07, The Efficiency Programme in the Chancellor’s Departments, HC 483
6 Administration and effectiveness of HM Revenue and Customs evidence on HMRC’s record at collecting revenue and paying out tax credits and the Sub- Committee is holding further oral evidence sessions on these issues. With a couple of exceptions, discussed in Chapter Six, we intend to report on these issues separately.
6. The Sub-Committee received thirty-seven written submissions to the inquiry, including responses from HMRC to a series of further requests for information. It undertook four oral evidence sessions with the HMRC unions, professional bodies, senior HMRC officials and the Exchequer Secretary, David Gauke MP. We are grateful to all those who gave written or oral evidence to the inquiry and to Anita Monteith, who acted as a specialist adviser during the inquiry.2
Structure and content of the Report
7. Chapter Two looks at the resourcing of HMRC since its creation in 2005 and some of the issues that have been raised with us as the new Department has worked to reduce costs and become more efficient. Chapter Three examines the staffing and management of the Department, particularly staff morale and organisational culture. Chapter Four focuses on the future of PAYE in the light of the implementation of the new National Insurance and PAYE Service (NPS) and the consultations on the introduction of Real-time Information. Chapter Five examines HMRC’s service standards and communication with taxpayers and benefit claimants. Finally, Chapter Six examines issues relating to the management of large tax cases and debt management.
2 Anita Monteith declared that she is a Member of the Office of Tax Simplification, SME Committee.
Administration and effectiveness of HM Revenue and Customs 7
2 Management of Resource Reductions
8. One of the themes in the evidence we have received has been the resourcing of HMRC. Many of our witnesses—including the HMRC unions, accountancy bodies, former employees and business organisations—expressed the view that HMRC’s performance has been damaged by the sustained reductions in its resources made since the merger of the former Inland Revenue with HM Customs and Excise in 2005. The purpose of this chapter is to set out the scale of the resource reductions HMRC has faced, the implications of its Spending Review settlement and to summarise the concerns expressed by our witnesses. Later chapters examine HMRC’s performance in more detail.
HMRC resources since formation
9. When the merger of the Inland Revenue and HM Customs and Excise was announced in March 2004 one of the reasons cited was the desire to make savings.3 Since HM Revenue and Customs was formed in April 2005 there have been reductions in the resources available to it. In cash terms both the Resource Departmental Expenditure Limit (RDEL) and Capital Departmental Expenditure Limit (CDEL) were reduced over the first 5 years of HMRC’s operation. The capital budget in particular was reduced significantly. In 2005–06 the capital budget was £354 million whereas five years later, in 2009–10, it had been cut to £229 million. Over the same period the resource budget was broadly flat in cash terms, reducing from £4,059 million to £4,002 million.
Table 1: HM Revenue and Customs Departmental Expenditure
Year 2005–06 2006–07 2007–08 2008–09 2009–10
RDEL (£m) 4,059 4,228 4,026 4,092 4,002
CDEL (£m) 354 299 244 278 229
DEL (£m) 4,413 4,527 4,270 4,370 4,231
Source: HMRC written submission to Committee
3 HC Deb, 17 March 2004, Col 331
8 Administration and effectiveness of HM Revenue and Customs
In real terms Departmental Expenditure was reduced by 14%, a 3.6% annual cut.
Figure 1: HM Revenue and Customs Departmental Expenditure (real terms, 2009–10 prices)
5,000
4,500
4,000
3,500
3,000
2,500 CDEL (£m)
2,000 RDEL (£m) 1,500
1,000
500
0 2005-06 2006-07 2007-08 2008-09 2009-10
Source: HMRC written submission to Committee, HMT GDP deflator, Committee analysis
10. The reduction in spending at HMRC in its first five years of existence compared with increases in overall expenditure within central government departments over the same period. Between 2005–06 and 2009–10 Departmental Expenditure Limit (DEL) of all central government departments rose from £206bn to £272bn, a real terms rise of over 4% per annum.
Efficiency savings
11. HM Revenue and Customs told us in written evidence that the spending reductions showed that they “have demonstrated a good track record in delivering efficiency savings” and that “between 2005 and 2010, HMRC achieved over £1.1bn value for money savings without overall negative impact on performance.”4
Table 2: HM Revenue and Customs value for money savings
Year 2005–06 2006–07 2007–08 2008–09 2009–10 Total
Value for money 131 254 278 182 298 1,143 savings (£m) Source: HMRC written submission to Committee
Revenue
12. HMRC is unique among Government departments in that it generates income far in excess of its outgoings. Its performance cannot, therefore be measured solely in terms of the costs it generates. Between 2005–06 and 2009–10 total receipts collected by HMRC rose from £409.3 billion to £435.1 billion. However, 2009–10 receipts fell from a high point of
4 Ev 97
Administration and effectiveness of HM Revenue and Customs 9
£461.6 billion in 2007–08. The Association of Revenue and Customs (ARC), the union representing senior HMRC officials, suggested “it is no coincidence that total revenues are falling at a time when HMRC has suffered significant staffing reductions”.5 However, it is difficult to disentangle any impact of staffing reductions from the impact of the recession and changes to tax legislation over the same period. Indeed, HMRC argued that its performance in relation to receipts had improved over the period and receipts subsequently rose again to £468.9 billion in 2010–11.6 The Permanent Secretary for Tax, Dave Hartnett, pointed to the Department’s compliance work, where resources had been reduced by “around 20%” since the merger whilst intervention yields have increased from £7.4 billion to £12.6 billion, as a case where “we know how to do more with less.”7
13. The Sub-Committee is taking further oral evidence on HMRC’s compliance record and we will report on this separately. However, assessing HMRC’s operational performance at ensuring compliance is complex. Tax receipts are affected by numerous factors—including changes to the law, economic performance, cultural attitudes to compliance and HMRC enforcement activity. We recommend that the Government commission a study to attempt to separate out the impact of these factors over time.
Management of cost reductions
Displacement of costs
14. One of the most concerning themes in the evidence we received was that some of these savings were effectively being made by displacing the costs of tax administration onto individuals, businesses and tax professionals. In the next Chapter we examine HMRC’s service standards and the impact that poor standards are having on taxpayers and tax credit claimants. The evidence we received was very clear that this was passing costs onto taxpayers. For example, Paul Aplin told us about his experiences as a tax practitioner:
I have eight colleagues around me. I hear what goes on when they are on the phones and I see what is on their desks. Five years ago there might have been half a dozen PAYE coding notices that they would have had to deal with. Now, I regularly see a pile this big and I have to listen to my colleagues trying to get those codings changed over the telephone. It is a hugely time-consuming process and it is a cost I either have to bear as an extra cost of my business or I have to pass it on to my clients [...] Those are tasks that have been effectively outsourced to us, without us being asked.8
15. Richard Baron, of the Institute of Directors, said that it was difficult to get good figures for the total costs to taxpayers because of the difficulties of measuring indirect costs. He cited a KPMG study published in 2006 that estimated the cost of the tax system at 0.4% of GDP. However, he said that this only measured the time spent collecting data, filling in
5 Ev 88 6 HMRC, Annual Report and Accounts 2010–11, HC 981, p. R12 7 Q 252 8 Q 88
10 Administration and effectiveness of HM Revenue and Customs forms and not, for example, the “hassle” of working out which rules applied and which did not.9 He went on to observe that there was a balance to be struck:
One thing I would say, though, which I think we have to bear in mind, is that we— the taxpayers—pay for the Revenue’s work anyway because it is funded out of tax revenues. Therefore, the question is not exactly how much extra is this costing us in our private work, but how much extra is it costing us minus how much we are saving by not spending so much on running the Revenue. The question then is: is it more efficient to have more done by the Revenue and less done externally, or to have less done by the Revenue and more done externally?10
16. HMRC told us in its written evidence that it had exceeded its target to reduce overall administrative costs to business by 10% from 2005 levels by March 2011. Whilst this is clearly welcome, the reductions (for example, reducing the amount of information required by forms) need to be set against the broader costs that our witnesses were concerned about.11 In the 2011 Budget the Government announced that HMRC’s existing administrative burden reduction targets would be expanded to include wider taxpayer compliance costs. We welcomed this in our report on the Budget, but would like greater clarity from the Department about how this work will be done, what the new targets are and how they will be measured.
17. Looking ahead, HMRC’s strategy is predicated on making it easier for individuals and tax agents to “self-serve”. The Department will be consulting on “a new approach to give agents a greater ability to process transactions on a client’s behalf” and will “increase opportunities for customers to self-serve, reducing the need for them to make contact.”12
18. The possible displacing of costs from HMRC onto taxpayers has been a long- running concern for tax agents, businesses and individuals. Not enough is known about the impact of resource reductions at HMRC on the administrative burdens faced by businesses and individuals. It would be counterproductive if ‘efficiencies’ achieved at HMRC resulted in greater costs being placed on the wider economy. Such a result would impede growth. Government will be reluctant to take effective measures to address this issue in the absence of robust evidence about its extent. We urge the representative bodies who made these claims to us to come forward with quantitative evidence about the extent of this problem.
19. We welcome the fact that HMRC is updating the 2006 KPMG study on the burdens imposed by the tax system to take account of changes over time and urge it to broaden the study to examine the wider “hassle” costs imposed by complying with tax law. This work may be costly. We seek assurances from Government that the findings of the updated study will be acted upon.
9 Q 98 10 Q 94 11 Ev 97 12 HMRC Change Plan, http://www.hmrc.gov.uk/about/change-plan.pdf accessed 7 June 2011
Administration and effectiveness of HM Revenue and Customs 11
20. It is important that HMRC staff who are planning or implementing process changes have some personal understanding of the possible impact on the wider public. We recommend that HMRC staff, particularly senior staff, spend time visiting businesses, tax charities and tax practices to see the impact of process changes on the ground.
Cuts in anticipation
21. A number of our witnesses were concerned about how future reductions and cost savings would be managed. They considered that previous cost savings at HMRC had not been well managed. Paul Aplin, of the Institute of Chartered Accountants England and Wales (ICAEW) tax faculty, agreed with our line of questioning that problems had in the past been caused by “cuts in anticipation”, explaining that “I think that has characterised the change programme.” He went on to tell us “headcount reductions have always come first; the change has followed”. He felt that the systems should change first and only once they had been tested should any headcount reductions take place.13 He mentioned the changes to the NPS and PAYE systems as examples of where “it does appear that the pace was forced”. He considered that “some of the problems that emerged last autumn could have been anticipated, with proper scenario testing and with more engagement with stakeholders”.14 Graham Black of ARC concurred with this view. He told us that, although IT had helped to improve efficiency, the reductions in staff had come before, rather than after, the improvements were delivered:
As to whether it improved things as much as we would have liked or as was expected, there is always a danger with IT projects that you expect them to achieve everything, so you make the savings and you take the staff out accordingly and then when the actual IT comes in it is not quite as good as that but you have already lost the staff.15
Peter Lockhart, of the Public and Commercial Services Union (PCS), noted that “a lot of the staff reductions have been predicated on the ability of IT systems to deliver when quite clearly they have not”.16
22. We recommend that the Government look again at the profiling of the savings HMRC is expected to make alongside the efficiencies that are expected to deliver them to ensure the two are commensurate and allow a degree of contingency in the case of unexpected problems with implementation. Technological improvements and process changes within HMRC have and will continue to deliver genuine efficiency savings. However, there have been credible suggestions that HMRC has in the past made savings by reducing staff numbers before the enabling efficiencies have been fully realised— with resulting impacts on performance and costs.
13 Q 82 14 Q 83 15 Q 17 16 Q 33
12 Administration and effectiveness of HM Revenue and Customs
Long-term staff planning
23. On a similar point, Peter Lockhart was concerned that job losses had often been made without thought for longer-term, strategic considerations. As an example he told us that some job losses, particularly in compliance, were now having to be reversed to meet the focus on increasing yield from compliance. PCS observed that it took four years to fully train a compliance officer.17
24. Dame Lesley rejected Mr Lockhart’s suggestion that re-investment in compliance amounted to plugging holes created by previous efficiency savings.18 However, concerns that the Department has lost experienced staff were not confined to the unions. Chas Roy- Chowdhury, of the Association of Chartered Certified Accountants (ACCA), expressed similar concerns:
we now have the situation where those people who could leave did leave; the ones who were getting on into their 50s, I guess. They received good pension pay-offs, but they were the ones with the experience and knowledge in tax. HMRC have divested themselves of that knowledge base at a local level as well [...] Lots of the people who knew about tax have now haemorrhaged from the organisation.19
25. ARC said that insufficient effort had been put into recruiting and training tax professionals who would be able to take over from departing HMRC staff.20 Terry Cook, former President of ARC, told us he thought this issue was now starting to be addressed, but that training and development budgets would always be vulnerable in an organisation looking to make spending reductions.21 Dame Lesley told us that the training of contact centre staff had been “fairly ring-fenced” since HMRC’s move towards telephone based contact.22
26. The Minister agreed that the retention of experienced staff was something that HMRC should look closely at. He told us that HMRC was looking at retraining staff who were likely to lose their jobs, with the aim of moving them into other areas of the organisation.23
27. The Department’s effectiveness depends not only on the quality and effectiveness of its public-facing and processing staff, but also on having a cadre of staff at all levels who have long experience in tax matters. There is some evidence that the workforce change programme may have led to a disproportionate loss of experienced people at HMRC. We recommend that HMRC examine how it implements job cuts, with the aim of preserving the professional expertise in tax it needs to deliver an effective service, and report back on the changes that have been made as a result of this process.
17 Ev 82 18 Q 251 19 Q 102 20 Ev 91 21 Q 61 22 Q 218 23 Q 444
Administration and effectiveness of HM Revenue and Customs 13
Legal complexity
28. Several of our witnesses expressed a degree of sympathy with HMRC’s position, in having to administer a complex tax system with diminishing resources. The Institute of Chartered Accountants of Scotland (ICAS), observed:
We have a great deal of sympathy for the position in which HMRC finds itself. Tax legislation in the UK has become excessively complex and is quite inappropriate for a self assessment regime.24
They took the example of the IR35 legislation, enacted to ensure businesses could not avoid paying National Insurance or Income Tax by using intermediaries. HMRC has received a lot of criticism over its handling of IR35. PCG, who represent freelance workers, delivered a damning verdict on HMRC’s administration of the regime in their evidence to us.25 The Government, in the 2011 Budget, announced a series of changes to the way the regime will operate.26 However, ICAS told us:
HMRC are faced with the impossible task of trying to enforce legislation which should never have been enacted but, having mistakenly been enacted, should have been repealed immediately its deficiencies became apparent.27
29. We have made recommendations elsewhere about how the tax-policy making process could be improved and have welcomed the Government’s stated intention to move towards simplification and better consultation in making policy.28 HMRC’s task is made harder by the increasing complexity of the tax system and deficiencies in the underlying legislation. The Government has already announced a package of reforms to the way tax policy is made. Following the O’Donnell Review of 2004 HM Treasury has had lead responsibility for making tax policy, whilst HMRC is responsible for “policy maintenance”. The time has come to review how those arrangements are operating with a view to ensuring the practical impact of new tax legislation is adequately considered even before the consultation stage begins.
Spending Review
30. Like all Government departments, HMRC will have to make spending reductions over the next spending review period.29 These reductions have been offset to some extent by money “reinvested” in specific areas of HMRC activity:
£900 million of investment to address the tax gap and tackle tax avoidance and evasion, bringing in an additional £7 billion per year in tax revenues by 2014–15;
24 Ev w10 [Note: references to ‘Ev wXX’ are references to written evidence published in the volume of additional written evidence published on the Committee’s website] 25 Ev w45–w48 26 Budget 2011, para. 1.78 27 Ev w11 28 Treasury Committee, Eighth Report of Session 2010-11, Principles of Tax Policy, HC 753 29 HM Treasury, 2010 Spending Review, October 2010
14 Administration and effectiveness of HM Revenue and Customs
£100 million to improve the operation of Pay As You Earn (PAYE) for both employers and individuals; and
measures to deliver £8 billion of tax credit fraud and error savings by 2014–15.30
31. The most recent figures for the total resources that will be available to HMRC are detailed in the table below:
Table 3: HMRC Spending Review settlement
Year 2010–11 2011–12 2012–13 2013–14 2014–15
RDEL (£m) 3,859 3,817 3,702 3,867 3,543
CDEL (£m) 177 287 144 122 129
DEL (£m) 4,036 4,104 3,846 3,989 3,672
Source: HMRC 2011–12 main estimate
32. As noted earlier, in the first five years of HMRC’s operations total DEL reduced from £4.4bn to £4.2bn. In cash terms this was a reduction of 1.0% per annum. From 2009–10 until 2014–15, the last year of the spending review period, HMRC total DEL will have fallen from £4.2bn to £3.7bn, a fall in cash terms of 2.8% per annum. Using the assumptions about inflation in HM Treasury’s most recent publication of the GDP deflator31 the cuts in expenditure from the end of 2009–10 until 2014–15 will amount to 24% in real terms, 5.3% per annum.32 From when HMRC was formed in 2005–06 up until 2014–15, the end of the Spending Review period, its Departmental Expenditure Limit (DEL) will have been reduced by over one third (35%) in real terms, an annual cut on average of nearly 5% each year.
30 HM Treasury, Spending Review 2010, p. 71, para 2.133 31 HM Treasury, GDP Deflator, March 2011. Note: The GDP deflator forecasts inflation to be between 2 and 3% in the coming years. If inflation is higher the real terms cut will be greater and if it is lower the real terms cut will be less. 32 If 2010–11 is used as a baseline the annual real terms reduction is slightly less at 4.9% per annum.
Administration and effectiveness of HM Revenue and Customs 15
Figure 2: HM Revenue and Customs Departmental Expenditure (real terms, 2009–10 prices)
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Source: HMRC written submission to Committee, HMRC 2011–12 Main Estimate, HMT GDP deflator, Committee analysis
Reaction to the Spending Review
33. In written evidence to the Sub-Committee HMRC explained that they had “developed a customer–centric business strategy and this will reduce the costs of collecting tax for HMRC and taxpayers”. Specific ways of reducing costs were highlighted. These included reducing “re-work and delay” and “the need for many customers to contact us”, as well as “improve and expand the use of our online services and the degree of automation in key processes”.33 In oral evidence, HMRC’s Chairman told us that he felt they had a spending settlement and financial plan that “fitted the direction of travel”.34
34. The Exchequer Secretary, David Gauke MP, told us that IT would be a key part of ensuring that the efficiencies envisaged as part of the spending review would be delivered:
[for example] following the implementation of the NPS system, it is more in the region of 3 million cases that need to be dealt with manually—still a significant demand on resources but clearly less of a demand than having to deal with 17 million cases. So there are opportunities for efficiency savings, and some of that can be used to reduce costs, some of that can be resources that can be redeployed to increase yield.35
He stressed that Ministers had invited, and accepted, proposals from HMRC on how reinvestment could increase the tax yield, but went on:
33 Ev 100 34 Q 134 35 Q 371
16 Administration and effectiveness of HM Revenue and Customs
We always said to HMRC that they could not be exempt from the pressures that existed as part of the spending review, and HMRC always accepted that.36
35. A number of witnesses, ranging from professional bodies through to staff unions, were concerned about the implications of further reductions in resources at HMRC. In written evidence the ACCA were pessimistic about the impact of the spending settlement:
ACCA simply cannot see how HMRC can hope to even maintain current service levels, with reduced staff and budget. The aim of reducing the tax gap is worthy, but if reduced funding leaves HMRC unable to address the basics of maintaining a service for compliant taxpayers the potential damage to the economy and reputation of the United Kingdom is immense.
They compared the situation to the private sector and considered that it was:
[...] hard to imagine any commercial environment where a department would be expected to increase output of an ever more complicated product while being forced to cut staff numbers, operate on reduced funds and implement relentless restructuring of its business model.37
36. HMRC’s unions were positive about the reinvestment in compliance work.38 However, Graham Black, President of ARC, painted a bleak picture of the impact of further reductions in resources at HMRC. “I think management are struggling; I think the Department is struggling.” He told us that the continuous cuts were having a negative impact. “Every organisation goes through periods where they have to rationalise and take some cuts, but we will have had 10 years of nothing but cuts.”39
37. While for most departments the Spending Review settlement reversed the increases which they received in the years leading up to 2009–10, the HMRC settlement continued and increased the magnitude of the spending cuts which they had already experienced in the previous five years.
38. HMRC is in a unique position as the Government’s primary collector of revenue. Its expenditure is dwarfed by the amount of revenue it collects. Whilst this does not exempt it from the need to make efficiencies, it means that Government needs to be cautious about making reductions in resources that might have a negative impact on the Department’s performance and lead to reductions in revenue.
39. We welcome the fact that the Government has accepted the case for ‘reinvestment’ where this will increase the tax yield, but note that in practice the Spending Review package amounts to an overall reduction of 15% over the Spending Review period, being net of an additional 10% of expenditure which, although allowed, is ring-fenced for specific purposes.
36 Q 372 37 Ev 84 38 Ev 80 39 Q 58
Administration and effectiveness of HM Revenue and Customs 17
3 Staffing and management
40. This Chapter examines a number of concerns that were raised with the Sub-Committee around the staffing and management of HMRC. It addresses low levels of staff engagement (the measure used within the Civil Service to evaluate staff morale and related issues), the culture within the organisation and the impact of changes at the top.
Staff engagement
41. Poor staff engagement at HMRC has been a source of major concern for the Sub- Committee, HMRC management and ministers. In 2009 our predecessors raised concerns in two reports: Administration and Expenditure of the Chancellor’s Departments 2007–08 and Evaluating the Efficiency Programme. They linked poor morale to uncertainty about the future among staff, a lack of understanding as to why efficiency targets had been chosen and increasing pressure as a result of having fewer resources to do the job.40 A year later, in March 2010, they concluded:
We are deeply concerned about employee engagement at HMRC and its effect on performance. We accept that the relatively new senior management team is aware of the issue, and takes its implications seriously. Nonetheless, we are deeply troubled by the apparent absence of any detailed plan to ameliorate the situation. We recommend that HMRC’s management re-double their efforts to re-engage with their workforce, and publish a clear and detailed plan to provide focus and direction to their actions. We will continue to monitor this issue closely.41
42. Staff engagement figures continue to be poor. The Cabinet Office’s autumn 2010 people survey ranked HMRC bottom of the entire Civil Service with an overall positive score of 34% (a composite score made up of responses to key questions)—a 2 percentage point fall on the previous year.42 HMRC point out that the reduction (which reverses a previous improvement) may be in part due to the negative coverage of the PAYE reconciliations on staff morale—an impact likely to be particularly felt in some of the lowest scoring areas, such as “engagement”.43
43. In its Response to the Committee’s 2010 Report the Government said improving staff engagement is a key strategic objective for the Department and a corporate action plan was being developed within HMRC to achieve this. We understand that the action plan is now in place and will be updated following the autumn 2011 People Survey.44 The Department’s 2010–11 business plan set a target of 60% engagement by March 2012 and above average
40 Treasury Committee, Seventh Report of Session 2009–10, Administration and Expenditure of the Chancellor’s Departments 2008–09, HC 156; Treasury Committee, Thirteenth Report of Session 2008–09, Evaluating the Efficiency Programme, HC 520 41 Administration and Expenditure of the Chancellor’s Departments 2008–2009, para. 66 42 Civil Service People Survey 2010, http://www.civilservice.gov.uk/about/improving/engagement/people-survey- 2010.aspx 43 Ev 97 44 Government Response to Administration and Expenditure of the Chancellor’s Departments 2008–09, Cmd 7917, p. 8
18 Administration and effectiveness of HM Revenue and Customs performance by 2014.45 We note, however, that the longer-term Structural Reform Plan published in autumn 2010 does not include specific indicators relating to staff engagement (although it contains a commitment to continue publishing staff survey results).46
44. The Chairman of HMRC, Mike Clasper CBE, accepted that staff engagement was a major concern, but argued that there was a significant difference between the attitude of staff towards their work and towards the organisation more generally:
Our staff are committed to the purpose; if you go out there, or even if you look at the data, you see people who believe they are doing a very important thing for the country. They are committed to get the money in so that we can fund the nation’s public services. The second thing—this is the one that suggests a sort of dichotomy— is that in general they like their work and they want to stay. Normally, that doesn’t come with the next two things, which are that they don’t feel a positive sense of direction in the department and they don’t like change.47
Dame Lesley agreed:
I would like to make a plug for my staff, in saying that the great thing we have to build on in HMRC is their passion for their work, their pride in their work and their determination to give good service to their customers. They are not engaged with HMRC as a department, as a brand, and that is a huge part of their work as we go forward as one single department. In my conversations with the trade unions on this subject, some of the things we have already done, like removing barriers from people, moving from one line of business to another, being able to up-skill them and redeploy them, and starting to paint a picture of hope for careers and better investment and targeting investment, and opportunities for jobs, are some of the things we have to do.48
45. ARC agreed that “despite the staff survey” staff were “keen in their work”, a statement supported by the 72% of respondents to the survey who agreed or strongly agreed with the statement that they were interested in their work. 49 However, the overall average of positive responses relating to “My Work” was 49%, 22 percentage points lower than the CSb (Civil Service benchmark), driven down by very low scores relating to amount of control staff felt they had over their work. Several of our witnesses observed a “command and control” culture within HMRC that may account for some of these figures. We discuss this further below.
46. There has been some improvement in the staff survey results relating to organisational purpose and aims, with greater awareness of HMRC’s objectives and how individuals fit
45 HMRC Corporate Business Plan 2010/11, http://www.hmrc.gov.uk/about/bus-plan-2010–11.pdf accessed 26 May 2011 pp. 19–20 46 HMRC Business Plan 2011–15, http://www.number10.gov.uk/wp-content/uploads/HMRC-Business-Plan1.pdf accessed 6 June 2011 47 Q 134 48 Q 308 49 Q 58
Administration and effectiveness of HM Revenue and Customs 19 into achieving those. However, these improvements are small, and though the positive scores in this area exceed 60%, they remain between 15 and 20 percentage points below the CSb.
47. The Department came out best in relation to “My Team” and “My Line Manager”. Scores in this area are 74% and 57% positive respectively—3 percentage points and 7 percentage points below the CSb and with scores improving more or less across the board. Conversely the worst results came under the headings of “Engagement” and “Leadership and Managing Change”. Under engagement, only 15% felt proud when they tell others that they worked for HMRC, a full 40 percentage points lower than the Civil Service benchmark, whilst only 12% would recommend it as a great place to work. Under leadership and managing change, HMRC on average scored 17% positive responses, 20 percentage points below the Civil Service benchmark. Only 9% of employees who responded to the survey believed that change in HMRC was usually for the better, whilst 12% responded positively to the suggestion that “HMRC as a whole is managed well”. Results in this area fell between 15 and 29 percentage points below the CSb.
48. The poor scores in these areas are a cause for concern as HMRC goes into another period of restructuring. ARC told us “HMRC is going into a massive restructuring exercise with a relatively poor capability and a demoralised workforce that does not trust senior managers to deliver change”. They pointed out that the staff survey revealed that “61 per cent of staff have no confidence in the decisions made by HMRC’s senior managers” explaining that: “The figures suggest a likely frailty in staff willingness to support changes without significant improvements in the way they are involved in the change process.” 50
49. Mike Clasper accepted that HMRC had managed change poorly and “we need better leadership”. However he saw a positive direction of travel:
Looking forward, we have to continue changing. There is no way we can deal with the financial state of the country and the fact that our customers are changing all the time; economic issues and tax policy—we have to deal with change. I think one of the two most important things we have to do, going forward, is to deliver that sense of direction and opportunity that we have not been doing as well as we should have been. The great advantage is that we now have a spending review and a financial plan that fits the direction of travel. The second thing is to have much better linkage between the top of the organisation and the bottom.51
50. Staff engagement at HMRC was a major concern of our predecessors throughout the last Parliament. The management team have achieved some small improvements in relation to organisational purpose whilst staff remain dedicated to their work despite the considerable pressures on them and the organisation, some of which originates from outside the Department. However, this cannot conceal the overall picture. Relatively positive staff attitudes towards immediate colleagues and superiors stand in stark contrast with overwhelmingly negative attitudes towards organisational change
50 Ev 90 51 Q 134
20 Administration and effectiveness of HM Revenue and Customs and the management of the Department. It appears likely that the poor handling of the recent PAYE reconciliations and relentless negative publicity has further harmed engagement and morale. This widespread disengagement is a serious problem for a Department about to undergo further restructuring, and which was described by one witness as “stretched almost to breaking point”.52
51. The evidence we heard identified two broad causes behind the poor staff survey results: the impact of constant restructuring and staff reductions, and a perceived “command and control” culture.
Job Losses
52. As discussed in the previous chapter, efficiency savings were one of the key aims of the merger of the Inland Revenue and HM Customs and Excise. The combined organisation has reduced staff numbers in each year since the merger, from 92,888 full-time equivalents in 2005–06, to 69,300 in 2009–10—an overall reduction of a quarter. The largest reduction, 11,860 posts (14% of the workforce), occurred between April 2009 and April 2010.53
53. The unions representing HMRC workers blamed poor staff morale on these job cuts. Graham Black of ARC told us:
I think there is a much better idea of the strategy of the Department going forward and what they want to achieve, but frankly any series of managers in the position that the current incumbents are in would find it a very, very difficult job. You have a department that will effectively have halved in size over that period [from the merger to the end of the current Spending Review period]. It is very difficult to get a highly motivated and high morale department when you’re dealing with that year in, year out; no escape; no times when it gets stabilised; no times when significant things seem to get better. It has a pretty corrosive impact on the department, and senior managers have struggled to come up with an answer to that.54
54. In their written evidence HMRC accept that “uncertainty about job security” and “reduced development and promotion opportunities” have impacted on staff morale.55 It is noticeable that the Department’s approach to addressing staff engagement “aims to provide a solution that looks beyond the issues currently experienced by staff, such as the workforce change agenda, and addresses core staff motivators and levers for change.”56
55. Any organisation facing the constant job losses that HMRC has faced over the last five years would experience problems with staff engagement. The Spending Review settlement means that some areas are likely to experience greater stability, even expansion, whilst other parts of the Department continue to be reduced in size.
52 Q 86 53 Ev 102 54 Q 58 55 Ev 97 56 Government Response, Administration and Expenditure of the Chancellor’s Departments 2008–09, Cmd 7917, p. 8
Administration and effectiveness of HM Revenue and Customs 21
Ensuring that engagement does not fall still further in these latter areas will be an enormous challenge for HMRC managers.
Organisational culture
56. A second contributory factor identified by our witnesses was a ‘command and control’ approach to management within HMRC. Martin Lewis, a former HMRC employee, sent us compelling, but disturbing, evidence about his experience of the culture within HMRC:
Middle managers are discouraged from reporting back to the top “bad news” or news that projects and initiatives are becoming unmanageable or are going awry. Such reports are regarded as “negativity” and will damn career progress.
Thus at the top senior managers are largely unaware of the difficulties, problems, and obstacles that the bulk of the organisation faces. They know little of the scale of unanswered phone calls, and the unopened letters, the data quality of tax payers’ records and perhaps most importantly the nature and quality of the service provided on a daily basis to the taxpaying public.
The role of middle managers is to struggle vainly and to provide the appearance that their targets have been met. They are not expected to provide reasons why targets are not met, they are just expected to get on and meet them.57
57. Chas Roy-Chowdhury of ACCA told us he believed that the organisation was too set it in its existing ways: “I think, culturally, there is a problem because there is a process-driven attitude and they do not want to think outside the box”.58
58. The unions supported Mr Lewis’ views. PCS pointed to figures in the staff survey, suggesting that only 21% of staff within HMRC felt it was safe to challenge the way things are done—18 percentage points (pp) lower than the Civil Service benchmark (CSb).59 Graham Black told us: “we certainly recognise the sort of cultural issues that were being raised there, and they go right through. We have SCS members, senior civil servants, who feel it is not a comfortable place to challenge accepted practice.”60
59. Particularly interesting in this regard is the dichotomy in the staff survey results between the perceived willingness of direct line managers to listen to the ideas of staff (70% positive result, 7 pp below the CSb), and the percentages who believe they are involved in decisions affecting their work (28%, 22 pp below CSb) or who believe they have a choice in deciding how they do their work (40%, 30 pp below CSb).61
60. HMRC management has introduced a series of initiatives that are designed to improve staff’s willingness to engage and raise their concerns. These include opportunities to phone
57 Ev w31 58 Q 122 59 HMRC Staff Survey, Autumn 2010, http://www.hmrc.gov.uk/research/ss-autumn2010.pdf, accessed 25 May 2011 60 Q 70 61 Autumn 2010 Staff Survey
22 Administration and effectiveness of HM Revenue and Customs or e-mail problems to staff forums or senior management. However, Martin Lewis suggests that these have become “tightly managed events”, with issues rarely being fully addressed.62 We are not in a position to comment, but note there was no improvement in staff’s willingness to challenge in the autumn 2010 survey compared to the previous survey.63
61. The implications of such a culture are deeply concerning. As ARC put it in written evidence:
There is a presumption that projects sponsored at the highest levels will not fail, but it is difficult to see how success can be maximised without proper early consultation with affected parties.64
62. The unions also identified the level of scrutiny that staff are subjected to as a major part of the problem. Simon Boniface, of PCS, said that “some of the micro-management, is just unnecessary”. Staff felt that management did not trust them and subjected them to excessive internal bureaucracy and scrutiny.65 Both unions agreed that senior management should:
take a deep breath, accept the fact that you were not going to micro-manage people for a period of time; put a bit of trust in them; empower them to do the job; see if they deliver for you; and then if they do, you can stay with that approach and you do not need to command and control.66
ARC submitted a detailed series of proposals along these lines on how morale could be improved.67
63. HMRC’s Chairman accepted that the organisation needed “much better linkage” between the top of the organisation and the bottom. He said that some areas of HMRC had as many as thirteen management layers, and that it was their aim to reduce this to seven or eight.68
64. The evidence we have received about the management culture within HMRC, supported by the staff survey results, is very disturbing. There is a perception that the Department is run on the principles of close control and management scrutiny, with little opportunity for individuals to develop autonomy and exercise their skills. Whilst there is a need for consistency in dealing with people’s tax affairs and appropriate performance management, a culture such as the one described to us is likely to harm staff morale and lead to disengagement and poor performance.
62 Ev w32 63 HMRC Staff Survey 64 Ev 121 65 Q 68 66 Q 68 67 Ev 121 68 Q 134
Administration and effectiveness of HM Revenue and Customs 23
65. It is particularly concerning that staff feel unable to escalate possible problems up the management chain or challenge established practice. In principle one of the benefits of close scrutiny should be that issues are anticipated and responded to. This does not appear to be the case, as the handling of the 2009–10 PAYE reconciliations shows. HMRC intends to reduce its layers of management to improve communication; however this will achieve little unless the underlying culture of the organisation is changed. We recommend that HMRC engage constructively with staff and unions to see how this can be achieved and report back to this Committee within the financial year.
Leadership
66. The destabilising impact of large-scale job losses has been accompanied by instability at the top of HMRC. After the events of 2007 the Department was restructured around lines of business and responsibilities at the top were rearranged, leading to the current system of a non-Executive Chair working alongside the Permanent Secretary and Chief Executive and Permanent Secretary for Tax. The organisation is about to undergo another process of structural change as a result of the Spending Review process.
67. As our predecessors noted, the 2009 Capability Re-review of HMRC provided a partial vindication of the restructuring. Success stories include the handling of personal data. The Department reported only one major incident of protected personal data loss in 2009–10, compared to five in 2008–09 and nine in 2007–08.69 Nonetheless the Re-review still concluded that the Department faced a “huge transformational challenge” and identified numerous areas for potential improvement, with staff engagement requiring urgent attention.70
68. Whilst the restructuring of HMRC has resulted in some benefits, ARC stressed in their written evidence the destabilising impact of frequent structural change and changes of senior management—especially where that process has been poorly managed.71 Mike Clasper implicitly acknowledged the importance of some of these concerns when he stressed the importance that he attached to having a new senior management team:
Lesley and I have built a new top team. That includes the non-executives but crucially it is the leadership group of HMRC. When I joined the department there were an awful lot of interims, temporaries, acting-up and so on. So I think we have a top team that I have a lot of confidence in.72
69. Dame Lesley and Mr Clasper both stressed the importance of the Department having a clear strategic direction, which had been developed over a number of years following the publication of Vision, Purpose and Way in 2008. We have already discussed how the way
69 Annuals Reports, Table 1 70 Cabinet Office (2009), HMRC: Capability Re-Review, http://www.civilservice.gov.uk/Assets/HMRC%20Capability%20Review%20web_tcm6-35127.pdf, accessed 26 May 2011 71 Ev 90 72 Q 133
24 Administration and effectiveness of HM Revenue and Customs in which cost cutting and staff reductions have been managed had been criticised by some witnesses for a lack of strategic direction.73 Mike Clasper accepted that the frequent changes at the top of the Department had impeded its ability to set a direction for the organisation:
when I joined the department, although there were individual elements of a strategy for the total department, basically an overarching strategy for the total department— one-HMRC strategy—was not in existence. We put that in place.74
This view was broadly accepted by ARC, as we saw earlier, although they were sceptical about whether the vision could be achieved given the pressures on the Department.75
70. HMRC has been through a period of instability at the top of the organisation that has led to a lack of strategic vision. The current management team has now been in place for two years. It has set out a vision of where they would like the organisation to be, but have yet to demonstrate substantial progress towards achieving those goals and do not yet have the confidence of staff. We intend to monitor progress in these areas closely during the Parliament.
Accountability
71. As we discussed in the introduction, the structure of HMRC was revised following the 2007 Capability Review and the Poynter Review. The Department replaced the complex structure that had been put in place at the time of the merger with a more streamlined one around lines of business. In place of an executive Chairman, the organisation is now headed by a non-executive Chairman, the Permanent Secretary and Chief Executive, and the Permanent Secretary for Tax, the senior tax professional in the Department. The Department remains a non-ministerial Department, accountable to Treasury ministers but not run by them.
72. Our predecessors expressed concerns that the new structure might lead to confused lines of accountability, particularly between the two Permanent Secretaries and in relation to the role of the Chairman.76 We also pressed the Minister on his role in relation to the Department. He argued that it is right that HMRC should be a non-ministerial department in order to ensure that ministers do not become involved in taxpayers’ affairs. However, he said he had a close relationship with HMRC and described his role as:
similar to what the Treasury Select Committee has to do, in that my role is to scrutinise. It is not to operate, direct, but it is to scrutinise and question and press and push and ensure that the concerns that we, as a Government, have about
73 See sections on cuts in anticipation and lose of experience above. 74 Q 133 75 Q 58 76 Treasury Committee, First Report of 2008–09 Session, Administration and Expenditure of the Chancellor’s Departments 2007–08, HC 35, para. 82
Administration and effectiveness of HM Revenue and Customs 25
HMRC’s performance are conveyed and that HMRC and the Treasury can work closely together in achieving the Government’s objectives.77
Ministers are accountable in Parliament for the general administration of the Department, but have no decision-making role. We agree that ministers should not be involved in individual taxpayers’ affairs. However, the limitations of the Minister’s role were apparent when he discussed the impact of legacy issues such as the build up of open cases:
There is a big responsibility for management to try to address that, and it is probably easier for management to sort the problem out than it is for Ministers to sort it out. Maybe I should put it this way: Ministers can make the matter worse, but I am not sure that Ministers can make things better.78
73. HMRC has gone through significant changes at the top of the organisation since 2008. The new structure needs time before a proper evaluation of its effectiveness can be made, including whether the model of a non-ministerial department remains the appropriate one. The respective roles of the Minister, non-executive Chairman and Permanent Secretaries are something that we intend to return to later in the Parliament.
77 Q 368 78 Q 386
26 Administration and effectiveness of HM Revenue and Customs
4 The Future of PAYE
74. As noted in the previous chapter, HMRC attribute many of the difficulties facing the Department to the problems with PAYE during 2010. This chapter examines those issues and looks ahead to the future of PAYE.
The National Insurance and PAYE Service
75. PAYE is the system used to collect Income Tax and National Insurance contributions from those individuals who are employed and/or receive an occupational or private pension. PAYE cannot be applied to the State pension. Taxpayers in the PAYE system are given a tax code for each of their employments or pension sources at the beginning of each year. Where the PAYE system rather than self assessment is being used to collect tax on other sources of income, the tax code will require an estimate of those amounts. The code will also reflect the individual’s personal circumstances, such as the higher personal allowance given to older people. The taxpayer pays tax during the year on the basis of the code. At the end of the year there is a reconciliation whereby the tax paid is compared to the tax due (information will have been provided by employers, financial institutions that pay interest etc.), adjustments are made and tax overpayments or underpayments are made as necessary. Adjustments are most likely where there has been a change of individual circumstances or where an individual has multiple sources of income (for example, an income and a pension). Before 2009, these reconciliations had to be done manually because HMRC held its taxpayer employee details spread across 12 separate regional databases. This required considerable manpower.
76. In June 2009 HMRC introduced a new computer system, the new National Insurance and PAYE System (NPS). This is able to bring information about each taxpayer together into a single record. The NPS is able to perform the annual reconciliation process automatically for most taxpayer cases, so that considerably less manual intervention will be needed in the future. Unfortunately, the introduction of the NPS was hampered by the quality of data used to populate it and a series of incorrect coding notices was issued in early 2010.
77. Eventually, the introduction of the NPS was delayed by a year to ensure proper testing, so that the results of the first large-scale PAYE reconciliation exercise did not become apparent until autumn 2010. Because of the delay launching the NPS, HMRC had not reconciled taxpayer records for 2008–09 in the summer of 2009. Consequently, they had to use NPS to reconcile both 2008–09 and 2009–10 in 2010 when it finally began to function on live cases. In autumn 2010 it became public knowledge that some 6 million taxpayers were likely to receive repayments or face overpayments as a result of the reconciliation process, resulting in considerable public concern and media criticism. There had been no prior warning of this to the public.
78. It has since become apparent that there were also unreconciled ‘open cases’ from earlier years and much of the unpaid tax due has had to be written off.
Administration and effectiveness of HM Revenue and Customs 27
79. We held a hearing on HMRC’s handling of this issue in September 2010 and their performance was the subject of sustained criticism of in the Committee of Public Accounts (PAC) report on HMRC’s 2009–10 Annual Report.79 The Government accepted most of the PAC’s criticisms and HMRC is committed to clear the backlog of open cases, which stood at 17.9 million in late 2010, by 2012. The National Audit Office, in its report on HMRC’s 2010–11 Accounts, notes that the Department is ahead of its target to clear the backlog of open cases, but also that substantial work will still be needed to stabilise the PAYE system.80
80. The episode’s impact on the reputation of HMRC cannot be overstated. The problems with PAYE spring immediately to mind when reading Tax Help for Older People’s damning verdict on HMRC’s public profile:
Ten years ago the Inland Revenue had the reputation of being one of the best run Departments in Whitehall. Today HMRC’s reputation is in tatters as one disaster has followed another.81
81. Paul Aplin of the ICAEW was concerned about the damage done by the incorrect coding notices to the public perception of the tax system:
[My parents] are taxed through PAYE. They would not have a clue if the coding was right or wrong but what they do have, because it is a generational thing, is an absolute trust that a Government department is going to get it right. [...] If that fundamental trust breaks down because people start having reason to think that PAYE is not working for them, or that perhaps they can’t telephone someone who can help them and answer their question convincingly, I think there is a knock-on effect.82
82. The fact that six million taxpayers will have received letters telling them they have previously paid the wrong tax following the autumn 2010 reconciliations can only have reinforced this perception. Media reports that erroneously portrayed a process of reconciling data as correcting ‘HMRC mistakes’ or ‘computer errors’ will have done more damage. The PCS union told us that the Department had considerably underestimated the impact of NPS on HMRC’s contact centres meaning people will have struggled to obtain the advice they needed.83 The Department itself has conceded that the reconciliations are likely to have a continuing negative impact on its customer service performance and that the negative publicity will have impacted on staff engagement.84
83. The National Insurance and PAYE Service should ultimately make PAYE work more effectively and ensure efficiencies across the Department. However, the problems
79 Committee on Public Accounts, Eighteenth Report of 2010–12 Session, Her Majesty’s Revenue and Customs’ 2009–10 Accounts, HC 502 80 HMRC Annual Report and Accounts 2010–11, p. R38 81 Ev w24 82 Q 111 83 Ev 83 84 Ev 97; Q 136
28 Administration and effectiveness of HM Revenue and Customs resulting from its flawed implementation have done significant damage to the public perception of HMRC and the tax system more generally. It is crucially important for the credibility of the management team that the 2012 target for clearing open cases is met and that improvements in overall performance follow soon afterwards.
Reforming PAYE: Real-time Information
84. HMRC was already consulting on a possible change to the collection of PAYE data at the time of the autumn 2010 announcements.85 The initial consultation contained two options: Real-time Information and Centralised Deductions. Real-time Information would allow tax codes to be updated when employees are paid, by transmitting information to HMRC via the Banks Automated Clearing System (BACS), rather than reconciled at the end of the year through the submission of forms by employers. Centralised Deductions would have been a longer-term option, building on Real-time Information to move responsibility for calculating and deducting Income Tax, National Insurance and student loans away from employers to HMRC.
85. The Government decided in autumn 2010 to press ahead with a second consultation on implementing Real-time Information.86 Centralised Deductions have not been ruled out in the longer term, but the proposal in the first consultation was controversial and no further plans have been advanced.
86. In HMRC’s remit letter, David Gauke, the Exchequer Secretary and Minister for HMRC, stated that Real-time Information is “crucial to the delivery of the Government’s welfare reform agenda.” HMRC’s Business Plan says Real-time Information will be introduced by 2013 and a further consultation on the detailed changes was published in December 2010. The Government’s consultation proposed that employers would provide information on gross pay, tax and National Insurance contributions deducted in respect of every employee to HMRC, the information would be attached to the payment and transferred via BACS to HMRC.
87. The second consultation envisaged a test system up and running by April 2012 with a small number of volunteers. A further test group would be introduced in October 2012. HMRC expects to begin mandating large employers to use RTI from January 2013, with medium and small employers following later in the year.
88. Speaking in the House on the 8 September 2010 the Exchequer Secretary described the PAYE system as “outdated, inefficient and burdensome to the Exchequer and taxpayer alike.”87 Vocalink, who operate the BACS, told us that the current PAYE system is largely a “computerised version of the original 1940s paper-based system.” They told us that many of the problems with PAYE come from the quality of information provided to HMRC and the time-lag between that information being submitted and being acted upon.88 Stephen
85 HMRC, Improving the Operation of Pay As You Earn, July 2010 86 HMRC, Improving the Operation of Pay As You Earn: Real-time Information, December 2010 87 HC Deb, 8 September 2010, col. 325 88 Ev w25–w26
Administration and effectiveness of HM Revenue and Customs 29
Banyard, the acting Director General for Personal Tax at HMRC, admitted that for Real- time Information to work well, data quality would have to be considerably improved. He set out a programme of data matching with employers to attempt to ‘cleanse’ the data held by HMRC. Data quality has been a key weakness in the PAYE system to date. The success of both the National Insurance and PAYE Service and Real-time Information will depend to a large extent on how effectively HMRC can ‘cleanse’ the data it receives and holds.
89. Our witnesses were generally supportive of Real-time Information in principle. However, few believed that the case for reform was as urgent as the Government initially portrayed. The Institute of Payroll Professionals rejected the suggestion that the PAYE system was “broken” and the Institute for Chartered Accountants Scotland observed that “The UK PAYE system still works remarkably well”.89 A common theme in the evidence from professional bodies was the need to introduce the reform slowly, following proper testing and only once the NPS had stabilised.90 There was also scepticism as to whether the project would be delivered within the £100 million budget set by the Government.91
90. When we heard from HMRC in September 2010 Dame Lesley Strathie described Real- time Information as “high cost, high risk and [not] without difficulty.”92 Eight months later we asked how certain she was it would be delivered on time. She said “I would be a fool to say 100% but that is how I feel. I believe that we can do this.”93 We pressed Stephen Banyard, acting Director General of Personal Tax, about whether the concerns discussed earlier about potential problems not reaching senior managers might lead to issues arising later in the project. He told us managers had spoken to frontline staff and management and were confident the project would be delivered on time. He also stressed that the reform would be introduced more gradually than the NPS.94
91. We welcome the move to introduce Real-time Information. We agree with the professional bodies that the system must be tested thoroughly before full implementation, with full consultation with users and close co-operation with the Department for Work and Pensions at all stages. We note that large employers will be required to use the new system in January 2013, which is before the system has been tested through one complete tax year.
92. A particularly important point was the reminder by the ICAEW that Real-time Information is a means of transmitting information, not a means of processing that information.95 Crucial to the success of the project will be HMRC’s ability to process the information in a timely and accurate way. The transfer of information to HMRC via
89 Ev w2–w3; Ev w13 90 See for example Ev 79; Ev w20–21 91 Ev w29; Ev 86 92 Oral Evidence taken before the Treasury Committee, HMRC’s Operation of the PAYE System, 15 September 2010, Q 114 93 Q 321 94 Q 324 95 Ev 77
30 Administration and effectiveness of HM Revenue and Customs
BACS is only part of the Real-time Information project. HMRC must also be able to process the information in a timely way, deal with the increase in customer contact that will occur with the introduction of a new system and have in place satisfactory arrangements for those who do not pay their employees through BACS.
93. HMRC has committed to an ambitious timescale to deliver Real-time Information, driven in part by the importance of the project in delivering the Universal Credit. The history of large IT projects subject to policy-driven timescales has been littered with failure. The timetable is made more ambitious by the fact HMRC will still be resolving the legacy of open cases and stabilising the National Insurance and PAYE Service during the project’s early stages. Introducing Real-time Information before HMRC and the Government can be sure it will work correctly would run unacceptable risks for the reputation of the Department and the tax system. We recommend that HMRC and DWP have contingency plans in place in case a delay becomes necessary. Given the importance of the project we further recommend that the preparations for Real-time Information in both HMRC and DWP are subject to external audit as implementation proceeds, for example through the National Audit Office, to ensure that they are as robust as possible. We expect arrangements to be put in place for the National Audit Office to report quarterly to Ministers, this Committee, the Public Accounts Committee and other relevant Committees to ensure Ministers in both Departments can be held properly accountable for the progress of the project.
Administration and effectiveness of HM Revenue and Customs 31
5 Service standards
94. Much of the evidence received by the Sub-Committee focused on the service standards being delivered by HMRC. This evidence suggests there is widespread concern, particularly among tax professionals, about current standards and the knock-on impact on individuals and businesses. These issues have been raised with the Sub-Committee before, for example during its 2007 inquiry into The Efficiency Programme in the Chancellor’s Departments.96
95. HMRC’s customer service figures suggest that, as of September 2010, 72.5% of customers were satisfied with HMRC’s performance. This represents a slight fall (0.3 percentage points) compared to the baseline of June 2008 and a considerable fall (3.5 pp) compared to March 2010. The figure was higher (79.5%) among small and medium-sized businesses (SMEs) and considerably lower (64.7%) among tax agents.97
96. There was scepticism in some of our evidence about the credibility of HMRC’s service standards and targets. Indeed, some representative bodies have developed their own surveys.98 Our predecessors recommended in 2007 that new standards needed to be developed in consultation with users.99 In their evidence to this inquiry the ICAEW concluded that this had not occurred.100 John Seddon, of Vanguard Consulting, argued that HMRC has focused on reducing transaction costs, rather than looking at the process from an “end-to-end” consumer perspective.101
97. Witnesses from the professional bodies were primarily concerned about the amount of time it can take to get an accurate response from HMRC, either by post or over the telephone. Paul Aplin, the Chair of the Institute of Chartered Accountants England and Wales’s Technical Committee, told of his experiences as practitioner in the South West:
Five or six years ago, if we wanted a relatively simple thing done, like a PAYE coding changed, it was one telephone call, the coding would be changed that day, and it was a very simple and efficient process. If I want that simple thing done today it can take me literally months [...]102
The Chartered Institute of Taxation described customer experience of HMRC as being “at an all time low”,103 whilst its Low Incomes Tax Reform Group was damning:
96 Treasury Committee Eighth Report of Session 2006–07, The Efficiency Programme in the Chancellor’s Departments, HC 483 97 Ev 107 98 For example the ICAEW has published three surveys of its Members’ experiences. The sample sizes of these surveys are too small to be statistically robust, but their results support the statements made by ICAEW witnesses. www.icaew.com/.../taxrep-43–10-HMRC%20service%20standards%20-%20results%20of%20survey.ashx accessed 7 June 2011 99 Treasury Committee, Eighth Report of Session 2006–07, The Efficiency Programme in the Chancellor’s Departments, HC 483–I, paras. 109–110 100 Ev 77–78 101 Ev w49 102 Q 77 103 Ev w19
32 Administration and effectiveness of HM Revenue and Customs
From the perspective of unrepresented taxpayers on low and modest incomes, HMRC is now too often seen as an organisation that is unable to collect the right amount of tax, increasingly difficult to contact by phone, letter or in person, yet unforgiving of customer error and relentless in its pursuit of small debts.104
98. HMRC have acknowledged that their performance in providing services to the public has been unacceptable. Its Chairman, Mike Clasper CBE, told us that the most recent problems had largely been caused by the exceptional nature of the PAYE reconciliations process in 2010:
I am not happy with the service that we have been providing and none of us is; none of the top team is. Basically, our contact centres have been overwhelmed by the number of calls that were created by [...] dealing with eight years in one.105
99. We welcome HMRC senior management’s acknowledgement that the Department’s customer service performance has been unacceptable. We are not convinced, however, that the problems can solely be accounted for by the problems with PAYE in 2009–10. The evidence received by us and our predecessors suggest that poor service standards have been an issue for many years and have not been fully reflected in HMRC’s customer service measures.
100. We reiterate our predecessor’s 2007 recommendation that HMRC work closely with the professional bodies, tax charities and businesses to develop a series of performance indicators that credibly reflect customers’ end-to-end experience of dealing with HMRC and that these indicators are regularly published as part of the transparency section of its five-year business plan. We are disappointed that our predecessor’s recommendation was not acted upon and expect to see meaningful progress within the next twelve months.
101. The evidence we received raised five issues in particular: the performance of contact centres, the time taken to respond to post, the displacement of costs from HMRC onto businesses and individuals, the need for face-to-face contact or robust alternatives and HMRC’s drive towards online communication. In this chapter we examine each issue in turn, before drawing some overall conclusions and looking ahead.
Contact centres
102. The performance of HMRC’s contact centres was raised in evidence on several occasions. We identified three related issues in the evidence we received: the amount of time taken to get through to HMRC contact centres; the consistency of advice provided by the contact centres and the cost of such calls to taxpayers—especially to those without landline telephones.
104 Ev 92 105 Q 142
Administration and effectiveness of HM Revenue and Customs 33
Getting through
103. Our predecessors examined contact centre performance in their last report on the Administration and Expenditure of the Chancellor’s Departments 2008–09. They concluded that contact centre response rates, though improving, remained at unacceptably low levels.106
104. The performance of HMRC’s contact centres was examined in detail by the National Audit Office and the Committee of Public Accounts (PAC) in the first half of 2010. Both reports were critical. The PAC concluded:
The Department’s performance in responding to calls has been poor. In 2008–09, the Department answered only 57% of the 103 million calls to its main helplines, compared to an industry standard of 95%; callers waited on average two minutes, and nearly four minutes in peak periods to speak to an advisor; and yet contact centre staff spent only 38% of their time handling calls against an industry benchmark of 60%.107
The Report noted that the Department was taking steps to improve its performance, but called on it to be more ambitious in this regard.
105. The demands placed on HMRC’s contact centres vary throughout the year, following the tax and benefits cycle. A written parliamentary answer in October 2010 showed that the percentage of calls answered ranged from 92.6% of 3.8 million calls in November 2009 to 41.1% of 13.8 million calls in May 2010.108
106. HMRC provided us with the average percentage of calls answered in each year since HMRC’s creation. These show improvement on the 2005–06 average of only 37% of calls answered to reach 70.9% of calls answered by 2007–08. However, performance fell back in 2008–09 to 57.5% of calls answered, before improving again in 2009–10 to 75.8% of calls. According to HMRC’s Annual Report and Accounts, performance fell back again to 48% in 2010–11.109 The Department is committed to achieving the industry benchmark of 90% of calls answered in a day by March 2012.110
107. The PAC recommended that the Department should be more ambitious in its target, and aim to match industry best practice of 95% of calls answered. In its response, the Department argued that:
The significant peaks and troughs in demand for the Department’s services make it difficult for the Department to reach best practice of 95% without a significant increase in resources. Above 90%, the marginal cost of each percentage point
106 Treasury Committee, Seventh Report of Session 2009–10, Administration and Expenditure of the Chancellor’s Departments, HC 156, para. 54 107 Committee of Public Accounts, Twenty-fourth Report of Session 2009–10, HM Revenue and Customs: Handling Telephone Enquiries, p. 3 108 HC Deb, 11 October 2010, col. 240W 109 HMRC 2010–11 Annual Report and Accounts, p. 14; Q 136 110 Ev 97
34 Administration and effectiveness of HM Revenue and Customs
improvement would be significant and inefficiency would increase, with advisers spending more time waiting for calls. The Department believes that its aspiration to answer 90% of call attempts, as soon as possible, represents the right balance between ensuring value for money and providing an appropriate customer experience. However, achieving this aspiration will depend on the balance of priorities across the whole of the Department’s business and the resource levels available to achieve these.111
108. HMRC’s performance at responding to telephone calls has been patchy at best and unacceptable at worst. Based on past performance we do not have confidence that the Department will be able to achieve its target of 90% of calls answered in a day by March 2012. We recognise that there had been improvement in performance prior to the recent rise in contact due to the PAYE-related issues in 2010. However, even with that improvement, the Department was falling well short of the target, whilst the fall in performance in 2010–11 suggests there is insufficient capacity to deal with unexpected surges in demand. Given that it has been HMRC’s strategy to push so many taxpayers and tax credit claimants into communication by phone it is important that performance in this area improves rapidly. We will return to this issue regularly, and will assess the Department’s performance against its target in 2012.
Getting the right answer
109. A common theme in our the evidence we received was that it had become harder to deal with a tax issue—particularly a complex issue—in a single call to HMRC. For example, the Society of Trust and Estate Practitioners told us:
It appears that in order to cut costs HMRC is putting greater reliance on relatively junior, inexperienced staff to answer front line queries. Taxpayers with more complex affairs are therefore finding it difficult to obtain information and guidance from HMRC on issues in an acceptable time frame.112
The tax advice charity Taxaid agreed:
A general point we have experienced is that HMRC skills of front-line staff are probably about the same, or possibly a bit worse, than 5 years ago—and definitely worse than 10–15 years ago when staff facing the public had much more hands on knowledge and experience of tax. Since processing and customer contact have been separated, the decline has been marked.113
Whilst the Low Incomes Tax Reform Group told us:
from the perspective of unrepresented taxpayers and also tax credit claimants [...] You can ring up and get the right answer but, equally, you can get the wrong answer.
111 HM Treasury, Treasury Minutes on the Tenth to the Eleventh and the Fourteenth to the Thirty Second Reports from the Committee of Public Accounts Session 2009–10, Cm 7885, p. 63 112 Ev w8 113 Ev w5
Administration and effectiveness of HM Revenue and Customs 35
[...] In one call that we took just this week, somebody had been told by a call centre operator that they should be keeping records for seven years, an individual not in business. No, the right answer is 22 months after the end of the tax year in question; certainly not seven years. There is a lot of misinformation going out.114
110. Dame Lesley Strathie accepted that there would be cases where advice was incorrect or incomplete. She observed that HMRC dealt with “1 billion transactions a year” and “never on any day is everything going to work for everybody in that sort of volume”.115 However, she defended the quality of advice provided by contact centre staff and said that customer service satisfaction scores exceeded industry standards:
What that tells us is that the great British public will suffer quite a lot, in return for the service they get when they get through to speak to our staff, because the satisfaction level when they do speak to our staff is very high. I think it is about 87%.116
111. There was significant concern among our witnesses that it has become increasingly difficult to resolve a complex tax issue in a single phone call to HMRC. We recommend that HMRC examine its processes for escalating complex queries to ensure this is done quickly and appropriately. We also understand that the Department is running a pilot aimed at ensuring contact centre staff dealing with tax credits and benefits are better able to answer more complex queries first time around. The pilot is to be reviewed over summer 2011. If this pilot is successful HMRC should look at expanding it to all areas of tax.
Cost of calls
112. The PAC report observed that the average wait to speak to an adviser was two minutes—rising to four minutes during peak periods.117 We received evidence suggesting that HMRC could reduce the costs to taxpayers of calling their helplines by switching from using 0845 numbers to using 0345 numbers instead.118 Dame Lesley said that HMRC was in the process of reviewing and reducing the number of telephone numbers. She committed to examine the issue in more detail. Subsequently HMRC wrote to us, accepting that:
changing to 0345 numbers would benefit some, perhaps many, customers, primarily those telephoning from “pay as you go” mobile phones. However not all customers would benefit and some would, on the basis of current tariffs, incur additional costs when compared to 0845.
114 Q 80 115 Q 222 116 Q 220 117 Handling Telephone Enquiries, p. 8 118 Q 109; Ev w42
36 Administration and effectiveness of HM Revenue and Customs
There would also be significant additional costs for the Department associated with a change during the current HMRC telephony contract (which expires in June 2013). Initial “ball park” estimates suggest that these costs could be in the range £5m–£15m depending on the implementation timescale and contractual negotiations.119
113. We welcome the fact that HMRC is reducing the number of telephone numbers it operates. However, at a time when calls are not being answered quickly, it cannot be acceptable that those without landline telephones—often less well off members of society—may be being charged more as a result of the use of 0845 numbers. We recommend that HMRC investigate alternatives to 0845 numbers, including 0345 and freephone numbers, as part of the process of agreeing its next telephony contract and ask the Department to brief us on its key aims in negotiating that contract. As an interim measure we recommend the Department examine whether a non-0845 number could be provided for tax credit claimants and publicised through tax charities.
Post
114. We have received a substantial number of letters from the public expressing concern and even disbelief about the time taken by HMRC to respond to post. Cases of replies being received only after two or three months, in each case from a different geographic location, are not uncommon. HMRC’s record in responding to post was also mentioned in a number of submissions and in evidence to us. Paul Aplin told us:
We regularly wait two to three months for a reply to a letter and when we ring to chase, the answer we regularly now get is, “We can’t find the letter”. If you chase below two months the answer is, “It hasn’t come to us yet”. If you wait too long the answer is, “We can’t find it”; so you have to write again and go through the process again.120
The Institute of Chartered Accountants of Scotland said staff had to be redeployed within HMRC to address post backlogs once they reached crisis levels, leading to shortfalls elsewhere.121 Submissions by individuals referred to two months as being a standard wait for a reply, whilst Tax Help for Older People put the figure at three months and described correspondence with HMRC as being “a communication channel of last resort”.122
115. At our request HMRC provided graphs showing performance on post turnaround and post accuracy. These suggest that, as of November 2010, approximately 60% of post received by HMRC was being “turned around” within 15 days and 90% had been turned around within 40 days. Performance generally was fairly consistent except for 2009 when, in March, turnaround within 15 days fell to less than 40%, and performance generally was more inconsistent than previous and subsequent years.123 However, it was not clear from
119 Ev 125 120 Q 99 121 Ev w11 122 Ev w33–w34; Ev w36; Ev w24 123 Ev 107–110
Administration and effectiveness of HM Revenue and Customs 37 the figures whether ‘turnaround’ included the sending of holding replies, and no record appears to be kept of follow-up correspondence.
116. Delays in responding to post do not only cause frustration and inconvenience to taxpayers. The Association of Taxation Technicians and Chartered Institute of Taxation both made reference to HMRC’s Debt Management Unit attempting to recover incorrect amounts of tax because relevant mail had not been opened.124 Moreover, as the Institute of Chartered Accountants of Scotland noted, delays increase the inefficiency in the system, as taxpayers and agents who have not received a response to their letter call already busy contact centres to chase progress.125
117. HMRC is piloting a system of scanning post electronically, allowing it to be passed to relevant offices without having to be physically moved from one location to another. This may alleviate some delays, but the essential question of whether there are enough people available to respond to the post in a comprehensive way will remain.126
118. We recognise that the time taken to respond to an item of mail is not always a good indicator of performance. A complex technical query could be expected to take some weeks, whereas a routine change of details should be dealt with much quicker. A quick but incomplete reply will often be worse for both taxpayer and HMRC than a more considered response. However, the evidence we have received, correspondence from the public and the coverage in the professional press suggest that long delays in responding to post at HMRC are endemic. This is unacceptable. Such delays increase demand elsewhere in the system, as taxpayers and tax credit claimants chase progress, increasing costs for the public and HMRC alike.
119. We recommend that HMRC draw up minimum service standards for dealing with post in a timely and accurate fashion in consultation with the professional bodies, tax charities and businesses representatives. Such standards should recognise the distinction between simple and complex queries, and look at the progress of correspondence end-to-end rather than in relation to individual items of post. We recommend that the Department publishes an indicative timetable for achieving those standards and keeps us regularly updated on progress towards meeting them.
Face-to-face contact
120. HMRC’s programme of local office closures is well documented. Between 2006 and 2008 HMRC conducted a series of reviews aiming towards consolidating its estate and re- locating its staff. By December 2008 the reviews had concluded that 258 premises would be vacated whilst 235 would be retained.127 The Public and Commercial Services Union put
124 Ev w28; Ev w19 125 Ev w11 126 HMRC website: http://www.hmrc.gov.uk/news/changes-incoming-mail-update.htm accessed 8 June 2011 127 HMRC website, http://www.hmrc.gov.uk/local/change-programme.htm, accessed 23 May 2011
38 Administration and effectiveness of HM Revenue and Customs the figure of offices closed to date at around 200 and noted that opening hours have also been reduced.128
121. Concerns were raised with us that the closure of local offices would impact primarily on the disadvantaged and elderly. For example, Tax Help for Older People told us:
This lack of accessible information is compounded by the programme of closure, contraction or amalgamation of Enquiry Centres (ECs), leaving huge numbers, particularly those disadvantaged by disability or transport difficulties, without practicable recourse to face-to-face help and advice. Even when there is an EC close at hand, the complexities of telephoning for an appointment and then getting past the barrier of a floorwalker whose primary task is to direct you to a telephone or computer militate against our constituency.129
122. Richard Murphy, of Taxresearch LLP, raised the issue of the social impact of closing offices. He argued:
Any revenue raising department has not only to raise tax, but also be seen to do so fairly, appropriately, helpfully, and justly, and in the process it must properly differentiate those who are seeking to pay the right amount of tax in the right place at the right time (tax compliant behaviour) and those who are seeking to either avoid or evade their obligations. This requires a very visible presence in the community because it can rightly be argued that tax is the consideration in the social contract between people and their government, and that contract must be seen to have impact in the places where people live.130
123. HMRC stressed that they were retaining a face-to-face presence in many places across the country, but the closure of local inquiry centres were justified on the grounds of value for money and declining use. Mike Clasper told us:
What we are trying to do is follow where the taxpayer is going. This is an apples for apples comparison. In 2006–07, in inquiry centres face to face, versus where we are today, on the number of people coming into those places, the footfall had declined 40%. Although there are still lots of people going into those inquiry centres, and Lesley has already explained the efforts we will need, outreach and so on, the number is going down and down and down every year. [...] I think we are trying to follow the customer, not drive the customer.131
The Minister agreed:
[...] there is one inquiry centre where HMRC has been paying £162,000 a year in rent and that inquiry centre gets, on average, four appointments a week. There are another two examples where the rent is £26,000 and £34,000 a year and they are
128 Ev 80–81 129 Ev w23 130 Ev w53 131 Q 282
Administration and effectiveness of HM Revenue and Customs 39
getting, on average, one appointment a week each. It is clearly not sensible to pursue that but we can be, and I think HMRC can be and is being, more imaginative in the sense that there doesn’t necessarily need to be a separate HMRC office incurring all those costs. HMRC can make use of job centres or council offices and so on and be much more creative in the way that is done.132
124. The Low Incomes Tax Reform Group have suggested that enquiry centres can be poorly advertised and difficult to find and suggested that falling footfall may be as much about lack of access as lack of demand for the services they provide.133 Robin Williamson, for example, observed that whilst the number of people using HMRC’s enquiry centres had declined over the previous three years, the number of people using Tax Help for Older People’s services had “virtually doubled”.134
125. We urge HMRC to examine how far declining use of Enquiry Centres is due to factors such as inconvenient opening hours or lack of advertising. More broadly, we recommend that the Government examine whether withdrawing its physical presence from an area has a medium—or long-term impact on local compliance.
126. Some witnesses speaking for unrepresented taxpayers accepted that continuing a full network of centres was unsustainable given the current spending settlement. They had a number of suggestions of how a face-to-face presence could be maintained in more efficient ways, some of which HMRC have taken up. These included: introducing well- advertised part-time opening hours that fit with people’s other commitments, sharing premises with other centres of advice such as Citizens Advice Bureau and the Department of Work and Pensions, or expanding mobile advice centres.135 We welcome the fact that HMRC’s Change Plan commits to “providing targeted help for vulnerable customers who most need face-to-face support”, but we do not believe face-to-face support should solely be available to the vulnerable. The Department has a strategic approach focused on delivering contact through contact centres and online. Face-to-face contact must be an integral part of that strategy, not an exception. We recognise that savings must be made; the tax charities and other bodies who submitted evidence to us had a number of imaginative suggestions for how face-to-face services could be delivered more cost effectively. We recommend that HMRC look closely at alternative ways of providing wide coverage of face-to-face advice such as co-location with other public offices, convenient part-time opening hours and mobile advice centres.
Online communication
127. HMRC has put a great deal of resources in recent years into expanding its online presence. Their written evidence stressed the value of encouraging taxpayers and other users to use online methods to administer their tax affairs:
132 Q 424 133 LITRG, ‘The Slow Death of the Inquiry Centre’, http://www.litrg.org.uk/Migrant/migration-2010–01– 28/news/2009/the-slow-death-of-the-enquiry-centre, accessed 25 May 2011 134 Q 109 135 Ev w24; Ev 94
40 Administration and effectiveness of HM Revenue and Customs
we will migrate “willing and able” customers to online channels; releasing more of our contact centre resource to dealing with tax credits customers, where telephone contact is the most effective channel.136
Dame Lesley was clear about where the Department’s priorities lie in terms of communication:
The Government strategy is digital; not the telephone. It is that we move as much of our service online and then we provide assistance for people who can’t use online.137
In particular HMRC has been developing, alongside the Department for Business and Innovation and Skills, a ‘one-click’ system for registering businesses and a ‘dashboard’ through which businesses can view all their tax liabilities in place.138
128. The increasing provision of online services by HMRC is desirable and, as the ACCA said in their evidence, the demand for such services is “irresistible”.139 HMRC told us that:
Services that we have put online have had a high take-up rate. Current rates for online filing are 75% in Self Assessment, 37% in Corporation Tax, 98% in PAYE for employers End of Year returns and 71% in VAT compared to rates of 23%, 2%, 65% and 5% respectively in 2005–06.140
129. Paul Aplin of the ICAEW told us that HMRC had made significant efforts to engage with professional bodies in implementing some of its moves online, with positive results. He indicated that there was a noticeable difference in the success of IT projects that had followed the principles outlined in Lord Carter of Coles’ Review of HMRC’s Online Services and those that had not.141
130. However, HMRC’s movement online has not been without its problems and its critics. The online tax credits portal has been shut down since a large-scale fraud in 2005.142 The Forum for Private Business argued that many online processes are too complex for their members to use and gave an example of a relatively simple change to information on HMRC’s website that they were told could take up to six months.143 A survey of business people by the Institute of Directors found that only 16% considered it easy or very easy to find the information they needed on the HMRC website, although the IoD acknowledged that improvements had been made.144
136 Ev 97 137 Q 278 138 Ev 97 139 Ev 85 140 Ev 97 141 Q 83 142 Ev w40 143 Ev w14–w17 144 Institute of Directors, Tax Administration, Where Next?, http://www.iod.com/MainWebSite/Resources/Document/tax_survey_report_1011.pdf, accessed 25 May 2011
Administration and effectiveness of HM Revenue and Customs 41
131. The principal criticism we had from our witnesses was the speed with which online options are replacing, rather than complementing, alternatives, running the risk of excluding those without reliable interest access. One element of this was access to information. Robin Williamson, of the Chartered Institute of Taxation’s Low Incomes Tax Reform Group, told us:
More and more information put out by HMRC is online, less and less on paper. That instantly excludes a great many often poorer, often older people, who are not comfortable using the internet or have never used a computer—people with disabilities can’t—and people who live in areas that are remote and have unreliable broadband access.145
Tax Help for Older People described the replacement as “unacceptable”—observing that more than 60% of people over the age of 65 have never used the internet. They went on:
Re-introducing some basic written information may appear at first sight to be money-consuming, not saving, but taxpayers who can fulfil their obligations in an informed way do not make expensive demands on HMRC by either phoning contact centres repeatedly, completing forms incorrectly or failing to take appropriate action at various times. Preventive action by providing clear, simple and accessible information saves money.146
132. Ending the production of advice and guidance leaflets may save money in the short term. However, it will force those who do not have access to the internet to turn to the telephone or enquiry centres for advice, and may lead to an increase in mistakes which are costly for HMRC to rectify. HMRC should examine reintroducing selected, well targeted, leaflets aimed at groups such as the elderly who are most likely to lack internet access.
133. A similar trend can be seen in relation to online filing for businesses. Again, the concern was not that HMRC was putting more information online, or allowing businesses to file online. Both of these things were welcomed by witnesses. The concern was with the speed with which HMRC has moved from providing a service online to requiring (mandating) it. For example, HMRC requires all Company Tax Returns for periods ending from 31 March 2011 to be filed online, yet figures in a report commissioned by HMRC in 2008 suggest 9% of businesses do not have access to a computer, let alone broadband internet.147
134. From HMRC’s perspective mandating online filing substantially increases take-up of what is, for them, the most efficient means of filing and eliminates the need to run parallel systems. Nor can we lose sight of the fact that many businesses will prefer online filing. However, mandation excludes those without easy access to the requisite IT. Even where exemptions are permitted, taking advantage of them may add an additional layer of worry
145 Q 109 146 Ev w224 147 GfK Business, The Extent and Nature of the Use of Computerised Accounting by Businesses to meet their VAT and Corporation Tax Obligations, p. 13
42 Administration and effectiveness of HM Revenue and Customs and complexity to the process of paying tax—and in so doing may increase the risk of individuals becoming non-compliant through a lack of opportunity and the costs in terms of both time and money. As the Chartered Institute of Taxation said in their evidence:
HMRC need to make it easier to comply. The increasing mandation of online filing causes us concerns. While more online filing does offer real efficiencies, it does bring problems (e.g. there have been delays in iXBRL corporation tax software for all but the smallest and largest companies). HMRC also need to maintain alternatives to online filing for those without access to secure broadband services.148
135. HMRC has been relatively successful at enabling taxpayers to pay many of their taxes online. However, requiring online filing prematurely runs the risks of excluding those without reliable high-speed internet access, dissuading those who are not computer literate from being tax compliant and overloading systems that have not had time to bed in. HMRC should always ensure it has robust, well-advertised alternatives in place for those who cannot submit online and publish a statement of its commitment to continue to provide a robust free filing service for basic tax return filing.
Use of email
136. A possible response to the delays in responding to post would be for HMRC to accept much more correspondence via email. This proposal was put forward by the ICAEW, ICAS and CIOT in their evidence and Dame Lesley Strathie told us that, in her experience, there was much for demand for email rather than face-to-face advice.149 Whilst we would welcome any moves towards greater use of email or secure messaging by HMRC, we accept there are genuine concerns on the grounds of security. Without proper planning, greater use of email may also achieve little more than transferring the bulk of the correspondence backlog from one medium to another. We recommend that the Department make a clear statement of their intent in relation to email and secure messaging.
Service standards and the efficiency programme
137. In the light of this evidence, we asked witnesses what they thought of HMRC’s claim that there had been no overall negative impact on performance as a result of the Department making £1.1 billion of efficiency savings.150 Chas Roy-Chowdhury, of the ACCA, told us that this claim was “nonsense”.151 Paul Aplin from ICAEW told us: “For five years those of us at the coalface have been seeing service standards decline”. He went on to explain “I think the department has more than it can handle and it has had its resource cut by 5% a year, year on year”.152 However, he did not feel that HMRC had been deliberately misleading in saying that these savings had not had a negative impact. “I do not think they
148 Ev w20 149 Q 279 150 Ev 16 151 Q 80 152 Q 81
Administration and effectiveness of HM Revenue and Customs 43 are lying. I think they just have a rather different perception from the perception those of us at the coalface have.”153 We also asked representatives from the unions for their opinion on HMRC’s statement on savings and performance. Simon Boniface of the Public and Commercial Services (PCS) union “would confidently say” that the statement was untrue.154
138. Responding to these views, Dame Lesley Strathie told us “performance in terms of the Department’s core business is to collect the revenue and pay out the benefits and credits”. She conceded that in some other areas performance was not satisfactory, telling us that “customer service and employee engagement are the two things that we are not proud of and we know that we have to do a lot better”.155 Mike Clasper, HMRC’s non-executive Chairman, didn’t feel that the customer service problems were directly related to the resources available.156 We pressed Mr Clasper on whether he would tell Government if the Department was not being given the resources it needed to operate effectively. He told us that HMRC management had said to the Government “we were passionate that there is a tax gap we can close and that if we were at 25% reduction we would not have been able to close the tax gap any further, but with this [£917 million] reinvestment that we have talked about we will close the gap by £7 billion a year.”157
139. There was near unanimity among our witnesses that the efficiency savings at HMRC have been partly responsible for the decline in service standards and, therefore, that HMRC’s claim to have delivered £1.1 billion of savings “without overall negative impact on performance” lacked credibility.
Looking ahead
Large businesses
140. Although the majority of evidence we received was critical of HMRC’s service standards, feedback was largely positive in relation to the Department’s Large Business Service. Richard Baron, of the Institute of Directors, told us:
what has been done at the large end, introducing these personal customer managers who will co-ordinate the work of the different bits of HMRC who will have to interact with a large group, does seem to have been a big success story—to the extent that they have now extended it still further down the line into what they call the large and complex group who are outside the ambit of the large business service.158
153 Q 79 154 Q 7 155 Q 248 156 Q 247 157 Q 254 158 Q 113
44 Administration and effectiveness of HM Revenue and Customs
This has been achieved despite reductions in headcount in the service.159 HMRC in their evidence trumpeted the success of the Unit in raising the tax yield from their Large Business Service from £3.6 billion in 2005–06 to £6.3 billion in 2009–10. The Sub- Committee is in the process of taking further evidence on the unit’s effectiveness at delivering compliance. The features of the Large Business Service that appear to have led to high customer satisfaction ratings are personal contact with an individual responsible for a case and the ability of a single contact point to co-ordinate HMRC activity across departments. Whilst it is not feasible for every individual or small business to have access to that level of service, these are features that HMRC should be trying to replicate as closely as possible in its contact centres through effective channels of escalation and responsibility.
Customer-centric contact
141. HMRC has repeatedly stressed in its evidence to us the importance of its ‘customer- centric’ approach to managing contact with taxpayers and other users. Its written evidence stated:
To help us deliver our Vision, we have developed a customer-centric business strategy using our understanding of customer attitudes and behaviours to focus our efforts where they will have the biggest effect, tailoring our services—and the way we work—to the needs, abilities and motivations of our customers.
But it went on:
We aim to shift the behaviour of customers where we can in order to keep our and our customers’ costs to a minimum, maximise revenues, and provide good customer service.160
142. A common complaint against HMRC has long been that it does not understand how its work impacts on the taxpayers that it deals with. Small businesses in particular have long taken the view that HMRC simply does not understand how they operate.161 Individual taxpayers, particularly those making payments through PAYE, often believe that HMRC will automatically calculate their tax correctly, whilst in reality HMRC is reliant on the information provided by them and their employers.162 HMRC’s focus on customer research is to be welcomed insofar as it leads to a greater responsiveness to customer needs. To be effective this quantitative work needs to be supported by on the ground experience of how taxpayers operate. We reiterate our recommendation that HMRC staff at all levels should spend time in tax practices, charities and businesses better to understand the people they deal with and how changes at HMRC affect them. Examples of how this could be achieved include day visits, short secondments and work shadowing.
159 Ev 103–106 160 Ev 97 161 See for example, the Institute of Directors’ Report Tax Administration: Where Next? 162 Q 111
Administration and effectiveness of HM Revenue and Customs 45
143. The ACCA said that HMRC’s claims to be customer-centric would “ring hollow” to many in the light of the problems outlined above.163 More fundamentally, a customer- centric strategy should be about responding to customers’ needs, whilst much of the evidence we discussed above—particularly in relation to online mandation—suggests the strategy has actually been about redirecting the public to cheaper, more impersonal forms of communication. HMRC are right to base their customer-service strategy on research into what taxpayers want. However, we question whether a strategy focused around shifting customers’ behaviour can truly be described as customer-centric. Where behaviour shifts are achieved voluntarily through the increased attractiveness of (for example) an online alternative the claim is credible. It is not credible, however, where contact options are narrowed down to the one HMRC would prefer customers to use. The evidence we have received suggests that both elements are present in HMRC’s current approach.
Demand management
144. A key component of HMRC’s approach is a focus on demand management. Figures supplied to the Sub-Committee by HMRC suggest that around 40% of the calls made to HMRC are “potentially avoidable or could be migrated to a more cost effective channel.” These include 7.34 million calls chasing progress and 6.17 million calls due to poor quality initial contact. Mike Clasper told us that ‘chasing’ meant relatively small increases in demand could have disproportionately large impacts on contact centres:
there can be relatively small increases in demand; we only have 10% more callers than we had last year, but the issue is they are not getting through, so they recall and they recall and they recall, and somebody ends up with a two hour 20 minute phone call and it is not acceptable.164
145. HMRC intends to expand its demand management programme and has undertaken to improve the design of forms and improve accountability for demand management targets within teams. In 2010–11 it estimated that the programme eliminated some 6 million unnecessary calls and diverted a further 7 million to automated messaging.165
146. The figures support those of our witnesses who argue that poor quality or inefficient contact at one point in the system leads to greater inefficiency and cost elsewhere.166 HMRC admits that many of the problems in responding to calls to contact centres have arisen from the handling of the National Insurance and PAYE Service upgrade and the large number of calls generated, which vastly exceeded the number it expected.167 Similarly, poorly worded information can lead to confusion among taxpayers or benefit claimants, thereby increasing calls. For example we heard that a letter telling people repaying overpayments of tax credits that their direct debit was being renewed was worded in such a
163 Ev 86 164 Q 143 165 Ev 96–97 166 For example, Ev w11 167 Q 142; Ev 83
46 Administration and effectiveness of HM Revenue and Customs way as to give the impression of being a new direct debit, leading to concerned calls from claimants.168 As noted above, delays in responding to post have also increased the number of ‘chasing’ calls to HMRC.
147. HMRC accepted this point in their written evidence, saying that they were reviewing their external communications.169 We pressed Dame Lesley Strathie on how HMRC intended to reduce unnecessary demand. She replied:
We have a programme of work to eradicate 13 million of what we would class as non-value calls because, generally speaking, they are people who do not trust us and want to ring up to check. There is no value to the customer, and there is no value to the organisation. It is how we move those through, improve face to face for the 25% of people who will always need some kind of help, with better messaging and telephones to direct people through electronically, and improving capability in our work force.170
148. Effective management of demand will require HMRC to have a good understanding of how changes made in one part of the organisation will impact upon others and, most importantly, the impact such changes will have on the public. The Department accepts that many of its current communications generate more contact and inefficiency. Improvements in external communication therefore have the potential to make savings vastly in excess of their cost. We recommend that the Department look at how it draws up its public communications and establishes links with tax charities and professional bodies to ensure all major communications and guidance are tested at a very early stage on focus groups before being made public.
Future prospects
149. The prospects of HMRC’s customer service improving in the near future appear bleak. The Department is still wrestling with the fall-out from the implementation of NPS and does not expect to clear the backlog of open cases until 2012. HMRC’s written evidence suggests the Department accepts and understands many of the issues. However, Mike Clasper admitted that, in relation to customer service, “we are not going to be in a great place until 2013.”171 Paul Aplin and Chas Roy-Chowdhury agreed that standards were likely to get worse before they got better, particularly if resources continued to be cut.172
150. The Department has recruited or redeployed an additional 1,000 contact centre staff to increase capacity ahead of the tax credit renewal deadline—echoing a similar move made in 2005–06.173 We welcome this move and the Department’s commitment to ensure that tax credit applicants do not lose out owing to continuing demand on the PAYE side.
168 Ev 131 169 Ev 96–97 170 Q 226 171 Q 145 172 Q 81 173 HC Deb, 2 March 2011, col. 399
Administration and effectiveness of HM Revenue and Customs 47
However, redeploying staff runs the risk of reduced performance elsewhere. Dame Lesley assured us that the redeployed resources came from other areas of the business “where that is shrinking”.174
151. HMRC’s poor performance in relation to customer service is concerning, not just because of the unacceptable delays and costs being placed on members of the public and businesses, but also its possible impact on the tax take. Several witnesses suggested links between the ease of complying with a tax regime and the compliance rate. Chas Roy- Chowdhury of the ACCA suggested that if it was not for the fact that Income Tax and VAT were collected more or less automatically, the Government would be facing a major revenue crisis because of the difficulties of communicating with HMRC.175
152. Similarly, reputational damage done to HMRC by the errors to PAYE codes in January 2010 and the subsequent reconciliation issues in late 2009–10 tied into a wider concern that a distant, underfunded and poorly performing HMRC could diminish respect for the institution and the tax system generally.176 As the Low Incomes Tax Reform Group put it:
HMRC is now too often seen as an organisation that is unable to collect the right amount of tax, increasingly difficult to contact by phone, letter or in person, yet unforgiving of customer error and relentless in its pursuit of small debts. This image may have been exaggerated by parts of the press, but failings occur too frequently to be dismissed as ‘isolated instances’.177
153. ICAS told us that “Other jurisdictions admire the way in which HMRC achieves its level of compliance and the UK citizenship’s cultural attitude is something to be preserved and valued.” Over 97% of the tax that is paid, is paid voluntarily.178 The danger for HMRC is that by continuing to offer a poor service the UK taxpayer becomes increasingly disinclined to have contact with the Department and the culture of voluntary compliance is lost.179
154. The service standards provided by HMRC cannot be treated as a separate issue from the collection of tax revenues and the level of tax compliance. Current levels of voluntary compliance should not lead to complacency: any negative change in attitudes regarding paying taxes may take many years to filter through into reduced tax compliance and tax yields, at which stage it may be very hard to reverse. If a view of dealing with HMRC as being a frustrating, costly and time-consuming business were to become entrenched then there is a significant risk of public respect for the institution, and the tax system more generally, being lost.
174 Q 217 175 Q 76 176 See for example, Ev w13, Ev w55; Q 81 177 Ev 92 178 Ev 102 179 See for example, Ev w13
48 Administration and effectiveness of HM Revenue and Customs
6 Compliance
155. HMRC’s fundamental task is to collect taxes and pay out those benefits it is responsible for. In recent years HMRC has begun to produce estimates of the ‘tax gap’— the difference between the tax it brings in and the tax that is theoretically due. The accuracy with which the tax gap can be estimated is inherently limited. Not only is the methodology in its infancy, but it involves estimating the size of illegal activity, for example, the hidden economy, which by definition cannot be known with any certainty.
156. HMRC estimate that the net tax gap was £42 billion in 2008–09—roughly 9% of the UK’s total tax liability. HMRC ascribes elements of the tax gap to various “behaviours”. 17.5% is ascribed to tax avoidance, whilst a further 17.5% is assigned to tax evasion. Other elements include failure to take reasonable care, error, the hidden economy and non- payment. HMRC’s estimate is not without its critics. Taxresearch LLP estimated the tax gap to be substantially higher, around £120 billion.180 Andy Wells, a tax practitioner, argued HMRC’s estimate is inflated through the inclusion of legitimate legal disagreements about the amount of tax to be paid.181
157. Whatever the actual figure, reducing the size of the tax gap is a key part of HMRC’s aims. The HMRC unions argued in their evidence that the tax take has been diminished by the resource cuts being made at HMRC. They pointed to an increase in the tax gap and declining revenues alongside reductions in the numbers of compliance officers. However, as noted above, intervention yields have risen whilst the numbers working in compliance have fallen and it is difficult to disentangle reductions in the tax take due to HMRC performance from those caused by the recession or changes to the law.
158. As part of the Government’s deficit reduction strategy, HMRC is being asked to raise more money through additional compliance activity. This is reflected in the £917 million that the Government is ‘reinvesting’ in tax compliance. In return for this money HMRC is expected to raise £7 billion a year in additional tax revenues by the end of the spending review period. We intend to examine HMRC’s administrative and operational record at ensuring tax compliance in future hearings. In this report we highlight two issues that came to light during our early hearings.
Settlement of large tax cases
159. A particular source of controversy has been HMRC’s settlement of large tax cases involving corporations. Allegations have been made in the press that cases have been settled inappropriately for a lower yield than might have otherwise been achieved.182 We pressed HMRC witnesses and the Minister on whether the appropriate processes had been used in two high-profile cases. Dave Hartnett, the Permanent Secretary for Tax, vigorously defended the procedures that had been used to achieve a settlement with Vodafone and
180 Ev w52 181 Ev w43–w44 182 See for example, Private Eye, 21 Jun 2011
Administration and effectiveness of HM Revenue and Customs 49 argued that figures cited in the press lacked credibility. HMRC said they were unable to comment in relation to another high-profile case for reasons of taxpayer confidentiality.183 We also pressed HMRC on their record in litigating against large firms. Again, Dave Hartnett defended HMRC’s record, saying that HMRC had protected around £6.25 billion of revenue in 2009–10 through litigation. HMRC also observed that large companies account for “less than a quarter” of their total tax gap estimate.184
160. We are not in a position to judge whether individual cases were settled appropriately or not. Nor are we challenging the need for taxpayers’ affairs to be kept confidential. However, the sums involved in some of these cases are enormous. Martin Lewis, who worked in tax compliance during his time at HMRC, argued in his evidence that there needed to be more transparency about how these cases are resolved.185 If an individual taxpayer feels their case has been handled inappropriately they can ultimately take HMRC to court. Taxpayers collectively have no such recourse.
161. The National Audit Office has undertaken work on HMRC’s procedures for resolving large tax cases, whilst the Committee of Public Accounts has already recommended that “the Department should consider the scope for increasing transparency in the area of large and complex tax cases and for assuring Parliament and the public that due process in the resolution of these cases is being followed.”186
162. The Exchequer Secretary did not believe it would be appropriate for politicians to be involved in settling individual tax cases. However, he was concerned that the current process did not allow HMRC to respond to allegations against it:
We have to remember that some of these allegations question the integrity of dedicated public servants on the basis of little or no evidence, and it concerns me that some of these decisions are becoming politicised and it is quite difficult for HMRC to answer back because they are not entitled to put confidential information into the public domain.187
163. The public needs to be assured that cases involving large sums of money are being settled correctly. Equally it is unfair on HMRC staff and damaging to public confidence that the Department can be the subject of repeated allegations it cannot refute, even if they are groundless. We agree with the Committee of Public Accounts that HMRC should consider how the accountability and transparency of the settlement of large and complex tax cases might be improved. We are taking further evidence on how this might be achieved.
183 Q152–Q165, Q402, Ev 126–130 184 Q 160; Ev 125 185 Ev w33 186 Committee of Public Accounts, Eighteenth Report of Session 2010–12, HM Revenue and Customs’ 2009–10 Accounts 187 Q 432
50 Administration and effectiveness of HM Revenue and Customs
Debt management
164. HMRC’s approach to handling debts owed to it was a matter of concern to some of our witnesses. The Committee regularly receives correspondence from individuals and other Members on behalf of their constituents who feel that they have been treated in a heavy handed way by HMRC. We recognise the fact that any revenue collection agency will face claims of this nature. Similarly, we accept Dame Lesley’s observation that no organisation dealing with a billion transactions a year will be able to do so perfectly in every case.188 However, the scale of the complaints that reached us and have appeared in the press give us cause for concern. This section examines a few such cases.
165. We have already noted the difficulties that can arise when collectors seeking to follow- up a debt do so on the basis of out-of-date information because relevant post has not been processed. More widely, the Association of Tax Technicians was concerned about wider failures of communication between Debt Management and other areas of the Department.189 Andy Wells even suggested that there is no means for debt collection to communicate with those who initially assessed the debt, raising the alarming prospect that, when a debt is challenged, debt collectors cannot easily check whether they are attempting to recover the right amount.190 We seek confirmation from HMRC that effective real- time lines of communication exist between Debt Management and other areas of the Department. Effective communication is especially important where private debt collectors are involved.
166. Accountancy Age recently reported that HMRC had sent out letters to businesses who had failed to submit a declaration that they owed nothing to the Department stating that “outstanding tax debts” have been transferred to the HMRC's Distraint Department “to list your goods so that they may be sold at a public auction”.191 With no indication in the letter that the amount owed was zero, such letters are likely to cause unnecessary distress and confusion and put further burdens on HMRC’s already over-stretched customer contact teams.
167. Similarly, we pressed the Minister on reports in the Mail on Sunday that letters had been sent to taxpayers saying that payment was required “to fund the schools and hospitals we all rely on” and stating “We will do that by taking your possessions and auctioning them publicly.”192 He defended the letters, stating that they had been sent out only after earlier communications had met with no response and “it is not unreasonable to point out some of the potential consequences of not responding” so long as the letters were only sent
188 Q 222 189 Ev w28 190 Ev w43 191 http://www.accountancyage.com/aa/news/2072385/businesses-receiving-threatening-hmrc-letters-nil- debts#ixzz1OmpoV6yA accessed 8 June 2011 192 Mail on Sunday, 17 April 2011, Tax with menaces: We'll take your TVs, cars and laptops and sell them for pittance, 'thuggish' Revenue warns late payers in bizarre begging letter”
Administration and effectiveness of HM Revenue and Customs 51 in a highly selective way.193 The Department told us it has moved towards an approach to debt management based on an assessment of individual’s risk.194
168. It is inevitable that HMRC will have to pursue some taxpayers for outstanding debts and it may have to be forceful in doing so. However, the tone of some of the letters being sent out suggest the “potential consequences” are inevitable unless payment is immediately forthcoming. These letters appear to have been widely used without sufficient thought to whom they were sent to, even being sent to people who did not actually owe money. Such language is appropriate only where there is strong evidence of persistent and deliberate non-payment; it is completely inappropriate where the amount owed is in dispute, where the amount may be zero, or where the recipient is vulnerable. We recommend HMRC take steps to ensure such hard-hitting correspondence is used in a more proportionate way, is better tailored to individual case histories and contains information on the specific debt in question.
169. PCS expressed concern about HMRC’s use of private debt collectors. A pilot was introduced in 2009 and expanded as part of the 2011 Spring Supplementary Estimate. At the time of the Supplementary Estimate HMRC told us that the “earlier pilot did not provide reliable evidence of relative cost effectiveness of HMRC in-house versus outsourced debt collection”.195 We asked the Minister why, if cost effectiveness had not been proved, private sector recruitment had been preferred to additional HMRC staff. He told us:
There is greater flexibility in making use of private debt collecting agencies as opposed to taking on full, permanent HMRC staff. As a consequence of the work that has already been undertaken with private debt collecting agencies, something like £140 million has been recovered that would otherwise have had to have been written off. 196
He went on to say that HMRC had no plans to sell debts to private agencies, but did not rule out the possibility.197 We note the Minister’s assurance that HMRC has no existing plans to sell debt and his refusal to rule out the possibility of such plans in future. Any moves in this direction would be a major change and should not be contemplated without widespread consultation at an early stage.
193 Q 456, Q 460 194 Ev 120 195 Ev 116–117 196 Q 441 197 Q 442–443
52 Administration and effectiveness of HM Revenue and Customs
7 Conclusion
170. The evidence we have received in this inquiry has been disturbing. HMRC’s delivery of services to the general public has fallen to unacceptable levels in several areas. Many factors have contributed to this process: overly ambitious expectations for IT projects, sustained cuts to resources, a management culture of “command and control”, increasingly complex tax legislation and the legacy of the merger.
171. HMRC performs a crucial role and operates under significant pressures. The Department has faced and will continue to face substantial reductions in resources, tax policy has not always been designed with full consideration of the administrative impact and there will always be a degree of public and media dissatisfaction with a revenue collection agency, even if it is doing its job perfectly. The staff of HMRC face a difficult challenge in responding to these pressures and their continued professionalism and dedication are vital to ensuring that the Department regains the reputation of its predecessors as being among the most effective in Whitehall.
172. The management team at HMRC has been in place for two years. The broad view from our witnesses was that the team had improved its understanding of the issues facing HMRC and is committed to tackling them. However, the Department’s achievements have been obscured by high-profile failings and staff do not have confidence in management. The Department faces a difficult few years as it resolves the legacy of ‘open cases’ in PAYE and introduces further ambitious IT upgrades. We will monitor HMRC’s performance closely during this Parliament and expect the Department to deliver where substantial improvements have been promised.
173. Whilst genuine efficiencies have been, and will continue to be, made, we are concerned that HMRC’s performance will continue to deteriorate if further reductions in resources are badly managed. There was near unanimity among our witnesses that the reductions made so far have had a damaging impact. We are particularly worried as there is no evidence that the methods that management will deploy to find ‘efficiencies’ and ‘cost savings’ have changed in any substantial way. We also believe there is a tension between the drive for ‘more automation’ and ‘centralisation’ and the desire to empower and boost the morale of staff who must deliver the cost savings.
174. HMRC collects revenue for the Government of more than a hundred times the amount it costs to run. Given the fiscal position, it would make little sense for the Department to be cut back further if resource reductions in addition to those plans already agreed would have the effect of reducing receipts, displacing disproportionate costs onto the wider economy or further eroding public confidence in the tax system. Great care will be needed before any further savings are planned or implemented.
Administration and effectiveness of HM Revenue and Customs 53
Conclusions and recommendations
Management of Resource Reductions 1. The Sub-Committee is taking further oral evidence on HMRC’s compliance record and we will report on this separately. However, assessing HMRC’s operational performance at ensuring compliance is complex. Tax receipts are affected by numerous factors—including changes to the law, economic performance, cultural attitudes to compliance and HMRC enforcement activity. We recommend that the Government commission a study to attempt to separate out the impact of these factors over time. (Paragraph 13)
2. In the 2011 Budget the Government announced that HMRC’s existing administrative burden reduction targets would be expanded to include wider taxpayer compliance costs. We welcomed this in our report on the Budget, but would like greater clarity from the Department about how this work will be done, what the new targets are and how they will be measured. (Paragraph 16)
3. The possible displacing of costs from HMRC onto taxpayers has been a long- running concern for tax agents, businesses and individuals. Not enough is known about the impact of resource reductions at HMRC on the administrative burdens faced by businesses and individuals. It would be counterproductive if ‘efficiencies’ achieved at HMRC resulted in greater costs being placed on the wider economy. Such a result would impede growth. Government will be reluctant to take effective measures to address this issue in the absence of robust evidence about its extent. We urge the representative bodies who made these claims to us to come forward with quantitative evidence about the extent of this problem. (Paragraph 18)
4. We welcome the fact that HMRC is updating the 2006 KPMG study on the burdens imposed by the tax system to take account of changes over time and urge it to broaden the study to examine the wider “hassle” costs imposed by complying with tax law. This work may be costly. We seek assurances from Government that the findings of the updated study will be acted upon. (Paragraph 19)
5. It is important that HMRC staff who are planning or implementing process changes have some personal understanding of the possible impact on the wider public. We recommend that HMRC staff, particularly senior staff, spend time visiting businesses, tax charities and tax practices to see the impact of process changes on the ground. (Paragraph 20)
6. We recommend that the Government look again at the profiling of the savings HMRC is expected to make alongside the efficiencies that are expected to deliver them to ensure the two are commensurate and allow a degree of contingency in the case of unexpected problems with implementation. Technological improvements and process changes within HMRC have and will continue to deliver genuine efficiency savings. However, there have been credible suggestions that HMRC has in the past made savings by reducing staff numbers before the enabling efficiencies have been fully realised—with resulting impacts on performance and costs. (Paragraph 22)
54 Administration and effectiveness of HM Revenue and Customs
7. The Department’s effectiveness depends not only on the quality and effectiveness of its public-facing and processing staff, but also on having a cadre of staff at all levels who have long experience in tax matters. There is some evidence that the workforce change programme may have led to a disproportionate loss of experienced people at HMRC. We recommend that HMRC examine how it implements job cuts, with the aim of preserving the professional expertise in tax it needs to deliver an effective service, and report back on the changes that have been made as a result of this process. (Paragraph 27)
8. HMRC’s task is made harder by the increasing complexity of the tax system and deficiencies in the underlying legislation. The Government has already announced a package of reforms to the way tax policy is made. Following the O’Donnell Review of 2004 HM Treasury has had lead responsibility for making tax policy, whilst HMRC is responsible for “policy maintenance”. The time has come to review how those arrangements are operating with a view to ensuring the practical impact of new tax legislation is adequately considered even before the consultation stage begins. (Paragraph 29)
9. While for most departments the Spending Review settlement reversed the increases which they received in the years leading up to 2009–10, the HMRC settlement continued and increased the magnitude of the spending cuts which they had already experienced in the previous five years. (Paragraph 37)
10. HMRC is in a unique position as the Government’s primary collector of revenue. Its expenditure is dwarfed by the amount of revenue it collects. Whilst this does not exempt it from the need to make efficiencies, it means that Government needs to be cautious about making reductions in resources that might have a negative impact on the Department’s performance and lead to reductions in revenue. (Paragraph 38)
11. We welcome the fact that the Government has accepted the case for ‘reinvestment’ where this will increase the tax yield, but note that in practice the Spending Review package amounts to an overall reduction of 15% over the Spending Review period, being net of an additional 10% of expenditure which, although allowed, is ring- fenced for specific purposes. (Paragraph 39)
Staffing and Management 12. Staff engagement at HMRC was a major concern of our predecessors throughout the last Parliament. The management team have achieved some small improvements in relation to organisational purpose whilst staff remain dedicated to their work despite the considerable pressures on them and the organisation, some of which originates from outside the Department. However, this cannot conceal the overall picture. Relatively positive staff attitudes towards immediate colleagues and superiors stand in stark contrast with overwhelmingly negative attitudes towards organisational change and the management of the Department. It appears likely that the poor handling of the recent PAYE reconciliations and relentless negative publicity has further harmed engagement and morale. This widespread disengagement is a serious problem for a Department about to undergo further restructuring, and which was described by one witness as “stretched almost to breaking point”. (Paragraph 50)
Administration and effectiveness of HM Revenue and Customs 55
13. Any organisation facing the constant job losses that HMRC has faced over the last five years would experience problems with staff engagement. The Spending Review settlement means that some areas are likely to experience greater stability, even expansion, whilst other parts of the Department continue to be reduced in size. Ensuring that engagement does not fall still further in these latter areas will be an enormous challenge for HMRC managers. (Paragraph 55)
14. The evidence we have received about the management culture within HMRC, supported by the staff survey results, is very disturbing. There is a perception that the Department is run on the principles of close control and management scrutiny, with little opportunity for individuals to develop autonomy and exercise their skills. Whilst there is a need for consistency in dealing with people’s tax affairs and appropriate performance management, a culture such as the one described to us is likely to harm staff morale and lead to disengagement and poor performance. (Paragraph 64)
15. It is particularly concerning that staff feel unable to escalate possible problems up the management chain or challenge established practice. In principle one of the benefits of close scrutiny should be that issues are anticipated and responded to. This does not appear to be the case, as the handling of the 2009–10 PAYE reconciliations shows. HMRC intends to reduce its layers of management to improve communication; however this will achieve little unless the underlying culture of the organisation is changed. We recommend that HMRC engage constructively with staff and unions to see how this can be achieved and report back to this Committee within the financial year. (Paragraph 65)
16. HMRC has been through a period of instability at the top of the organisation that has led to a lack of strategic vision. The current management team has now been in place for two years. It has set out a vision of where they would like the organisation to be, but have yet to demonstrate substantial progress towards achieving those goals and do not yet have the confidence of staff. We intend to monitor progress in these areas closely during the Parliament. (Paragraph 70)
17. HMRC has gone through significant changes at the top of the organisation since 2008. The new structure needs time before a proper evaluation of its effectiveness can be made, including whether the model of a non-ministerial department remains the appropriate one. The respective roles of the Minister, non-executive Chairman and Permanent Secretaries are something that we intend to return to later in the Parliament. (Paragraph 73)
The Future of PAYE 18. The National Insurance and PAYE Service should ultimately make PAYE work more effectively and ensure efficiencies across the Department. However, the problems resulting from its flawed implementation have done significant damage to the public perception of HMRC and the tax system more generally. It is crucially important for the credibility of the management team that the 2012 target for clearing open cases is met and that improvements in overall performance follow soon afterwards. (Paragraph 83)
56 Administration and effectiveness of HM Revenue and Customs
19. Data quality has been a key weakness in the PAYE system to date. The success of both the National Insurance and PAYE Service and Real-time Information will depend to a large extent on how effectively HMRC can ‘cleanse’ the data it receives and holds. (Paragraph 88)
20. We welcome the move to introduce Real-time Information. We agree with the professional bodies that the system must be tested thoroughly before full implementation, with full consultation with users and close co-operation with the Department for Work and Pensions at all stages. We note that large employers will be required to use the new system in January 2013, which is before the system has been tested through one complete tax year. (Paragraph 91)
21. The transfer of information to HMRC via BACS is only part of the Real-time Information project. HMRC must also be able to process the information in a timely way, deal with the increase in customer contact that will occur with the introduction of a new system and have in place satisfactory arrangements for those who do not pay their employees through BACS. (Paragraph 92)
22. HMRC has committed to an ambitious timescale to deliver Real-time Information, driven in part by the importance of the project in delivering the Universal Credit. The history of large IT projects subject to policy-driven timescales has been littered with failure. The timetable is made more ambitious by the fact HMRC will still be resolving the legacy of open cases and stabilising the National Insurance and PAYE Service during the project’s early stages. Introducing Real-time Information before HMRC and the Government can be sure it will work correctly would run unacceptable risks for the reputation of the Department and the tax system. We recommend that HMRC and DWP have contingency plans in place in case a delay becomes necessary. Given the importance of the project we further recommend that the preparations for Real-time Information in both HMRC and DWP are subject to external audit as implementation proceeds, for example through the National Audit Office, to ensure that they are as robust as possible. We expect arrangements to be put in place for the National Audit Office to report quarterly to Ministers, this Committee, the Public Accounts Committee and other relevant Committees to ensure Ministers in both Departments can be held properly accountable for the progress of the project. (Paragraph 93)
Service Standards 23. We welcome HMRC senior management’s acknowledgement that the Department’s customer service performance has been unacceptable. We are not convinced, however, that the problems can solely be accounted for by the problems with PAYE in 2009–10. The evidence received by us and our predecessors suggest that poor service standards have been an issue for many years and have not been fully reflected in HMRC’s customer service measures. (Paragraph 99)
24. We reiterate our predecessor’s 2007 recommendation that HMRC work closely with the professional bodies, tax charities and businesses to develop a series of performance indicators that credibly reflect customers’ end-to-end experience of dealing with HMRC and that these indicators are regularly published as part of the transparency section of its five-year business plan. We are disappointed that our
Administration and effectiveness of HM Revenue and Customs 57
predecessor’s recommendation was not acted upon and expect to see meaningful progress within the next twelve months. (Paragraph 100)
25. HMRC’s performance at responding to telephone calls has been patchy at best and unacceptable at worst. Based on past performance we do not have confidence that the Department will be able to achieve its target of 90% of calls answered in a day by March 2012. We recognise that there had been improvement in performance prior to the recent rise in contact due to the PAYE-related issues in 2010. However, even with that improvement, the Department was falling well short of the target, whilst the fall in performance in 2010–11 suggests there is insufficient capacity to deal with unexpected surges in demand. Given that it has been HMRC’s strategy to push so many taxpayers and tax credit claimants into communication by phone it is important that performance in this area improves rapidly. We will return to this issue regularly, and will assess the Department’s performance against its target in 2012. (Paragraph 108)
26. There was significant concern among our witnesses that it has become increasingly difficult to resolve a complex tax issue in a single phone call to HMRC. We recommend that HMRC examine its processes for escalating complex queries to ensure this is done quickly and appropriately. We also understand that the Department is running a pilot aimed at ensuring contact centre staff dealing with tax credits and benefits are better able to answer more complex queries first time around. The pilot is to be reviewed over summer 2011. If this pilot is successful HMRC should look at expanding it to all areas of tax. (Paragraph 111)
27. We welcome the fact that HMRC is reducing the number of telephone numbers it operates. However, at a time when calls are not being answered quickly, it cannot be acceptable that those without landline telephones—often less well off members of society—may be being charged more as a result of the use of 0845 numbers. We recommend that HMRC investigate alternatives to 0845 numbers, including 0345 and freephone numbers, as part of the process of agreeing its next telephony contract and ask the Department to brief us on its key aims in negotiating that contract. As an interim measure we recommend the Department examine whether a non-0845 number could be provided for tax credit claimants and publicised through tax charities. (Paragraph 113)
28. the evidence we have received, correspondence from the public and the coverage in the professional press suggest that long delays in responding to post at HMRC are endemic. This is unacceptable. Such delays increase demand elsewhere in the system, as taxpayers and tax credit claimants chase progress, increasing costs for the public and HMRC alike. (Paragraph 118)
29. We recommend that HMRC draw up minimum service standards for dealing with post in a timely and accurate fashion in consultation with the professional bodies, tax charities and businesses representatives. Such standards should recognise the distinction between simple and complex queries, and look at the progress of correspondence end-to-end rather than in relation to individual items of post. We recommend that the Department publishes an indicative timetable for achieving those standards and keeps us regularly updated on progress towards meeting them. (Paragraph 119)
58 Administration and effectiveness of HM Revenue and Customs
30. We urge HMRC to examine how far declining use of Enquiry Centres is due to factors such as inconvenient opening hours or lack of advertising. More broadly, we recommend that the Government examine whether withdrawing its physical presence from an area has a medium—or long-term impact on local compliance. (Paragraph 125)
31. We welcome the fact that HMRC’s Change Plan commits to “providing targeted help for vulnerable customers who most need face-to-face support”, but we do not believe face-to-face support should solely be available to the vulnerable. The Department has a strategic approach focused on delivering contact through contact centres and online. Face-to-face contact must be an integral part of that strategy, not an exception. We recognise that savings must be made; the tax charities and other bodies who submitted evidence to us had a number of imaginative suggestions for how face-to-face services could be delivered more cost effectively. We recommend that HMRC look closely at alternative ways of providing wide coverage of face-to- face advice such as co-location with other public offices, convenient part-time opening hours and mobile advice centres. (Paragraph 126)
32. Ending the production of advice and guidance leaflets may save money in the short term. However, it will force those who do not have access to the internet to turn to the telephone or enquiry centres for advice, and may lead to an increase in mistakes which are costly for HMRC to rectify. HMRC should examine reintroducing selected, well targeted, leaflets aimed at groups such as the elderly who are most likely to lack internet access. (Paragraph 132)
33. HMRC has been relatively successful at enabling taxpayers to pay many of their taxes online. However, requiring online filing prematurely runs the risks of excluding those without reliable high-speed internet access, dissuading those who are not computer literate from being tax compliant and overloading systems that have not had time to bed in. HMRC should always ensure it has robust, well-advertised alternatives in place for those who cannot submit online and publish a statement of its commitment to continue to provide a robust free filing service for basic tax return filing. (Paragraph 135)
34. Whilst we would welcome any moves towards greater use of email or secure messaging by HMRC, we accept there are genuine concerns on the grounds of security. Without proper planning, greater use of email may also achieve little more than transferring the bulk of the correspondence backlog from one medium to another. We recommend that the Department make a clear statement of their intent in relation to email and secure messaging. (Paragraph 136)
35. There was near unanimity among our witnesses that the efficiency savings at HMRC have been partly responsible for the decline in service standards and, therefore, that HMRC’s claim to have delivered £1.1 billion of savings “without overall negative impact on performance” lacked credibility. (Paragraph 139)
36. The features of the Large Business Service that appear to have led to high customer satisfaction ratings are personal contact with an individual responsible for a case and the ability of a single contact point to co-ordinate HMRC activity across departments. Whilst it is not feasible for every individual or small business to have
Administration and effectiveness of HM Revenue and Customs 59
access to that level of service, these are features that HMRC should be trying to replicate as closely as possible in its contact centres through effective channels of escalation and responsibility. (Paragraph 140)
37. HMRC’s focus on customer research is to be welcomed insofar as it leads to a greater responsiveness to customer needs. To be effective this quantitative work needs to be supported by on the ground experience of how taxpayers operate. We reiterate our recommendation that HMRC staff at all levels should spend time in tax practices, charities and businesses better to understand the people they deal with and how changes at HMRC affect them. Examples of how this could be achieved include day visits, short secondments and work shadowing. (Paragraph 142)
38. HMRC are right to base their customer-service strategy on research into what taxpayers want. However, we question whether a strategy focused around shifting customers’ behaviour can truly be described as customer-centric. Where behaviour shifts are achieved voluntarily through the increased attractiveness of (for example) an online alternative the claim is credible. It is not credible, however, where contact options are narrowed down to the one HMRC would prefer customers to use. The evidence we have received suggests that both elements are present in HMRC’s current approach. (Paragraph 143)
39. Effective management of demand will require HMRC to have a good understanding of how changes made in one part of the organisation will impact upon others and, most importantly, the impact such changes will have on the public. The Department accepts that many of its current communications generate more contact and inefficiency. Improvements in external communication therefore have the potential to make savings vastly in excess of their cost. We recommend that the Department look at how it draws up its public communications and establishes links with tax charities and professional bodies to ensure all major communications and guidance are tested at a very early stage on focus groups before being made public. (Paragraph 148)
40. The service standards provided by HMRC cannot be treated as a separate issue from the collection of tax revenues and the level of tax compliance. Current levels of voluntary compliance should not lead to complacency: any negative change in attitudes regarding paying taxes may take many years to filter through into reduced tax compliance and tax yields, at which stage it may be very hard to reverse. If a view of dealing with HMRC as being a frustrating, costly and time-consuming business were to become entrenched then there is a significant risk of public respect for the institution, and the tax system more generally, being lost. (Paragraph 154)
Compliance 41. We intend to examine HMRC’s administrative and operational record at ensuring tax compliance in future hearings. In this report we highlight two issues that came to light during our early hearings. (Paragraph 158)
42. The public needs to be assured that cases involving large sums of money are being settled correctly. Equally it is unfair on HMRC staff and damaging to public confidence that the Department can be the subject of repeated allegations it cannot
60 Administration and effectiveness of HM Revenue and Customs
refute, even if they are groundless. We agree with the Committee of Public Accounts that HMRC should consider how the accountability and transparency of the settlement of large and complex tax cases might be improved. We are taking further evidence on how this might be achieved. (Paragraph 163)
43. We seek confirmation from HMRC that effective real-time lines of communication exist between Debt Management and other areas of the Department. Effective communication is especially important where private debt collectors are involved. (Paragraph 165)
44. It is inevitable that HMRC will have to pursue some taxpayers for outstanding debts and it may have to be forceful in doing so. However, the tone of some of the letters being sent out suggest the “potential consequences” are inevitable unless payment is immediately forthcoming. These letters appear to have been widely used without sufficient thought to whom they were sent to, even being sent to people who did not actually owe money. Such language is appropriate only where there is strong evidence of persistent and deliberate non-payment; it is completely inappropriate where the amount owed is in dispute, where the amount may be zero, or where the recipient is vulnerable. We recommend HMRC take steps to ensure such hard- hitting correspondence is used in a more proportionate way, is better tailored to individual case histories and contains information on the specific debt in question. (Paragraph 168)
45. We note the Minister’s assurance that HMRC has no existing plans to sell debt and his refusal to rule out the possibility of such plans in future. Any moves in this direction would be a major change and should not be contemplated without widespread consultation at an early stage. (Paragraph 169)
Conclusions 46. The evidence we have received in this inquiry has been disturbing. HMRC’s delivery of services to the general public has fallen to unacceptable levels in several areas. Many factors have contributed to this process: overly ambitious expectations for IT projects, sustained cuts to resources, a management culture of “command and control”, increasingly complex tax legislation and the legacy of the merger. (Paragraph 170)
47. HMRC performs a crucial role and operates under significant pressures. The Department has faced and will continue to face substantial reductions in resources, tax policy has not always been designed with full consideration of the administrative impact and there will always be a degree of public and media dissatisfaction with a revenue collection agency, even if it is doing its job perfectly. The staff of HMRC face a difficult challenge in responding to these pressures and their continued professionalism and dedication are vital to ensuring that the Department regains the reputation of its predecessors as being among the most effective in Whitehall. (Paragraph 171)
48. The management team at HMRC has been in place for two years. The broad view from our witnesses was that the team had improved its understanding of the issues facing HMRC and is committed to tackling them. However, the Department’s
Administration and effectiveness of HM Revenue and Customs 61
achievements have been obscured by high-profile failings and staff do not have confidence in management. The Department faces a difficult few years as it resolves the legacy of ‘open cases’ in PAYE and introduces further ambitious IT upgrades. We will monitor HMRC’s performance closely during this Parliament and expect the Department to deliver where substantial improvements have been promised. (Paragraph 172)
49. Whilst genuine efficiencies have been, and will continue to be, made, we are concerned that HMRC’s performance will continue to deteriorate if further reductions in resources are badly managed. There was near unanimity among our witnesses that the reductions made so far have had a damaging impact. We are particularly worried as there is no evidence that the methods that management will deploy to find ‘efficiencies’ and ‘cost savings’ have changed in any substantial way. We also believe there is a tension between the drive for ‘more automation’ and ‘centralisation’ and the desire to empower and boost the morale of staff who must deliver the cost savings. (Paragraph 173)
50. HMRC collects revenue for the Government of more than a hundred times the amount it costs to run. Given the fiscal position, it would make little sense for the Department to be cut back further if resource reductions in addition to those plans already agreed would have the effect of reducing receipts, displacing disproportionate costs onto the wider economy or further eroding public confidence in the tax system. Great care will be needed before any further savings are planned or implemented. (Paragraph 174)
62 Administration and effectiveness of HM Revenue and Customs
Formal Minutes of the Treasury Sub- Committee
Tuesday 12 July 2011
Members present:
Mr George Mudie, in the Chair
Michael Fallon David Ruffley Mark Garnier John Thurso Mr Andrew Love Mr Andrew Tyrie Jesse Norman
Draft Report (Administration and effectiveness of HM Revenue and Customs), proposed by the Chair, brought up and read.
Ordered, That the draft Report be read a second time, paragraph by paragraph.
Paragraphs 1 to 174 read and agreed to.
Summary agreed to.
Resolved, That the Report be the First Report of the Sub-Committee to the Committee.
Ordered, That the Chair make the Report to the Committee.
[Adjourned till Monday 12 September at 3.30 pm
Administration and effectiveness of HM Revenue and Customs 63
Formal Minutes of the Treasury Committee
Tuesday 12 July 2011
Members present:
Mr Andrew Tyrie, in the Chair
Michael Fallon Jesse Norman Mark Garnier David Ruffley Mr Andrew Love John Thurso Mr George Mudie
Draft Report (Administration and effectiveness of HM Revenue and Customs), proposed by the Chair, brought up and read.
Ordered, That the draft Report be read a second time, paragraph by paragraph.
Paragraphs 1 to 174 read and agreed to.
Summary agreed to.
Resolved, That the Report be the Sixteenth Report of the Committee to the House.
Ordered, That the Chair make the Report to the House.
Ordered, that embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.
Written evidence was ordered to be reported to the House for publication with the Report, together with written evidence reported and ordered to be published on 2 December 2010 and 1 March 2011.
[Adjourned till Monday 18 July at 3.00 pm
64 Administration and effectiveness of HM Revenue and Customs
Witnesses
Wednesday 19 January 2011 Page
Simon Boniface, Deputy Group Secretary, and Peter Lockhart, National Officer, Revenue and Customs Group, Public and Commercial Services Union, Graham Black, President, and Terry Cook, Past President, Association of Revenue and Customs Ev 1
Tuesday 8 February 2011
Paul Aplin, Chairman, Tax Faculty Technical Committee, Institute of Chartered Accountants England and Wales, Chas Roy-Chowdhury, Head of Taxation, Association of Chartered Certified Accountants, Robin Williamson, Technical Director, Low Incomes Tax Reform Group and Richard Baron, Head of Taxation, Institute of Directors Ev 15
Wednesday 16 March 2011
Mike Clasper CBE, Chairman, Dame Lesley Strathie DCB, Permanent Secretary and Chief Executive, Dave Hartnett CB, Permanent Secretary for Tax, and Simon Bowles, Chief Finance Officer, HM Revenue and Customs Ev 29
Wednesday 11 May 2011
Stephen Banyard, acting Director General, Personal Tax, Phil Pavitt, Chief Information Officer, and Mark Holden, Director IMS Change Programme Delivery, HM Revenue and Customs Ev 55
David Gauke MP, Exchequer Secretary Ev 61
List of printed written evidence
1 Institute of Chartered Accountants England and Wales Tax Faculty Ev 77 2 Public and Commercial Services Union Ev 80 3 Association of Chartered Certified Accountants Ev 84 4 Association of Revenue and Customs Ev 88, Ev 121 5 Low Incomes Tax Reform Group Ev 92 6 HM Revenue and Customs Ev 96, Ev 103, Ev 107, Ev 116, Ev 118, Ev 122, Ev 126 7 Exchequer Secretary Ev 130
Administration and effectiveness of HM Revenue and Customs 65
List of additional written evidence
(published in Volume II on the Committee’s website www.parliament.uk/treascom)
1 Institute of Payroll Professionals Ev w1 2 Tax Aid Ev w5 3 Society of Trust and Estate Practitioners Ev w8 4 Institute of Chartered Accountants of Scotland Ev w10 5 Forum of Private Business Ev w14 6 Chartered Institute of Taxation Ev w17 7 Tax Help for Older People Ev w22 8 Vocalink Ev w25 9 Association of Taxation Technicians Ev w27 10 Martin Lewis Ev w30 11 Lin Kiernan Ev w33 12 Michael Blake Ev w34 13 David Marsh Ev w35 14 Keith Aiden Ev w36 15 Ella Levy Ev w37 16 Russell Hibbin Ev w37 17 David Hickson Ev w41, w42 18 Andy Wells Ev w42 19 Ian Holloway Ev w44 20 PCG Ev w45 21 Professor John Seddon Ev w48 22 Confederation of British Industry Ev w50 23 Tax Research LLP Ev w51 24 Federation of Wholesale Distributors Ev w56 25 Former employee of HM Revenue and Customs Ev w58
66 Administration and effectiveness of HM Revenue and Customs
List of Reports from the Committee during the current Parliament
Session 2010–11 First Report June 2010 Budget HC 350 Second Report Appointment of Dr Martin Weale to the Monetary HC 195 Policy Committee of the Bank of England Third Report Appointment of Robert Chote as Chair of the Office HC 476 for Budget Responsibility Fourth Report Office for Budget Responsibility HC 385 Fifth Report Appointments to the Budget Responsibility HC 545 Committee Sixth Report Spending Review 2010 HC 544 Seventh Report Financial Regulation: a preliminary consideration of HC 430 the Government’s proposals Eighth Report Principles of tax policy HC 753 Ninth Report Competition and Choice in Retail Banking HC 612 Tenth Report Budget 2011 HC 897 Eleventh Report Finance (No.3) Bill HC 497 Twelfth Report Appointment of Dr Ben Broadbent to the Monetary HC 1051 Policy Committee of the Bank of England Thirteenth Report Appointment of Dr Donald Kohn to the interim HC 1052 Financial Policy Committee Fourteenth Report Appointments of Michael Cohrs and Alastair Clark to HC 1125 the interim Financial Policy Committee Fifteenth Report Retail Distribution Review HC 857
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Treasury Committee: Evidence Ev 1
Oral evidence
Taken before the Treasury Sub-Committee on Wednesday 19 January 2011
Members present: Mr George Mudie (Chair)
Michael Fallon Jesse Norman Stewart Hosie John Thurso Mr Andrew Love Mr Andrew Tyrie John Mann ______
Examination of Witnesses
Witnesses: Simon Boniface, Deputy Group Secretary, Revenue and Customs Group Public and Commercial Services Union, Peter Lockhart, National Officer, Revenue and Customs Group Public and Commercial Services Union, Graham Black, President, Association of Revenue and Customs, and Terry Cook, past- President, Association of Revenue and Customs, gave evidence.
Q1 Chair: Good afternoon. Thank you for coming, there were around 99,000 people in HMRC. Today and we will start off with Jesse Norman. there are 67,000. We have lost a third of our staff over that period, I think a much larger proportion of loss Q2 Jesse Norman: Thank you very much indeed, Mr than most other Government departments have had to Mudie. I want to focus on the overall issue of HMRC cope with. So I think inevitably that has impacted performance over the last few years. We have had a performance and I think that is at the core of a lot lot of written evidence that has suggested that the of the problems we have had to face over the last performance of the Revenue and Customs has few years. declined over the last seven to 10 years, almost to the point of its being a dysfunctional organisation. Do you Q4 Jesse Norman: I want to come on to that in a think that is correct? Why don’t we start with you, second, but can I just ask: has the change of the Mr Cook? Revenue into a semi benefits agency through tax Terry Cook: I think the perception of the people who credits also changed the ethos or the management of work in the organisation is that it is a difficult the organisation? organisation to work in. For a lot of us who have been Simon Boniface: No. around for some time, the period after the merger of Customs and Inland Revenue was certainly a period where we felt things were wasted. Both organisations Q5 Jesse Norman: Anyone else? Final question, on had very strong cultures with a lot of good features the operational model: many MPs were expecting that to them, and I personally do not feel that the new the impact of the streamlining of the Revenue and the organisation has managed to forge an identity and a use of IT would be to allow more people to stay closer meaning for staff that adequately replaces that. to the customer, rather than to promote centralisation. But it looks as though what we have seen has been Q3 Jesse Norman: Has it managed to extract the the withdrawal of an awful lot of people from benefits of either of the two previous cultures? customer-facing duties and the creation of much more Terry Cook: People felt that, initially, our strong of the service factory—what should I say—call-centre emphasis on effective tackling people’s model. Was that a mistake? non-compliance with their obligations was sometimes Simon Boniface: Shall I take this up, colleagues? I lost sight of. One of the good features about the believe it was a mistake. I think we have strongly settlement that the Department has reached with the argued that the channel strategy—that is the old- Coalition Government this time, whereby we are fashioned term for it; the customer channel that is being given money to go out and pursue some of those adopted by the Department for its customers—is the tax issues, is considered by people to be a welcome channel the Department wants to give the customer return to our core business. Clearly, we are here to rather than the channel the customer wants. So, assist our customers as well. We want to help people obviously, something that is centralised, something get things right. But for a variety of reasons people that is in their eyes cheaper to deliver than having a do not get things right and we feel our job is to tackle face-to-face public service in local offices is the that on behalf of the country. service line that the Department has gone down, rather Jesse Norman: Would anyone else like to comment than necessarily understanding what it is the customer on that? I don’t think it’s necessary for everyone to wants in terms of service. So we would strongly agree make any comment. that they have moved too fast in that direction. Graham Black: You are right, the Department has There is a case to be made for some degree of struggled for the last five years, but I think that has to centralisation, but they should have retained more of be seen in the context of the fact that when we merged the customer-facing service than they have, and of cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Ev 2 Treasury Committee: Evidence
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook course they are still reducing opening hours and fraud by putting trained, experienced, tax professional closing offices now, so that situation is getting worse. people on to it who were able to get a grip of it. I Graham Black: We have lost something from losing think the thread that probably will come through a lot a lot of our local regional presence but again—I hate of what we talk about this afternoon is that, at the end to come back to it—to some extent that was a of the day, tax is a people business. There are numbers consequence of the fact that we had to lose tens of involved and, yes, we can make efficiencies through thousands of people. So I imagine it is impossible to online filing and that sort of thing but, as your carry on delivering the same thing in the same way colleague said earlier, people want the confidence that when you are losing a third of your staff. So, yes, I their own individual circumstances will be taken into think we would agree that there is definitely a big account. We deal with very complicated areas of fact, downside of moving out of local offices and having of law, the cutting edge of legislation. That really less of a regional structure, but some of that is a needs people and it really needs an investment in consequence of losing people as well as a decision in trained tax professionals. its own right. Q9 Mr Tyrie: But your initial evidence is extremely Q6 Jesse Norman: Do you think the move to a more forceful. You have come forward with a number of rule-driven approach to tax rather than the individual suggestions for areas in which things have gone well, case being pre-eminent weakens the public belief in but you have said that the period after the merger was the Revenue? Because some people might say, “Well, wasted, that the best of both cultures was lost—you if the Revenue can’t work with me and isn’t prepared are all nodding your heads in agreement here—and to acknowledge my issues, why should I pay them that a collective identity was not forged. I do not think the tax?” the word “collective” was used by you, but I think Peter Lockhart: I think there is a genuine concern what you more or less said was that a new identity about the removal of a physical tax presence from the was not forged adequately. This merger was put local communities that they traditionally served. At together on the basis of a plan by McKinsey, was it one level that includes the closure of tax offices— not? Is that correct? again, that physical presence—and the fact that Terry Cook: That is as we understand it, yes. individual taxpayers, under whatever tax regime they may be subject to, are able to physically go into an Q10 Mr Tyrie: I do not know who wants to answer inquiry centre and speak to a person about their tax this question, but that turned out to be a disaster, is concerns. It is not just our concern but the that right? professional bodies seem to have a concern about that Graham Black: Yes, I think we would say it did turn as well. So I think there has been a change of culture out to be a disaster. We made a number of and ethos, which has not necessarily been thought fundamental mistakes early on when the departments through but is a kind of unfortunate consequence of were merged. It fragmented the departments. Both the way that HMRC has reorganised itself. departments had a very proud tradition. We had a very committed workforce. I worked for the Inland Q7 Jesse Norman: So it would be your collective Revenue. People were very, very committed to the view, then, that it is not true—as the HMRC has Revenue. I know Customs had an even stronger ethos claimed—that the £1.1 billion of savings they have than Inland Revenue had. We seemed to lose some of had since 2005 have been achieved without overall that by fragmenting according to a structure that broke negative impact on performance? That would be us into 36 different boxes, and it has proved difficult untrue? to come back from that. I think there have been efforts Simon Boniface: I think we would confidently say to try and reverse that, but it is more difficult to come that, yes. back from having lost it than it would have been if Jesse Norman: Thank you very much. we had not lost that in the first place.
Q8 Mr Tyrie: What you are describing is nothing Q11 Mr Tyrie: So bringing in a consultant probably less than a disaster both for the taxpayer nationally, is not the solution, seeing as it is a consultant’s report who is trying to get his tax sorted out, and that created the problem. I wondered what any of you individually, who is trying to deal with the institution. feel is the answer. Do we need to forge a single new Do you agree with that, Mr Cook? identity? Do we need to try and create some sort of Terry Cook: I am not sure whether disaster is too federal structure to try and restore some of the best of strong. Speaking as people who— the old cultures? What is the answer? Mr Tyrie: Well, put it in your own words. Peter Lockhart: I do think HMRC have struggled. Terry Cook: Thank you. From our point of view as They have had various iterations of their ambition, ARC, the people who represent the staff who work in their vision, where they want to be, the five-year plan, the organisation at the senior end of things, I think we and none of those things have engaged staff that work would want to say that in recent years we have for HMRC. I think it is as disappointing for us as managed to achieve some really quite good things. We anybody else, that HMRC consistently fared the worst have introduced some changes to the law—the on the measures of staff morale and commitment to avoidance disclosure regime, for example, has been a the leadership of HMRC. It does not do us any huge step forward in the way we tackle avoidance. favours either. Perhaps belatedly, we tackled carousel fraud and have Ever since HMRC was formed 30,000 staff have got a grip on that. We tackled MTIC and carousel gone; there have been hundreds of office closures, cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Treasury Committee: Evidence Ev 3
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook constant reorganisation, and that has been the case for Terry Cook: Empowerment. the whole period that HMRC has been in existence. So, on the one hand there has not been a clearly Q14 Chair: Is that of the management or the staff? defined view of what HMRC is about, but in addition Terry Cook: It goes right the way through I think; our there have been inordinate constraints on the way that senior managers feel sometimes as disempowered as HMRC are expected to do much, much more with people who work in other parts of the organisation. far less resource and that inevitably has had a long I think we want to be trusted. I think we want our term impact. organisation, our senior leaders, to talk to us, to involve us, to learn from us. Q12 Mr Tyrie: If I may say so, I asked you a question about the future and you confirmed the word Q15 Mr Tyrie: I have one last question. It has been that was initially qualified, which was the word put to me by people close to it, that policy formulation “disaster” that I began with. You are describing, if I has also been downgraded in HMRC, as a may say so, another aspect of the disaster as a result consequence of proximity to the Treasury, and that the of implementation of McKinsey. What I am looking best people are not necessarily ending up there in your for now looking forward I’m looking for suggestions. central policy division. Is this a criticism that you I’ll have another go and then I’ll give up for the time recognise and should action be taken to deal with it? being. What proposals have any of you got for Graham Black: I can’t say it is a criticism I recognise. tackling this fundamental and deep problem of I think there is a different relationship between damage to the culture of these institutions, or this Treasury and HMRC than there was 10 years ago. institution as now merged? Many of the high-level policy functions now lie with Simon Boniface: I think previous capability reviews Treasury rather than with HMRC, but we have a fairly have tried to address the issue to some extent in terms regular flow of personnel from the Department into of accountability, and accountability in the Treasury and back out again. So it is still seen as a organisation is clearly an issue. Clear lines of very good move and we still seem to have very good accountability and understanding who is responsible people who have moved on to that. Obviously, policy for what are important. The workforce needs to be re- aspects are still dealt with in HMRC, but there is now engaged with the purpose of the organisation. Most of a greater interaction between HMRC and Treasury the individuals working there know what their that, once upon a time, would have lain within the individual purpose is but do they necessarily feel that Department itself. So, there are two departments they belong to HMRC the same way as they belonged involved where perhaps there was one before, but we to Inland Revenue and Customs and Excise? So I still have very good people involved. think a cultural change there is needed. Of course part of that is getting away from this command and control Q16 Jesse Norman: I have a very quick approach to management and empowering people to supplementary. Chairman, do you think it might be take responsibility for what they do and their place possible for the Committee to request a copy of the within the bounds of the organisation, valuing what McKinsey report? That is the first question. The they deliver and what that means for the taxpayer. I second one, very quickly, we have talked about the think if we can get some of that back then I think that impact of savings on employment. Could we just look will see us have a cultural shift. It will be a positive at it on capital projects: do you feel that the efficiency thing for the organisation and it will also have a of the organisation may have been impeded or positive impact on the effectiveness of the undermined by cuts to the capital budgets that you organisation as well. would have been using? Terry Cook: But if I could come in, I think the striking Simon Boniface: That’s a good question. Possibly; it thing about the staff survey is that if you cut the would be knowing what goes into the capital budget results by the level of the organisation, the results are and what doesn’t, I suppose. really very similar. Even people at the higher end of Graham Black: There has been quite a significant the organisation, who ARC represents, have very amount of capital investment in the Department in similar feelings to everybody else right throughout the new IT systems, so I think we would have to organisation, which I think is perhaps quite unusual. recognise that that has been in place over the last few In the last year, ARC has done some work with its years. Whether that is as effective or not is probably members. We have got groups of people together to not within our area of expertise. try to get behind the results of the survey and we have come up with some ideas that we put to our Q17 Jesse Norman: Has that improved efficiency? management. We had—if I can just mention them Graham Black: It clearly has. As to whether it quickly, it sounds a lot—nine quick things. improved things as much as we would have liked or Chair: Will you send them to us? It would be very as was expected, there is always a danger with IT useful. projects that you expect them to achieve everything, Terry Cook: I’d be very happy to do that. so you make the savings and you take the staff out accordingly and then when the actual IT comes in it Q13 Mr Tyrie: Why don’t you give us the most is not quite as good as that but you have already lost important one now, or you can list three briefly? the staff. Terry Cook: Three? Okay. Well, Simon has already mentioned empowerment, so that’s one down. Q18 Jesse Norman: On a scale of one to five, how Chair: What was that one? does it rate relative to expectations? cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Ev 4 Treasury Committee: Evidence
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook
Simon Boniface: Three. because there are loads more calls waiting? Where is Peter Lockhart: 2.5. Yes, fair to middling. the balance? Is the balance wrong in that and is it slightly wrong or significantly wrong in your view? Q19 Chair: Terry, I am asking you because you are Peter Lockhart: We believe the balance is wrong. Our the only one I can really hear; but you’re all equally view is the impetus and onus is on getting through the as wise. Terry, I’m still struggling to find out why the call as quickly as possible and not dealing with issues atmosphere has changed. Is it largely because of the that may come up during that call. I think that in itself savings that have been imposed since 2005, or is it is a product of the fact that there aren’t enough staff. personnel: changes at board level; changes at senior They’re under extreme pressure to get through the management level; a different way of doing things? calls, as many calls as possible. That would be one, and that would be understandable. Secondly, it would be more understandable if they Q22 John Mann: To be clear, if it’s one of my have had to make heavy cuts and do it quickly so they constituents calling, the way the service has developed have lost the old way of being a team and explaining in recent times—not just under this Government but things, agreeing things. Or is it a combination of the before, the continuum of change—means that because two? of the pressure they’re not going to have all their Terry Cook: As we said in our submission, we have issues properly addressed because there is not going had up until perhaps quite recently a very high to be enough time to listen to them, because of the turnover of senior staff. I think we stopped counting pressure to take the next call from another of my our chief people officers when it got to about five or constituents or anyone else’s constituents? In your six. That’s not a recipe for stability. I think the view that is what is happening there. On average. capability review recognised that and we’ve had a Peter Lockhart: Well, I think you are answering your much more settled senior leadership since then. own questions. I think that’s right. There is an There is an issue perhaps—without being at all critical inordinate pressure to get through the calls. If you of individual people—about whether we have enough ever call the contact centres, and you get to speak to people in our very senior ranks who have had a career somebody, you will be dealt with exceedingly or experience of tax administration. Clearly, HMRC professionally and in a way that you would expect. is part of the Civil Service and it is an operational But I must say there is inordinate pressure on that delivery organisation as much as anything else, but individual call handler to get through that call as our business is tax in the same way as Tesco’s quickly as possible and, potentially, they therefore business is groceries, I suppose. Perhaps we would have to ignore problems that come up that are not like a stronger senior cadre of tax professionals, but directly related to the content of the call itself. everything that has happened since the merger has been taking place against a background of cuts. The Poynter review of data security talked about staff Q23 John Mann: If there were problems with the being weary of change. Well, I think people are just style of how calls were being answered I think we weary of seeing change taking place against a would be very aware of it, and I’m not, unlike some background of cuts, cuts, cuts. Government agencies. However, that does not Chair: Terry, that’s fine. I think I’m moving into necessarily mean that staff who answer calls, very someone else’s area so that will be picked up, no professionally and politely, from my constituents and doubt. others, necessarily have either the expertise to answer the query or the authority to deal with the query. Is there a problem with either expertise or with the Q20 John Mann: I have a few questions. Please chip authority that’s delegated to the people answering in if you disagree, but if there is agreement it would calls? be helpful if one person answered and I’ll get through the wide range of them if I may, because I think that Simon Boniface: Not really, no. would be most helpful to the Committee. I wanted John Mann: So that is not an issue. to start with the service to the general public. Has Simon Boniface: There is always somebody they can it worsened? refer it up to if it’s an issue that is so complex they Peter Lockhart: I think our view is that it has can’t deal with it. worsened. For instance, it’s impossible to ignore the John Mann: So you don’t regard that as a problem? fact that 40% or 50% of calls to contact centres are Simon Boniface: Not that specific issue. going unanswered; it’s impossible to ignore the PAYE debacle. There were a number of reasons for that. But Q24 John Mann: But volume of calls versus again, against that backdrop, it would be difficult to numbers of call answerers is a big problem? claim that service to the customer has improved. It Simon Boniface: And the answering policy, which would be difficult to ignore the plea from a number Peter has explained to you. of tax professionals and individuals that what they miss is, if not a personal service, at least somebody Q25 John Mann: As Members of the Committee they can speak to about their tax affairs. know, the town of Retford is a barometer for the country of what is going on. Q21 John Mann: Can I pick you up on that? Chair: It is the country in some people’s eyes. Looking at the call centres, what are staff being John Mann: Retford has lost its tax office; 37 staff encouraged to do? Is it to spend sufficient time dealing have gone—transferred or gone—and are no longer with the callers’ issues or to get on to the next call working in the service. Is there a disproportionate cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Treasury Committee: Evidence Ev 5
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook impact on those areas that have lost the tax office or staffing levels of about 10,000. From an HMRC point is your view that the pain is generally equally shared? of view, we know that an awful lot of work is going Simon Boniface: We would argue that there is a into looking at the ways in which they can meet disproportionate impact. There are swathes of the UK business demands with ever diminishing resources. now with former Revenue and Customs offices; you will be aware of it in constituencies. There are Q29 John Mann: But they must be sharing their swathes of the UK that do not have much other than thinking and discussions with you in detail, surely, to a very minimal inquiry centre presence, and that itself get the best knowledge from within the service and to is being reduced through reduced opening hours and ensure that they have the maximum wisdom in reductions in the number of days that those inquiry making decisions that are being forced upon them. centres are opening. With the exception of those Are they properly sharing their plans and their vision centres, there are huge swathes of the UK now that on how they are going to handle the managerial have no regular tax presence. So if a taxpayer needs problems that presumably they now have? to see an official of Revenue and Customs or an Peter Lockhart: It feels very much like the plans are official of Revenue and Customs needs to see a a work-in-progress. I think it’s fair to say that we have taxpayer in that area, they have to travel from so much been quite able to give our two penn’orth at every further away in order to get to them. Whether that is opportunity, which we have taken the chance to do. helpful or not, I would argue not. But we have yet to see the detailed plans. The kind of plans that we would want to see relate to where the Q26 John Mann: For a taxpayer in Retford to get to businesses are going to be located; the kind of work the nearest offices dealing with them is a bit of an HMRC is going to be committed to doing in the expedition, never mind a journey. Apart from those future; what it means for staffing in the future and who are fortunate enough to have a tax office in their how they are going to bring in extra yield as the locality, what you are saying is that some areas—such commitment states. as Retford and others like it across the country—have been even more disadvantaged because of the Q30 John Mann: Have they given a timescale for changes? outlining this detail to you? Simon Boniface: I think we would argue so, yes. Peter Lockhart: We expect a first iteration by the end of this month and then detailed plans about a month Q27 John Mann: Be it McKinsey or whoever, I can later. So we are on the verge of getting some real hear management consultants—doubtless, suitably detail, we hope, about what that means from an rewarded or suitably highly rewarded—questioning HMRC perspective. why people are having to make the calls in the first place. Do you think that the HMRC fully understands Q31 John Mann: Are the senior management the reasons why people are feeling that they need to fighting hard enough for the service and are they make a call, and/or do you regard the fact of people properly informing decision makers—including, in querying and calling as an inevitability? our very modest way, the Treasury Committee, Graham Black: That is quite different. I know the Parliament—of the consequences of the reductions in Department has done a lot of work on trying to funding that they are getting? manage demand. What is it that makes somebody Graham Black: Obviously, we are not privy to the want to ring a contact centre when they get a notice conversations that take place between them. We do of the pay-as-you-earn coding, and so on? They are know that they fight for the Department and for trying to manage that by putting out easier resources; I think the reinvestment in compliance information the first time round. But tax is complex, demonstrates that. The question is to what extent they and it is not getting any less complex as the years go are being listened to when they are putting forward on, so I think it’s always going to be very difficult for their arguments, because £900 million reinvestment them to manage that demand down, because people has to be set against the £3 billion that is going to be will always want some reassurance that they are cut. So I am afraid that is as much information as we paying the right amount of tax or that their returns get. We get the end product rather than the to and fro are correct. of the conversation.
Q28 John Mann: Things are possibly going to get Q32 John Mann: One of the ways of making cuts— worse because of the Spending Review. In your view, we are seeing it in local government, as was well do the people making the decisions at the top of reported in very recent times—is to push the cuts on HMRC fully understand the implications of what is to somebody else. Do you think it’s likely that the coming in the next three years, in terms of the delivery taxpayer, as consumer of the service, is going to have of the service? to bear a heavier price in one way or other for the Peter Lockhart: We are yet to see the detailed plans reduction in resources available? of how HMRC are going to deal with those, as you Simon Boniface: The taxpayers already are, aren’t say, difficult decisions that will need to be made, on they? If we look at the contact centre service, and the the basis that it looks like around about £3 billion will impact of the job cuts and not replacing those staff on be taken off the HMRC budget over the course of the that contact centre service, there is already a price Spending Review. Just under a billion pounds will be being paid. If there are going to be further similar given back to focus on compliance activity, but in any reductions over the next four years, then the event it looks like it equates to a further reduction in Department is ever more likely to want people to use cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Ev 6 Treasury Committee: Evidence
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook the internet and want people to use means other than doubt be only too well aware. So what I wanted to do, contacting it directly, which one could assume leads in terms of compliance, was to focus on what is being to a change and a reduction in customer service. The asked of HMRC. You have all welcomed the funding, Department has already closed offices, reduced the indeed I think you were very much in the forefront of opening hours of its inquiry centres and has reduced suggesting to Government that if they invested some its inquiry centre service based on the fact that it has money it would produce a return. As you have to make cuts, and that is likely to happen further. suggested, they have given £900 million and they are saying that this should reduce the tax gap by £7 Q33 John Mann: My final question, Chairman, is billion. But, of course, that is against a backdrop of about the way the taxpayers are perceiving things in efficiency savings of £3 billion over the next four my area and elsewhere. They see that there has been years. Can you do it? Can I take one from each of the a huge change in the way things are done, the two unions, perhaps Peter then Graham? Just give us technicality of it, the IT, the online changes and so on, your view: can it be done? and they think that, presumably, that is the way it will Peter Lockhart: Well, as colleagues have said, it is continue going. Isn’t there a bit of a contradiction— not enough, but what a great— certainly a dilemma—because if that’s the direction Mr Love: I am not asking about additional; I’m you’re going but, at the same time, you’re forced to asking: can you hit the target of £7 billion on the basis make huge changes because of a reduction in of the investment that is going to be made? resources, the two objectives will clash? What the Peter Lockhart: In answer to a parliamentary question taxpayer will get is the worst of both worlds: an some figures were published, albeit broad ones, which attempt to move to the most modern electronic era in showed that for each compliance officer you have in all the systems but, actually, a system that is HMRC a tax yield of £650,000 would be brought in. struggling to cope with that change and the reduced Now, these are fairly straightforward mathematical resource change at the same time. How big a problem equations, but clearly we believe the additional do you see that being? modest reinvestment in HMRC will easily enable it to Peter Lockhart: There has been a tradition of over- reach fairly modest targets around increased tax yield. promising and under delivery in terms of IT Graham Black: I certainly think that the reinvestment capability. I think a lot of the staff reductions have will result in a good deal more yield coming into the been predicated on the ability of IT systems to deliver Exchequer. If I remember rightly, they have not when quite clearly they have not. So there is a degree spoken of a £7 billion reduction in the tax gap. I think of nervousness about the store that is set on IT systems. The taxpayer is getting unduly hit as long as it was £7 billion in additional revenues; the wording this Government and HMRC ignore the fact there is a is not quite the same. So sometimes it is apples and massive £120 billion or £52 billion—whatever your pears in terms of what people are measuring. But there calculation is—tax gap, namely the tax that is not is no doubt at all that the areas that the Department being collected. If the resources went into tackling has identified are all areas where we can bring an that, along the lines of the reinvestment that has been awful lot of money in by putting in additional announced in HMRC, we might not see libraries resources. Our concern is that these are recycled closing and dustbins not being emptied, which are the resources from within HMRC rather than simply ways that taxpayers are probably going to be hit in additional resources, but we did certainly welcome the the future. fact that they were focusing on some areas where we needed to put more money into prosecutions. We do Q34 John Mann: So, for the honest taxpayer in my not prosecute serious tax offenders in the same way area, dealing with yourselves is going to be even more that we prosecute benefit fraudsters, for example. So difficult. For those who are trying to avoid paying tax, we certainly welcomed it, we just felt it wasn’t quite you are suggesting it’s going to be easier? enough; in fact it wasn’t nearly enough. Simon Boniface: No, we hope not on both counts, obviously, because we do have a commitment to the Q37 Mr Love: As you will understand, people will organisation. say that the trade unions are there to defend their members. What I am trying to get is some evidence Q35 John Mann: Well, we hope not on both counts, and objective facts. I will come back to the £650,000 but I am asking whether you think that is a likely because you’ve made a different submission in consequence of decisions that have been made? relation to that. One of the other things you have been Simon Boniface: In terms of the service delivered, asked to deliver is £8 billion of tax credit fraud and the first suggestion is a possible consequence of the error savings by 2014/2015. Can you deliver that? changes. As for the possibility of easier tax avoidance, Graham Black: Again, I believe that is across HMRC we would not expect that to happen because the and DWP. reinvestment money is specifically targeted to increase Mr Love: That is including DWP, yes, absolutely. the resource to combat it, and we argue that more Graham Black: I am less close to that, but again we should be spent. So, we would hope that possibility know the money is out there. We can see the risks that would not occur. we have been unable to deal with previously, so by putting resources on to it, there are certainly large Q36 Mr Love: This Committee will be looking at the amounts of money we can take in. Whether that exact tax gap. We have had several submissions all giving figure is going to be right or not, I must admit I am different answers to the same question, as you’ll no not close enough to be able to guarantee it. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Treasury Committee: Evidence Ev 7
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook
Mr Love: You don’t disagree with that? I don’t want for much more investment in the compliance and to take up a lot of time. enforcement activities of HMRC, and that socially it Peter Lockhart: No. should be seen as unacceptable to avoid tax and to defraud the Treasury of tax. Obviously there is a Q38 Mr Love: Let me go on because in your worry that if we do not put the resources in, non- submission—ARC’s submission—you said, compliance becomes ever more acceptable, so we are “Compliance staff earning 50K can generate yield of very keen to maintain the compliance effort. £1.5 million and stop Exchequer leakage of a further Terry Cook: I think that is right. As Simon said, it is £1.5 million”. That was just contradicted by PCS in absolutely a fairness issue. As the people who terms of £650,000 cited in a parliamentary answer. administer and enforce the tax system, we have to Can we shed some light on what the evidence is in satisfy the public and Ministers that we are spreading terms of what savings are generated from additional our efforts properly, proportionately and fairly, and I staff? think the public have every right to expect that. Graham Black: We are absolutely at one with PCS in terms of the numbers they have published. ARC Q41 Mr Love: Can I turn to the issue of Vodafone? members tend to be involved in the very high-end You will have seen the recent publicity. It has been avoidance innovation, so they tend to be involved in suggested that HMRC—I am quoting from an article the biggest and the most complex cases. Inevitably, that appeared in the press—would do better to do you would therefore expect that the money they bring deals with big companies and rake in substantial sums in will be pound-for-pound more because they’re for the Exchequer than to engage in lengthy expensive going to be dealing with a very large multinational or court cases that HMRC may lose. Is that the current a very wealthy individual. So they will have a higher philosophy and do you support it? what we call a yield/cost ratio; they will bring in more Graham Black: It is certainly not the current money per pound. That does not take away from the philosophy. We have what we call a litigation fact that we have a vast amount of evasion and settlement strategy, which says if someone is engaged avoidance at other levels of the economy, where you in an avoidance scheme and we think it does not work still get a very good return on your investment. So I in law, we should take them through the courts. do not think the figures are different, it’s just that we are looking at different risks and ARC members tend to be dealing with the high-risk areas. Q42 Mr Love: You have been taking Vodafone through the court for 10 years. Graham Black: Yes. There are areas that are a bit Q39 Mr Love: Just previous to that part of your greyer than that; and, you are right, it’s not necessarily submission you said that in 2009/2010 HMRC cut and dried and it’s not necessarily going to be generated £12 billion of additional money. Is that the evidence that you base those figures on or is there entirely one side or the other. Sometimes negotiation other objective evidence? takes place in those cases, but by and large this litigation settlement strategy says if somebody is Graham Black: That is objective evidence and that £12 billion comes from PCS and ARC members. It engaged in high-level avoidance and we have a strong covers all of the compliance activity we do, but case—it does have to be a strong case—we will take equally within the Department we get different it through the courts. That is still the policy of HMRC. amounts of yield from different activities. If you look Mr Love: Do you disagree with that, Peter? at international tax avoidance large amounts of money Peter Lockhart: We do not disagree with that. I think tend to be involved. If you look at ghosts and it’s difficult for us to comment; these are questions for moonlighters, you have to catch quite a few of those HMRC, aren’t they? But I think the fallout from the to get a reasonable amount of money. So, absolutely, Vodafone case—the stuff that we’ve read alongside we think those figures are right. the stuff you’ve read—it hardly sends a message to Peter Lockhart: The £650,000 was an average figure either taxpayers or to members of staff in HMRC that across all staff, which I think Graham has implied. I there is a real intent to pursue big businesses. We forget who asked the question, but that is the figure don’t know the precise details of how that deal came we have used and that again is across all staff. about. From what I’ve read, I believe that Vodafone has set aside a larger sum to pay than they ended up Q40 Mr Love: Can I just ask you about the balance. paying. But it is more the principles that evolve from You mentioned about moonlighters and ghosts: are the that. It is only Vodafone that has come to the fore, objectives you have been set by Government hitting whereas there has been a great deal of publicity about the right targets? Although benefit fraud and other chasing so-called benefit cheats, benefit frauds, to the fraud must be dealt with, that will produce very much extent that that has dominated the media, rather than lower returns than those that come from tackling some the billions of pounds that could come from the proper of the high-end activity and there is a lot of concern taxes paid legitimately by big business. about that. What is your view of the balance? Perhaps Graham Black: We share that concern because, even we will start with PCS, maybe Simon could comment. on the Department’s own reckoning, companies out Simon Boniface: Yes. Obviously, we would not there are keeping more than £6 billion through tax denigrate the work that is done to deal with benefit avoidance that we should be getting in. So, absolutely, fraud, but proportionally the way that evaders, it requires more attention, more effort, and more avoiders of tax, are dealt with does not seem to be professionals attacking that sort of avoidance. We equitable. So we do think that there is a strong case cannot talk about the individual case but we cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Ev 8 Treasury Committee: Evidence
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook absolutely spend a lot of our time dealing with high- businessman or an old age pensioner. Fairness is a key level avoidance. The question is whether we could do element of the whole organisation. more and whether we could bring in more of it in future. Q45 Mr Love: Can I just ask you one final question: you have had some success in persuading Government Q43 Mr Love: As I understand it, Vodafone had set to invest, but from your answers you do not think they aside over £3 billion, twice the amount that they have invested enough. If the figures are so clear, if ended up paying. While I accept that these are mainly the evidence is so stark that further investment would questions for HMRC, I do think that often we need to produce a significant return, why are you having such refer to others to give us perhaps a different trouble persuading the powers that be? It is not perspective on some of these issues that affect the because Governments do not want to raise the taxes; organisation. Perhaps the more serious issue they clearly want to. Why are they so sceptical? highlighted in the article, and a more weighty Graham Black: That worries me, too. The answer is consideration, is that there is concern that that we know that all Government Departments are management are high-handedly ignoring proper going through a difficult time; everyone is being asked procedures and overriding inquiries at an advanced to tighten their belt. There have been a lot of cuts in stage. You will have heard that before, and I’m sure Government Departments. Inevitably, Treasury must I’m not bringing something to your attention that has think that a Treasury department should be seen to caused you some surprise. Is there concern in the suffer its share of the pain. From our perspective that organisation, at all levels, about the way in which is the wrong question. We are facing a huge deficit, senior management are acting at the present time? but looking at your one revenue-raising department, Graham Black: Firstly, I have to say that I have never you shouldn’t be asking, “How far can we cut it?” seen anything from anyone at HMRC that has been You should be asking, “How much can they contribute any less than the highest level of integrity. We see a towards reducing that deficit?” lot of things in the press. We know obviously there is concern among taxpayers and among the press and, Q46 Chair: I think you’re very loyal and very good indeed, probably among some members of staff, but I civil servants but, from the outside, there seems to be have not seen anything to support that. However, I some vagueness about your policy on, for example, think the same article did suggest that there might be Vodafone, which is the most public case. Before that some independent inquiry that would look at how example, the policy was hard, no quarter was given HMRC dealt with these sorts of inquiries into and cases went into court. There seems now to be a multinationals. We would welcome that, if that gave hot and cold policy, and that almost an individual can an opportunity for everyone to be completely satisfied decide, “We’re going soft on this”. Who takes the final decision on whether to make a settlement or to that they were being dealt with in a proper way, by continue to court? Is it the same individual who the right people, at the right time. We would certainly decides or is their decision put before a higher welcome that. authority? Does the board or the executive board have a say in it? Has there been a change of policy, because Q44 Mr Love: Before you answer on behalf of PCS, one doesn’t know what the policy is now? can I say that, while we might not be an inquiry, we Graham Black: I certainly don’t think there has been can ventilate some of these issues and draw them to a change in policy. As to who makes decisions, it your attention and maybe add to the demand for a depends how big the case is. At the local level a case proper inquiry, if that is deemed appropriate. worker will liaise with his or her manager to decide Peter Lockhart: No, I think the issue is around that. On the very biggest cases we have a fairly openness and transparency, the same kind of openness complex governance structure, which means that we and transparency that is required across all tax and tend to have a group of people who look at all the benefit regimes. I think the same honesty and scrutiny facts, all of the suggestions on whether something should apply to the tax that is paid by big business. should be accepted or whether it should go to court, We are not talking hundreds of pounds here but, as and it would be looked at by that group of people you say, it’s billions of pounds. The hospitals and rather than by an individual. So that is our governance schools rely on this money and I think it is, therefore, process as you would see it written down in the of greater concern to ensure that scrutiny when it Department. comes to big business. It is more difficult for us to Chair: Okay. The National Audit Office are looking comment on the precise machinations of how it at it anyway. works—the Vodafone case—but certainly it will have had repercussions for HMRC in terms of how they Q47 Stewart Hosie: Graham, you said that the tackle and deal with tax owed by big business. We objective was to be fair to every taxpayer but there would welcome a greater degree of scrutiny of those appear to be inconsistencies in bits of this. We know big decisions that are made. that there is a target to reduce a proportion of debt in Graham Black: Fairness is a very important aspect 30 days and 90 days. That makes sense. But we hear for everyone who works at HMRC. It is something continually—anecdotally and from some cases— we really pride ourselves in. We do not want people, about debts that are either written off or marked down either within the organisation or people looking at the as zero in order for cases to be closed. Is this organisation, to think we’re less than fair to every something you’re aware of? Is it widespread? How taxpayer, whether a very large multinational or a small does this come about? cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Treasury Committee: Evidence Ev 9
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook
Graham Black: Is that easier for you to answer, is to do with PAYE or whether it’s to do with VAT, Simon? and it may well be somebody different that they are Simon Boniface: I’d have to say I don’t know the communicating with, depending on the origin of the detail myself actually. debt. We think that’s not the greatest customer service. Peter Lockhart: Again it’s possibly a question for HMRC, but certainly in the past we have been Q51 Stewart Hosie: I appreciate that. Obviously concerned that lower level debts had been written off. there are concerns about the private debt collection I do understand that HMRC have now established a agencies, but your submission talks about staff being team to tackle lower level debts, but equally we have encouraged to have taxpayers pay outstanding debts some concern about the hiving off of some portion of by credit card. Is this widespread? Is it localised? debt to private debt collection agencies, particularly Where is that taking place? when HMRC may be pursuing that same taxpayer for Simon Boniface: It is taking place across the piece. I one debt while the private sector debt collection think the extent to which it is widespread depends on agency may be pursuing that self-same taxpayer for a the take up. I do not think it’s a first choice method different debt. We are not convinced that that is the for payment. But, as our submission pointed out, this best use of taxpayers’ money to bring in that money. approach has been cleared through Parliament. If you read the HMRC’s submission, it talks about the Q48 Stewart Hosie: On that specific point then, is progress in our time to pay arrangements for this because you do have 32 different business streams customers, which we would suggest are much more and there is a lack of communication, which was beneficial than the interest payments an individual certainly the case when that structure was put in might have to pay on a credit card debt. So I think it place? How would we get to a situation where the is disappointing that we have that arrangement in Revenue is chasing one debt and another bit of the place, when maybe we should be erring more towards same organisation has hived off the collection of the positive measures that the Department has taken another debt to a private agency? How would that to arrange time to pay for individuals. come about in practical terms? Peter Lockhart: You may know more, Simon, but the Q52 Stewart Hosie: I think that is very sensible. Let single part of HMRC that deals with debt management me go back to fairness for all taxpayers. Because of and collection is fairly tightly controlled. I think our the targets you have to reduce the 30-day and 90-day issue is—forgive us for repetition—the growing debt, does it mean there is a push to press for payment amount of debt that remains uncollected. We cannot more quickly rather than perhaps longer proper but conclude that there is some correlation between resolutions when there is a debt in place? having more staff and more interventions through that Simon Boniface: More quickly if the money is debt management service and the increase in the available. The intent is not to give extraordinary collection of debts that would result. That simple amounts of time to pay to somebody who has the correlation exists. money to pay us, but those arrangements are put in Simon Boniface: There is also a disconnection in place for people who are going to struggle financially terms of IT, because the VAT computer system that and, as a consequence, their business could go under links the VAT debt to other debt is not linked together if they had to pay the whole lot within a set period of properly yet, as I understand it, but I don’t think any time. It is that kind of consideration that the of us here are experts. Department applies: what is the impact on the individual? What is the impact on the business of the Q49 Stewart Hosie: But given both your unions pursuance of that debt at the time? represent huge numbers of the staff inside the Department, I find it amazing if these stories and those Q53 Stewart Hosie: That is precisely where I want concerns—specific concerns like the IT one—were to get to because, like many MPs, I have a lot of not filtering up to you. constituent complaints from businesses with “the Simon Boniface: We know about it, and we included Revenue on their backs”, and I am deeply worried the fact that the IT does not link together yet in our that there doesn’t appear to be the correct level of submission to the Committee. They are saying it will understanding of the business or sensitivity. Three this year, and they have said that in the past, so we small examples: I have a business that was in debt— are ever hopeful that the situation will improve. But the debt should be cleared about now—and about five it’s another one of these sorts of problems—in 2005 or six weeks to go on a very significant repayment Inland Revenue merged with Customs and Excise, but schedule, very chunky, the Revenue demanded an we still have separate systems for different heads of eight-month future cash forecast, which would take a tax from the origin departments in 2011. huge amount of management time and accountancy cost when the debt was only six or seven weeks from Q50 Stewart Hosie: That doesn’t sound great for the being cleared. Why would someone in the Revenue customer. How does the taxpayer facing that know ask for that? Would they not understand how much that they are speaking to the right people? How does that would cost, in terms of management time and it work for the taxpayer? money, and would they not look at that alongside the Simon Boniface: Our debt management organisation repayment schedule and work out that the debt was will endeavour to make sure that they speak to the almost cleared? Why would that disproportionate right person. The concern we have is that the right demand be put on a business, when they were person might depend on whether the taxpayer’s debt struggling to pay a debt and working hard to do it? cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Ev 10 Treasury Committee: Evidence
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook
Simon Boniface: Obviously, without knowing the full know this in advance—runs into hundreds upon data of an individual case, I cannot answer as to the hundreds upon hundreds of thousands of pounds, for background to actions that somebody has proposed. what was a very modest debt, and payable? Before However, the people who are working in our they take those decisions, do the Revenue contemplate organisation dealing with these things are expected to what the real impact and cost for individuals, be professional, and are professional, and do generally businesses and families will be before they instigate understand the pressures on business, and certainly I that sort of legal action? How would that come about? know a lot of effort has been made to make that the Is that even taken into consideration, what the case. But I cannot answer about an individual case. bankruptcy administration, winding up and recall costs might be before a decision to prosecute Q54 Stewart Hosie: No, it was an example, and somebody happens? obviously I don’t expect you to deal with a specific Graham Black: I would say, at the end of the day, the case. The problem is that that does not stand alone. priority is that the Department will want the money From your experience, why would we get to a that is owed. That is what they are there for. You situation where the Revenue might threaten a business would probably be asking us questions if they were with a winding up order—again with a debt that they not trying to collect that. But I think they would be admit, which they were repaying—when they were taking into account ability to pay, long-term ability to four weeks away from completing the debt and this pay, short-term cash flow problems. All of those information had been given to the Revenue? Is this is things would normally be taken into account. I do not a communication issue? Is it an automated letter that know the individual circumstances of the case. ignores the sensitivities of real people? How would Stewart Hosie: No, and nor should you. that happen? Graham Black: If there was an ability to pay, you Simon Boniface: Yes, I think some of this does fit would expect that to be one of the key elements with concerns that we registered. For example, it because, when push comes to shove, the Department could be the post because it just goes to about six is there to assess and bring in the right amount of tax places now and then gets distributed out. When does and that would be one of elements they would look at somebody get around to opening something? When is if some time to pay was required. the data registered on file? I don’t need to tell you One of the good things the Department has done is to about the 17 point-odd open cases and the improve its ability to deal with time to pay implications of that for PAYE. We do have concerns arrangements, so that it does not move to winding that because of the staffing—it all comes back to staff things up as quickly if giving a period of time would cuts again—basically too often we are not doing the mean the business can continue, pay the debt and then simple things quickly and well: open the post, action be a taxpayer in the future as well. But, equally, I it. Somebody says, “I have a change of address”, and think we recognise the sort of stories you are talking staff change the address. We need to do the easy, about, the systems don’t always produce the sort of simple things quickly and well. answers that—
Q55 Stewart Hosie: It is not just a lack of staff Q57 Stewart Hosie: Again, by and large, that comes though, is it? It is the locale and the local expertise down to the right local people in the right areas. One and, indeed, the loss of seniority in some of the locales further question, Chairman. Given so much of this is where there are still offices. now centralised and automated, is there anything that Simon Boniface: Yes, we have had concerns about could be done to put in a degree of sensitivity into the that as well. I think, as our colleagues have said to system, or a requirement for human intervention that you before, and it’s equally true at all grades, we need might not be there at the moment? Could the system expertise; we need people trained and developed to do itself be improved so there are more checks and the job properly, and of course sometimes you can balances to smooth out some of the sorts of difficulties make cash savings by doing things at lower grades as I have described? Is that possible? well as making job cuts. Simon Boniface: Yes. With all the Department’s Graham Black: We recognise the need for systems at the moment, there is always the automation. By and large it is cheaper, but these things opportunity for a human intervention at various points can be complex and people are not automated, they within the process, and that exists. It does not mean are individuals, they have individual requirements and to say an automated process will not continue on its needs, and you need people with professional merry way until after that, but we do have that human expertise and judgment and ability to make decisions engagement. We still have 70,000-odd people working looking at them. That cannot be done by a computer. in the Department, so there are people there who you That needs people on the ground who know what the should be able to speak to about concerns and the situation is. issues, and certainly that is the intent. Certainly the intent of our members, the staff of Revenue and Q56 Stewart Hosie: I think this will be a common Customs, is that they want to help the taxpayer. They thread that I am sure that we will want to reflect. But want to do their job right; by and large they do want I have one final little example on this that I’d like you to help the taxpayer, and so they welcome that to explain. How could it come about that a company opportunity. is wound up for a very modest disputed debt, and the Now, of course, part of the problem with the staff cuts cost of the personal bankruptcies, the business is that you are a member of staff sitting there thinking, administration and the recalls—and everyone must “Yes, I’d be quite happy to spend 10 minutes talking cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Treasury Committee: Evidence Ev 11
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook through with this taxpayer what this taxpayer’s had that discussion earlier, and I am sure it’s concerns are and seeing how I can meet them”, but something that will be followed up—but the concern then if your boss is on your back saying, “You don’t I suppose I am probing is that you take the traditional have 10 minutes, you have to pack it up after four and kind of public sector, where there is no top line, there move on to the next job”, then it’s not so easy, is it? are only costs. The only way you can do anything Stewart Hosie: That’s helpful, thank you. about that is to cut them; you either do the same things less well or more superficially, or you do fewer things Q58 John Thurso: I want to ask about corporate and get on with it. The problem is that the downside governance and management at the top within HMRC. of that is that whoever the clients are they are getting But before I do that, Chairman, can I put on record a worse service; and, hey, so what, to be blunt. that what Retford is to the deep south Wick is to the But the result in HMRC is less tax take, and that far north—a superb tax office. Listening to comments means less money for all of the other Departments. from all of you about command and control, culture, This is the point you have been hammering home to problems with the way management is handled at the us. Do you think that the very senior management very top, I get the impression that there is quite a have too much of the “just cut the costs” culture, serious problem—I think, Graham, you said that you rather than worrying about the mixture of cost to were not sure what the strategy was or words to that achieve revenue? effect—right at the top at board level. Am I getting Graham Black: I would say that that is where they the right impression from you, and is there a serious have been left. I’m sure they must be making the case management problem at HMRC? for more resource, but they’re not getting more Graham Black: I think management are struggling; I resource, they’re getting more cuts. So that is what think the Department is struggling. If the Spending they have to manage, and therefore probably— Review numbers carry on, then for each of the first John Thurso: I have to say you are being 10 years the HMRC will be in existence there will be extraordinarily loyal, which is very good. deep cuts in terms of personnel. That is not a one-year Graham Black: That is the impression I get. People cut or a two-year cut. Every organisation goes through recognise that there are tax gaps and there are things periods where they have to rationalise and take some that we can do that would bring in more money; they cuts, but we will have had 10 years of nothing but recognise the service that we could provide in cuts. Most organisations when they cut back, they different ways; they recognise that we’d like to centralise. They have to make sure that they get their support local agents and accountants in helping budget under control and their headcount down. You taxpayers, but when you’re getting another 10% cut, become command and control. My fear is that we as you said, you cannot do everything that you want have forgotten how to get away from command and to. So that would be my impression. control. We have to be able to release our staff—very Peter Lockhart: The arbitrariness of previous cuts are professional staff—who, despite the staff survey, are somewhat demonstrated by the fact that of the staff keen in their work. They want to do their work well; who have previously left the Department—for they believe in what they are doing. We have to be whatever reason, perhaps on voluntary severance able to free them up to do the job that they want to packages—HMRC now need more of those people, to be able to do. the tune of 3,000 more, in order to tackle tax I think management is struggling to align that with the avoidance and deliver the £7 billion to which they are need to be in control of cutting things, time after time now committed. So, even by that gauge, there has not after time, which requires more change and more been a clearly thought through plan, certainly in terms central control. So they have struggled. I think there of how HMRC reorganise themselves in line with the is a much better idea of the strategy of the Department expectations of previous Spending Review going forward and what they want to achieve, but commitments. frankly any series of managers in the position that the current incumbents are in would find it a very, very Q60 John Thurso: In the predecessor Committee at difficult job. You have a department that will the last Parliament we looked at this a number of effectively have halved in size over that period. It is times, and I always had the feeling that the kind of very difficult to get a highly motivated and high Gershon approach was, “Right, you have to have 20% morale department when you’re dealing with that year out” or, “You have to slash this, and we’ll worry about in, year out; no escape; no times when it gets the consequences after you’ve done the slashing stabilised; no times when significant things seem to because it’s the only way we’ll get anywhere”. That get better. It has a pretty corrosive impact on the is why I am asking about the strategy right at the top, department, and senior managers have struggled to about the board level, because that approach has no come up with an answer to that. Frankly, I think it is definition of the objective of the exercise, other than a very difficult to come up with one. to cut. If what we want this Government to try and do is to say, “Well, let’s have some clear objectives”, and Q59 John Thurso: Almost uniquely among then say, “What are the resources needed to achieve Government organisations you have a top line, you that in the most effective way?” and build it up that have revenue. If you are running a private way, then one might arrive at a different answer, one organisation you look at your costs in the light of your might even save more one day. But what I’m driving revenue to arrive at the best bottom line. You do cut at is: are the board focusing on that or are they really costs, but you also sometimes spend because you just doing as they are told? I know I am inviting some know that you can get more money in—and we have disloyalty. I am trying to get it out of you. cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Ev 12 Treasury Committee: Evidence
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook
Simon Boniface: Well, obviously, I think there is a recognition that the baby was probably thrown out sense from us—not just this year but historically— with the bathwater. I think we are now beginning to they have done what they have been told. That is why appreciate that we need to train the staff we have; that we have all the cuts that we have had for such a long we need to carry on recruiting graduates and other time. That said, the investment demonstrates that they people; and to train our own tax people. That is not have made efforts to persuade Treasury and to say we cannot buy in expertise, but we very much Government of the need to invest in the benefits of believe the emphasis should be on developing our doing so, so there is clearly evidence of that going on. own people. Now, let’s be clear about it, they have not said to us, “We asked for three times as much and this is what Q63 John Thurso: The last question on this: you we ended up with”, which of course is what we would have an executive committee and you have a board. like to have heard. But that does not mean that they There has been a little bit of stability, after a great didn’t, it’s just that they would not tell us, and that’s deal of change and many different chiefs, but we are not unreasonable. So, to be blunt, that is the position. about to have another period of instability with a number who are going and—with them—a fairly Q61 John Thurso: One of the very senior tax considerable body of tax expertise. Do you think that advisers said to me recently that he was deeply the board is giving sufficient thought to that and has concerned that the Revenue, HMRC, had basically a strategy and policy for succession planning at board moved from a highly technically competent and executive committee level? organisation to a very process-driven organisation; Graham Black: I must admit we are not privy that its most senior management were process necessarily to all of the succession planning that they managers not tax technicians; that this shift in culture do at board level, but what I can say is that—looking was very much part of what was the problem, in that wider across the Department—for many years we there were not enough highly competent tax have not put enough time and energy into managing technicians. It may be more for either Graham or and developing the careers of our senior staff. I Terry, I do not know. But do you believe that that is imagine it goes through the whole organisation. I the case? He was very strong on this advice, think both Customs and Inland Revenue put great somebody who has been on the other side from the store in bringing on people throughout the Revenue for many, many years, and he said, “The Department, recognising them at an early level, then competence of the people we’re dealing with is well training them up and giving them a variety of jobs so below that, and that is where the investment needs to that they can develop and come through the go”, so right from board level right down. organisation, and there was somebody who would be Graham Black: Yes, I can understand the points career managing people. made. I think it comes back to something Terry said earlier on that, if asked, we would probably say that, Q64 John Thurso: But if you do not know about the overall weight and balance of the board is not succession planning on the board, that means they are right. We have to have tax professionals but we do either doing it in the utmost secrecy or they are not need process professionals as well, because a lot of doing it, and it is probable it is the latter. our organisation is going to be about big processing sites and we need people who understand that. We Graham Black: That might be one interpretation. think perhaps the balance is not right. At the moment John Thurso: I might— we perhaps need more of our tax expertise at the very Graham Black: I sound like a civil servant again. high level. On the other hand, we do need people from outside coming in and bringing their expertise as well; Q65 John Thurso: I get the feeling that is something we need professional managers; professional HR that this Committee should be very concerned about. teams; professional IT people. All of those play key Would you agree that we would be right to be very elements in the Department. concerned that such a thing should happen? But our core purpose is raising and bringing in tax, so Graham Black: Yes. you have to make sure you have that cadre of high- John Thurso: Thank you very much. level professionals at the core of the Department, and Chair: Lovely, John. we just think that perhaps the balance has moved too far in one direction and could be rectified. Q66 Michael Fallon: Graham Black, you told us Terry Cook: Sorry to interrupt, but just to add to that. some time ago that you were proud to work for the I think it’s a fairly common experience in any organisation, and you said—I think just after that— organisation, which is trying to drive down costs or is that staff were proud. But the last staff survey showed perhaps struggling, that training and development is that only 25% of staff were proud to work for the one of the first things that goes out of the window. It’s organisation. a very easy thing to lose; it’s a short-term gain, and I Graham Black: I suppose I was distinguishing think we probably have not thought hard enough between feeling proud to work for HMRC and feeling about the long-term consequences. greatly committed to the work they do. The people, if they work in contact centres or if they work in Q62 John Thurso: Has there been a big drop in compliance, want to do a good, professional job. They training and development? think it is the right job and it needs to be done well, Terry Cook: Perhaps you are a little tired of hearing and they are very proud of what they do and what this, but in recent years I think there has been a their team do. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Treasury Committee: Evidence Ev 13
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook
Are they proud of HMRC as an organisation? of trust in them; empower them to do the job; see if Probably not at the moment: we have had a lot of they deliver for you; and then if they do, you can stay high-level, fairly well publicised problems recently; with that approach and you do not need to command we see cuts year in, year out; people see decisions that and control. they are not entirely in agreement with. So I think Graham Black: We would agree with that entirely. there is a difference, and it comes out in our staff That goes through all levels of the organisation, right survey, in that people are feeling very proud of the up to the very senior levels. My last job before I was work they do on a day-to-day basis, they like the team President—a reasonably senior level in the that they are working in, and their immediate Department—I felt less empowered, less able to do manager, but they are not feeling very proud of things, take decisions and get things done than I did HMRC as an overall entity and not feeling a 10 or 15 years previously at significantly lower connection with it. Again coming back to what we grades. So that is a big problem. said earlier on, the connection people would have had with Inland Revenue or Customs and Excise is Q69 Michael Fallon: Is it part of the function of the missing. It is more of an emotional tie, I think, rather withdrawal from some of the smaller collection offices than an intellectual thing. to these bigger processing centres and call centres? Simon Boniface: That has had an impact because they Q67 Michael Fallon: There are other organisations are less personal. It is that factory mentality isn’t it? that are also public facing and have suffered quite There are 1,000 of you; you are all part of a machine. considerable reductions in staff numbers over the Whereas when there are say, 20 of you in the office— years, but yet you keep on coming right down the Wick office—you know everybody you work with; bottom in terms of staff morale. you value the people you work with; everybody Graham Black: I agree, and that is very worrying. knows each other; they trust each other to get on and Michael Fallon: Why is it? Let’s get to the bottom of do the job they’re doing; you do not have the this. It cannot just be the reduction in numbers. oppressive management that you have in a big Graham Black: No. It’s not just the reduction in centralised centre, where you’re terrified that the numbers, but I do think that is one of the very key person sitting next to you is not working. elements. The other element is the culture of the organisation; some of the mistakes we made when we Q70 Michael Fallon: We have had evidence from an merged initially, that we referred to; and that ex-employee detailing a culture where issues and command and control approach, not freeing up our problems that are identified, very locally, simply do staff to use their abilities in the best way; making them not get through to the top of the organisation because feel unvalued. That has had a very bad effect on employees feel that the senior management just does overall staff morale and that is one of the things that not want to hear bad news. we would want to see reversed. Terry Cook: I think that possibly the most worrying number in the staff survey—of all the worrying Q68 Michael Fallon: But there have been various numbers—is the very tiny figure recorded of people programmes over the years, haven’t there? What who say, “Yes, it is safe to speak up in this should senior management do now to improve staff organisation”. It’s not clear how that has emerged, but morale? there is certainly a very strong feeling among people Simon Boniface: As a starting point, it’s about trust; that even to reasonably ask questions about a change it’s about command and control; it’s about of approach, or a change of process, is to be labelled empowerment. So, get rid of the command and control as a dinosaur; somebody who is harking back to a as far as you conceivably can; start placing some trust golden age; a blocker. Again, that is particularly in individual staff. If you have trained them to do the difficult for many of our members who have been job and they know how to do the job, let them get on trained—as you might hope and expect—to be fairly and do the job. questioning, challenging individuals. We would rather Some of the internal bureaucracy to get figures to see that valued than condemned as being obstructive. justify and demonstrate that everybody is doing Graham Black: We read with interest the submission something every minute of the day, and that they are that you are talking about. Apart from the fact that doing exactly what you want them to do, some of the perhaps having come from an Inland Revenue micro-management, is just unnecessary. To be background, he seemed to think an Inland Revenue perfectly honest, if you were working under it you culture has taken over HMRC, I would say that we would not feel trusted, you would not feel empowered have something that is not either Inland Revenue or and you certainly would not respond well to a staff Customs and Excise, but we certainly recognise the survey when it came out. You have to remember sort of cultural issues that were being raised there, and where the bulk of staff are, the massive majority are they go right through. We have SCS members, senior staff at the administrative grades, working in civil servants, who feel it is not a comfortable place processing work and in contact centres. That is where to challenge or accepted practice. As Terry said, that the large numbers are, and that is the kind of is one of our greatest concerns about the current environment that too many of them work under. culture of the organisation. So, if you are senior management and you wanted to change something, you might need to take a deep Q71 Michael Fallon: What about the whistle- breath, accept the fact that you were not going to blowing itself, where staff identify something they micro-manage people for a period of time; put a bit really feel to be wrong, are those procedures— cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG01 Source: /MILES/PKU/INPUT/012291/012291_o001_MP 110119 - Corrected (in progress)- HC 731-i.xml
Ev 14 Treasury Committee: Evidence
19 January 2011 Simon Boniface, Peter Lockhart, Graham Black and Terry Cook
Graham Black: There are whistle-blowing procedures and they would serve for a set term, an annual term, in place in HMRC. as the elected officer or representative in that office. Michael Fallon: But are they working? Simon Boniface: So they would work there as well. Graham Black: That I can’t say, I must admit. You Most of the time their work would be contact centre would have to ask someone who is either whistle- work or working in processing, but they would also blowing or felt that they wanted to. There are be a union representative. procedures in place to try and protect whistle-blowers Michael Fallon: So they’re not full-time officials, if they feel that that is the level of contact they need they’re working for the organisation at the same time? to have. Simon Boniface: Yes, that is right, absolutely. However, I think most of this is not so much whistle- blowing as general disagreement with a change that Q74 Michael Fallon: Why are there two unions, by perhaps is being introduced; people are told to do one the way? thing, they think that that is not going to have the Peter Lockhart: There is a long tradition in the Civil impact senior managers think, it might have Service of broadly grade-based delineation of something quite the reverse. They do not feel that they membership and so it’s a product of those historical can always challenge that and say, “No, there are arrangements. reasons why this wouldn’t work”. I think it is more of that sort of inability to challenge that people are Q75 Michael Fallon: So in a big processing centre, feeling. will people just tend to belong to one or the other or 50:50? Q72 Michael Fallon: In these big processing and call Graham Black: Primarily, in a processing centre, the centres, are you represented too? Are there fulltime majority of members would be PCS members. Some union officials in these departments? of the managers may be members of ARC or— Peter Lockhart: We have elected officials in place in Peter Lockhart: The massive majority will be PCS those offices. members. Chair: Thank you very much for your evidence, it Q73 Michael Fallon: But are they full-time? They’re has been very useful. It is the start of the inquiry and seconded to union work? you have set us off on a flying start. Thank you very Peter Lockhart: No, they are employees of HMRC much. who would be elected by their colleagues in the union cobber Pack: U PL: COE1 [SO] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Treasury Committee: Evidence Ev 15
Tuesday 8 February 2011
Members present: Mr George Mudie (Chair)
Mark Garnier John Thurso Andrea Leadsom Mr Andrew Tyrie Mr David Ruffley ______
Examination of Witnesses
Witnesses: Paul Aplin, Chairman of the Institute of Chartered Accountants England and Wales, Tax Faculty Technical Committee, Chas Roy-Chowdhury, Head of Taxation, Association of Chartered and Certified Accountants, Robin Williamson, Technical Director, Low Incomes Tax Reform Group, and Richard Baron, Head of Taxation, Institute of Directors, gave evidence.
Q76 Chair: Good morning, gentlemen. I am sorry So it is more and more difficult to contact in person, that we are a bit short. We usually meet in another which is fine, so long as you are computer literate room and we are hoping other Members are sitting and can go online and work out—from the generic there waiting for us, but perhaps not. It is such a nice information on the HMRC website or on the day. Thanks for coming, and what we lack in quantity Directgov website, or wherever it happens to be— we will make up for in quality. You don’t all have to what you need to do in order to resolve your particular answer each question. If the questions are in your area query. It is less good for unrepresented taxpayers who of interest or expertise, that will be much appreciated; do not have advisors, particularly if they are not but you don’t all have to contribute unless you are comfortable using the internet or are in an area where disagreeing with something someone else has said. there is unreliable or no broadband connection, and so That is very useful and constructive. forth. There are large swathes of the population now Mr Williamson, it is about the perception of HMRC. that are finding contact extremely difficult, because of You say in your submission, “It now is too often seen the direction in which the HMRC has been travelling. as an organisation that is unable to collect the right As far as unforgiving of error is concerned, this is amount of tax. It is increasingly difficult to contact by becoming more and more of a trend. We are seeing phone, letter or in person, yet unforgiving of customer fraud and error combined as though it were a error and relentless in its pursuit of small debts,— composite concept and not two very distinct concepts, “otherwise it is fine”—would you like to spell out one of which involves intention to deceive, the other what is behind this comment? of which—error—can be entirely innocent. Even with the PAYE difficulties, there were a number of people Robin Williamson: Yes. Starting with the bits that are who felt that the extra tax they owed and could fine, there are some very dedicated and very good reasonably have expected their tax to have been right officials working within HMRC. But taking that all those years ago—they found that they were going comment bit by bit, “an organisation that is unable to to be asked for it back. In some cases there is very collect the right amount of tax”: I think the recent little quarter being shown there, with large sums of PAYE crisis came as quite a shock to members of the money being demanded within 30 days, and so forth. public who were used to thinking of anything that Chair: Does anybody else want to add to that? came to them in a brown envelope as being, ipso Chas Roy-Chowdhury: I would like to agree with facto, right and not to be challenged. To be told that everything Robin says, but I think in many ways several million people had either underpaid or HMRC have been operating almost on autopilot. If overpaid tax through the PAYE system was quite a the PAYE system did not operate in a self-functioning culture shock. manner, if the VAT system did not operate in a self- As for being difficult to contact by telephone, the functioning manner, then I think a lot of the revenue HMRC evidence itself admits that the number of calls that the Government and the Exchequer rely upon just that HMRC are able to handle sometimes veers would not be coming through, because it is very around the 40% mark. As for being difficult to contact difficult to communicate with the tax authorities, the by correspondence, we often have people ringing us HMRC, if there is a problem, if there is a question, if up saying that they have been told that it will take up there is something wrong or if you do not understand to six weeks, or even longer than that—sometimes a something. Then to get a coherent and correct answer matter of months—before a letter is dealt with. back is not always the case. Therefore, people go to the telephone and ring up and Therefore, the way that the system works in the UK say, “When is my letter going to be answered?” and, where most people are compliant, most people try and of course, they can’t get through. Inquiry centres, pay the right amount of tax at the right time, is which used to abound throughout the country, have probably the only thing that has been getting through steadily been closed down since the early part of the the current problems we have in dealing with HMRC millennium, since before the merger started, and and the difficulties of ordinary taxpayers who do not recently there was a consultation on closing down know what the tax system is really about. It is the more inquiry centres and cutting the hours of some only reason why the Exchequer is still getting tax paid that remain. at the right time and roughly the right amounts. cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Ev 16 Treasury Committee: Evidence
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron
Q77 Chair: Let me just ask you: if you had been Chair: Richard, do you want to say anything? coming here and asked these questions before the start Richard Baron: Only to agree with a lot of what has of the departmental economies that have gone on now been said. In terms of ease of dealing with HMRC, for four or five years, would you be making the same we did do a survey of our members in September last sort of comments then? I am conscious that we knock year. I will happily send the data on to the Committee HMRC about in terms of being critical of Pay-As- clerk afterwards, but basically one of the questions we You-Earn, but there is the other side that they have asked was: how easy is it to get the information you had to cut regularly every year and this year they are are looking for from helplines or from the website? facing the Spending Review with a 15% cut after you For both of them, about a third of respondents said it take the £900 million out. was fairly difficult or very difficult. So there is clearly Paul Aplin: Could I answer that? a problem there. Chair: Yes, certainly. In terms of the impact of the cuts, I guess that what Paul Aplin: In addition to chairing the Institute’s Tax has happened is they said, “Okay, we are going to lose Faculty Technical Committee, my day job is as a people. At the same time expectations are rising”; and practitioner in a relatively small firm down in the we have had this fuss recently about people having south-west and the experience we had of HMRC pre- the wrong amount of tax in total collected under merger—let us say, five or six years ago—was just PAYE. That has probably been going on for years and totally different from the experience we have of years. They have just noticed because they have HMRC now. Five or six years ago, if we wanted a improved their computer systems and picked up where relatively simple thing done, like a PAYE coding it has been happening. They have tried to make things changed, it was one telephone call, the coding would better and therefore tried to build more elaborate be changed that day, and it was a very simple and systems, which then takes time because Paul can’t just efficient process. If I want that simple thing done ring them up and say, “Can you sort this out?” It has today it can take me literally months to get that same to go through some complicated system. I wonder if simple matter dealt with. In that period of several what may have happened is that this cutting and months I have to waste HMRC’s time chasing it for developing systems to try and get it more and more an answer. I have to cope with frustration from clients. correct have been coming together at the wrong time, The amount of time it now takes me to deal with that and that is the problem. one simple matter has gone from minutes to, in some cases, an hour. Q79 Mark Garnier: I want to carry on with this if I may, because the HMRC claim they have achieved Q78 Chair: I don’t mean the worst that springs to £1.1 billion in savings without overall negative impact mind, but is that the worst experience when you are on performance. We have just heard from two of you chasing a Pay-As-You-Earn number or is that a that that is simply not the case. Are they effectively constant experience when you are carrying out that lying on this point? task? Paul Aplin: I do not think they are lying. I think they Paul Aplin: It is pretty much a constant experience. just have a rather different perception from the It is the same with trying to get through on a telephone perception those of us at the coalface have. line; once you are connected there are also problems speaking to someone who understands the problem Q80 Mark Garnier: But what you said, Mr Aplin, is that you are trying to deal with, which really very, very stark, I think. If your service with them illustrates a training issue. Five or six years ago you goes from minute-long services to months-long would deal with someone on the other end of the services, that is clearly a very dramatic cut in service. phone who understood your question and could deal For them to turn around and say there has been no with it quickly. That now, I am afraid, is something of negative overall impact on their service is just a rarity. nonsense. Does anybody have anything they would Chas Roy-Chowdhury: I think the cuts have been like to add to that? very unhelpful. Before HMRC came into being or just Chas Roy-Chowdhury: I think it is nonsense. It is also after, this Sub-Committee looked at that. At that time variable because you may phone up and get through the evidence that we gave said very much that we to somebody who is very helpful and solves your didn’t want to see cuts in personnel within HMRC, problem straightaway, but that is probably the but that is exactly what happened. The 25% cuts in exception or is becoming more the exception. You the five years since the HMRC’s existence have not could then call with exactly the same question and get been very helpful and now they are having another through to somebody else who will not necessarily 25% cut, or 15% when you take the £900 million into give you the right answer or be able to deal with the account. Again, that is not very helpful in a situation question correctly. The whole idea of having this where you have so much complexity, an ever- uniform customer experience through the call centre changing environment, and two cultures that came approach does not seem to be working, because the together in the previous period. I think that has all people who are dealing with the face-to-face worked against HMRC in being able to offer a interaction are not necessarily tax people or have been coherent tax strategy for the taxpayer, especially the adequately trained. I think that is where one of the big unrepresented taxpayer. So they have not been in problems is. control, they have not been their own masters, and I Paul Aplin: It is also very much a curate’s egg. My think the way it has been handled has not been helpful experience is that the staff dealing with corporation in terms of the cuts that have been imposed on them. tax are very well trained; they are very well-informed; cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Treasury Committee: Evidence Ev 17
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron they can deal with technical questions over the community will want to do that and they will work telephone very quickly and efficiently for HMRC and fast enough for that to happen, with the resource cuts very quickly and efficiently for the taxpayer or for an in HMRC that are going to happen—the continuing agent. Elsewhere in the organisation the experience is 5% cut is going to carry on under the present very different. So I think you do have parts of the proposals—there is bound to be a dip before the pick- organisation that are working well but other parts that up again where the agents are starting to do some of are not working well at all. that work. Robin Williamson: I would certainly echo that from Richard Baron: I am not sure I would say “bound to the perspective of unrepresented taxpayers and also be a dip”. Maybe I am too optimistic here. tax credit claimants. You can ring up and get the right Chas Roy-Chowdhury: Quite likely to be a dip. answer but, equally, you can get the wrong answer. Richard Baron: Yes. I think it may be worth We have had cases of foster carers, for example. The exploring precisely what the causes of any further rules for tax credits are that if you are a foster carer decline are likely to be and, therefore, how you could you can get child tax credit for your own children but step in to arrest a decline. It seems to me the overall not for the children you are fostering. However, you picture is: cuts; therefore, must build an efficient mass can get working tax credit for all the work you do production system. Taxpayers are just units; nearly all as a foster carer. Now, not infrequently, they ring the taxpayers are just numbers in the system, and it has helpline and put these questions to the Tax Credit to be like that otherwise you just can’t cope with the Helpline and get the answers precisely reversed: no, level of business if you are going to be losing they can’t have working tax credit; yes, they can get resources. child tax credit for the children they are fostering. So Then there are two points at which the mass they act on that information and, of course, they get production system can go wrong: one is by having an overpayment, which at some time they will either glitches in there where there just isn’t the right have to repay or they will have to go through a expertise in the right place, so they give the wrong bureaucratic battle with HMRC to persuade them that answers to foster parents. The other is, even if you it was their fault that the overpayment has arisen and solve all those regular sources of glitches, there will could they please write it off. sometimes be cases where it goes wrong and you may The question of training has been raised. In one call or may not have a sufficiently good system to step in that we took just this week, somebody had been told there and say, “Okay, we have it wrong with you. Now by a call centre operator that they should be keeping let’s sit back and sort you out”. I think on both of records for seven years, an individual not in business. them they have problems but it may be worth asking No, the right answer is 22 months after the end of the exactly where the problems are most likely to be. My tax year in question; certainly not seven years. There fear is that the inability to have resources to say, is a lot of misinformation going out. “Okay, we are getting you wrong; let’s pull you out of the mass production system and sort out your case”, Q81 Mark Garnier: You are painting a very dismal is going to be a particularly worrying development. picture of HMRC. Given the fact that we have 15% to 25% cuts coming ahead as a result of the spending Q82 Mark Garnier: That sounds like quite a cuts, what do you think are the areas that are at the challenge because they have been cutting in biggest risk of being affected even more dramatically anticipation of efficiencies but the efficiencies do not or do you think this is as bad as it is going to get? seem to have come along. What you are effectively Paul Aplin: No, I don’t think it is as bad as it is going to get. I have one fundamental worry, which is: this is saying is that they have got themselves into this sort the emperor’s new clothes. For five years those of us of cul-de-sac where they do not have what they need at the coalface have been seeing service standards yet. They are going to have a further cut in resources. decline. That has come alongside the change They are then going to have to pull people out of it, programme, alongside HMRC taking on tax credits. I but they are not going to have the resources to pull think the department has more than it can handle and them out of it and it is going to be increasingly it has had its resource cut by 5% a year, year on year. difficult. Is that a fair assessment? The fact is that if its resource continues to be cut the Richard Baron: That is my worry, that it could go service levels will continue to decline. My like that, and I think the difficulty of getting through fundamental worry is this is undermining trust in the to the helplines is symptomatic of that. Obviously tax system, and the more trust is undermined in tax there has been a peak in pressure on the helplines administration in this country the more I think we because of the problems surrounding PAYE, but have to worry about tax leakage. That is a heaven knows what other peak there will be next year fundamental concern. creating the same level of difficulty. Chas Roy-Chowdhury: I think what Paul says is Paul Aplin: I think you hit the nail on the head with absolutely right. I think things are going to decline. your words “cuts in anticipation”. I think that has The HMRC’s strategy at the moment is to work with characterised the change programme. The headcount agents and to pass on as much of the work as possible reductions have always come first; the change has over the next few years to agents. They are thinking followed. In most commercial organisations you about registering agents. They are thinking of having would decide how you might be able to reduce agents being able to change their clients’ tax codings. headcount; you would decide how you might design All this type of work will be passed across from a system to cope with that reduced headcount and HMRC to the agent. Now, whether the agent increase efficiency; you would parallel-run it, you cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Ev 18 Treasury Committee: Evidence
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron would scenario test it and when you were satisfied that to do, and that has been the problem. They have not it worked then you would reduce headcount. been their own masters in terms of the way things had been going when HMRC was created and, therefore, Q83 Mark Garnier: It would be very useful for us we are now seeing the payback for that. What we need to have examples, other than you have already given, to see with the current cuts that are going to be of how this has manifested itself. implemented—which I think they should not because Paul Aplin: NPS and the PAYE system. There is they have already gone through this 25% cut—is that nothing wrong with the PAYE system, per se. There they should be allowed to do their job of collecting was nothing wrong with the NPS computer system. money for the Exchequer. We are going to see Amalgamating 12 regional databases into one national problems but they are solvable if we just have database had to make sense and in the longer term everything out in the open. I am sure it will deliver the results that have been As I think Paul was saying, in the areas where we anticipated. But, from the outside looking in, it does have been openly engaged with HMRC, and have appear that the pace was forced and it does appear been having a dialogue, we have been able to help that some of the problems that emerged last autumn them. They have not been listening in some of the could have been anticipated, with proper scenario areas on electronic filing, such as XBRL at the testing and with more engagement with stakeholders. moment. They have been listening but not following I think there is a lesson there. Some of the progress what we have been saying. But at least we are out HMRC has made with electronic filing has been the there talking to them and trying to get it right. I think result of very close engagement with stakeholders more openness, hopefully, and engaging agents in the where they have been very open to talking with us, to years to come will mean that there will be a pick-up hearing some very uncomfortable things. As a result in the service. Agents, unfortunately, will have to do of that openness, they have been able to manage more of the work for HMRC—repayments, tax things such as the Carter electronic filing programme, codings, overpayments, and a number of other areas— Self-Assessment Online and VAT Online far better but I don’t think it is an organisation that is than they would have otherwise. NPS was outside the disappearing into a black hole. There are strategies in Carter programme, and I think the cultural difference place that are hopefully going to deal with the between the way those two programmes were shortcomings that we are outlining at the moment. managed is absolutely manifest and the results were pretty public last summer. Q86 Mr Tyrie: You are now describing the life rafts on the Titanic by the sound of it. What you have Q84 Mark Garnier: We have this £900 million described to us is a tax system whose very integrity is about to be spent on trying to close the tax gap and I at risk, where the tax yield itself may not be secure in think then to raise an additional £7 billion in tax many cases and where there will be great unfairnesses. revenue. First of all, do you think that is credible and, Again, have I said anything there that you disagree secondly, if you do, where would they best be with? I am just trying to get a picture of the scale of targeting their money? the problem before we move on to some solutions, so Richard Baron: It is very difficult to say where they if I am being unfair or not summarising accurately should best be targeting it because we haven’t seen what you have said, please speak; otherwise, please the computations. I understand that they estimate the just say, “Yes, that is broadly right”, or qualify it. tax gap to be £40 billion, and therefore £7 billion Paul Aplin: I don’t think it is broken but I think it is should be achievable. I understand that the stretched almost to breaking point. computations have been scrutinised by the Treasury, Mr Tyrie: I am sure we could have a philosophical but I don’t know what that means and I would discussion about what that means. You wanted to say encourage the Committee to demand to be shown the something quickly, Mr Baron? full computations of that £7 billion. Richard Baron: Yes. I was just going to say that I Chair: Before Andrew comes in, can you speak up, think most of the Titanic will continue to float. That gentlemen? The people behind you, and people in is to say, most of the things that deliver the big front of you, can’t hear the pearls of wisdom and it is money—the PAYE and National Insurance system, the a shame to miss them. VAT system and the corporation tax system—is still coming in and will continue to come in. It is not as Q85 Mr Tyrie: It is the first day that we have seen if the Government is suddenly going to lose all of the sun for some while, but I don’t think I have ever its revenue. heard gloomier evidence about a Government department or sub-department. This is the description Q87 Mr Tyrie: Can I just ask one more question. I of a failing institution, isn’t it? If you disagree, speak have been around on these sorts of issues a long time up. If you agree, you can say, “Yes”. and I have heard some gloomy pictures. Has it ever Chas Roy-Chowdhury: I am not sure that we are been this bad? trying to spread doom and gloom. We are trying to Paul Aplin: No. say it as it is. Robin Williamson: I think it has reached the point Mr Tyrie: I am not asking you to spread doom and where the long process for many years of being gloom. I am asking you to tell me the truth. required to do too much with too little, if that Chas Roy-Chowdhury: I think one of the problems continues, if a solution is not found, then it will pass we have is that there have been staff cuts in HMRC, breaking point. A solution has been found, as we have without any consideration of what they are required been hearing from colleagues, in working with agents. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Treasury Committee: Evidence Ev 19
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron
For unrepresented taxpayers there should be similar in a particular way, which did not really take into resource expended on finding solutions with the account all of the hassle costs, the administrative cost voluntary sector. of the tax system. Now you might, if you wanted, do a rerun of that exercise. Of course, although you Q88 Mr Tyrie: I just wanted to be clear about the would get a different figure for the cost, it would be scale of the problem. Now I want to start talking about quite difficult to separate out and say, “Well, this bit solutions. I want to look at one small part of that, of the change in the figure was due to cuts at HMRC. which is trying to identify who is paying the bills for This bit was due to stuff that is now done by agents. all this. How much of the cost-cutting at HMRC is It didn’t used to be done by them. This bit is due to being achieved by putting costs on to taxpayers? One this change in the law”. You could do that kind of of you said a moment ago that you may spend weeks exercise, but I think it would be quite hard to draw or months changing a PAYE coding. That is a huge firm conclusions about how much work has been cost transferred to businesses. How much is being dumped on agents. transferred to businesses? Do people know? Is this Chas Roy-Chowdhury: But I think it is also the being estimated? Have HMRC done any work on unrepresented. Robin could probably say more, but costing? there are so many more taxpayers out there who have Paul Aplin: Not to my knowledge, but certainly in no agents whatsoever. How do you measure their cost my office down in Somerset I work in a small tax of wasting their morning or their evenings or their day department. I have eight colleagues around me. I hear trying to sort things out? what goes on when they are on the phones and I see Mr Tyrie: Sampling and polling. what is on their desks. Five years ago there might Chas Roy-Chowdhury: Yes, and then once you try have been half a dozen PAYE coding notices that they and— would have had to deal with. Now, I regularly see a pile this big and I have to listen to my colleagues Q92 Mr Tyrie: Is this going on? Is anyone doing trying to get those codings changed over the this? telephone. It is a hugely time-consuming process and Robin Williamson: There is one cost that could be it is a cost I either have to bear as an extra cost of my measured by that method, and that is the cost of business or I have to pass it on to my clients, many telephoning helplines from a pay-as-you-go mobile. of whom are elderly and can’t afford to have the cost Most of the helplines are 0845 numbers and it is passed on, many of whom also ring up and they are expensive to phone those from mobile phones. on the phone for five or 10 minutes. That is an additional cost but it is part of the job; you have to Q93 Mr Tyrie: What you are describing is an allay their concerns. Those are tasks that have been extremely parlous situation. What you are describing effectively outsourced to us, without us being asked. is: just as we are trying to get the economy going There is a solution to that but a solution is again, a large part of which is going to be a revival of desperately needed. small business activity, we are imposing on those very businesses huge new extra costs. I think that is a fair Q89 Mr Tyrie: But, just to be clear, you are saying summary of the evidence I have heard this morning. two things: first of all, a huge part of the cost of It seems to me the very first thing you have to do, as implementing these so-called savings—I say “so- a group, is find out ways of making estimates of that called” because I think some of you have been cost that can’t be entirely shot down in collaboration sceptical about whether they really are savings—have with HMRC. Are your organisations prepared to take been handled by saddling taxpayers and their on that work? accountants with dealing with it. So it has just been Robin Williamson: We have already started on a a transfer. survey of the extent of contributory official error in Paul Aplin: Correct. the system and the extent to which that increases the Chas Roy-Chowdhury: Yes. compliance costs of individuals, unrepresented Mr Tyrie: You are saying, secondly, that in the process individuals. the total cost of doing it in the round for everybody, HMRC and you added up together, is much greater Q94 Mr Tyrie: From the economic side, Mr Baron, for the economy. we have only been discussing the direct cost here— Paul Aplin: Yes. the accountancy cost or the cost that would have been done by an accountant but is done by an individual Q90 Mr Tyrie: Correct? Are there any estimates of taxpayer. But there are also the indirect costs, where that? Has anybody said, “Okay, what is the increase the energy of a business is deflected from its primary in running the tax system?” purpose to this secondary purpose. Paul Aplin: Not to my knowledge. Richard Baron: Yes, and that is quite hard to get a handle on. The Revenue produce some assessments of Q91 Mr Tyrie: Mr Baron, have you tried to do any the impact of their policies—and indeed all of this type of work for the IOD? Government departments assess the impact of their Richard Baron: No. policies—in terms of “how much time is this going to Mr Tyrie: This is very much your pigeon. take up?”, they have to put a figure on how many Richard Baron: I suppose what we could take as a pounds per hour they are going to value that time at. baseline was a study that KPMG did for the Revenue There is also the much harder to measure general in 2005 and was published in March 2006, estimating hassle time when you are worrying about whether cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Ev 20 Treasury Committee: Evidence
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron there is a new rule you need to take account of or is just that some people would pay more and some whether you have checked everything. That sort of people would pay less. thing is much harder to determine. One thing I would say, though, which I think we have Q97 Mark Garnier: What I am trying to get at is: to bear in mind, is that we—the taxpayers—pay for would people pay more tax in order to pay their the Revenue’s work anyway because it is funded out accountants less or spend less time trying to deal of tax revenues. Therefore, the question is not exactly with it? how much extra is this costing us in our private work, Chas Roy-Chowdhury: I think if we are starting from but how much extra is it costing us minus how much a lower base then they might well consider accepting we are saving by not spending so much on running tax rises for more service from HMRC. But I think the Revenue. The question then is: is it more efficient where we are starting from with rates where they are to have more done by the Revenue and less done VAT rate 20% income tax, top rate 50%, corporation externally, or to have less done by the Revenue and tax maybe falling down to 24% over four years—they more done externally? That is the balance. But are pretty high already by European and OECD wherever the work is done, we end up paying for it standards. So I am not sure that anybody would want anyway. to pay more tax for HMRC to do what they should be Mr Tyrie: But we do not know what the numbers are doing anyway. because, on the whole, the work has not been done. I don’t think that moving back out of self-assessment Richard Baron: No. is a starter because I don’t think we could impose, say, another £1 billion or £2 billion of tax to start Q95 Mr Tyrie: My last question to you is: having resourcing HMRC so they do all the tax work. I think had this exchange, do you think it is worthwhile going we need to become smarter. We have the IT solutions back to think about how to get on with it; how to get of online filing where people have tools to be able to these numbers as best we can? have their tax worked out for them, where they are Chas Roy-Chowdhury: Yes. income tax filing, or corporation tax filing with the new XBRL system. Paul Aplin: Yes. So we are where we are, and we need to move forward Richard Baron: Yes. and accept that these cuts have happened. But what Robin Williamson: Yes. we need to do is make sure there are no further cuts Mr Tyrie: Is there general agreement that you are all until the system we have works effectively: where going to have a go? agents are able to handle the tax affairs of their clients Paul Aplin: Yes. with the minimal interaction that they need with Mr Tyrie: Thank you. HMRC; where the unrepresented can phone Chair: I thought it was agreement they were going to somebody up at HMRC and get an answer quite think about it. quickly; where their IT systems provide the right answers to the right people. I think that is part of the Q96 Mark Garnier: It strikes me that there are three problem that we have at the moment; people may not big issues that are coming out of this particular point be effectively trained in their call centres or trained about the cost to the economy as a whole. that is going up to a high enough level. But the IT tools they have on. The first is the utter complexity of the tax system, should be able to provide better answers than seem to which makes it very difficult for everybody to know. be coming through at the moment. The second is the idea that you have self-assessments so that HMRC has passed the job of working out how Q98 Mark Garnier: KPMG did a survey saying the much tax we pay to the taxpayer. The third seems to burden to UK business was 0.4% of GDP of the tax be a general level of incompetence; using a slightly system. That compares with slightly higher in crude term maybe for the HMRC, but just an inability Denmark and the Netherlands, which were the two to be able to service the taxpaying public. Here is a countries used as comparators. Let us have a good big question. Do you think your members would be news story. Is that a good thing or is that just masking willing to see an increase in taxes in order to be able a whole load of problems that are unquantifiable? to—I don’t know what you do about the complexity— Richard Baron: That is the survey I referred to earlier sort out the incompetence and take away that self- and they were perfectly clear about the methodology, assessment element, in order to make it a much more quite rightly so, which enabled them to make these simple system to deal with overall? Do you think that international comparisons. It was the time you spend would be a welcome proposition? collecting data and filling in the form and submitting Richard Baron: I am not sure about exactly that it. So it did exclude all the hassle, the worry when proposition but one thing we have asked our you are trying to think of, “Should I be checking this members—again, this was in the survey we did in rule; does that apply to me?” So I suspect the true September—was: if you have a choice between lower figure is going to be higher than that, but 0.4% of rates across the board or higher tax rates but special GDP is quite a lot, isn’t it? reliefs, which of course bring complexity because you Mark Garnier: It is a big economy. I mean you are think, “Am I entitled to this relief; what forms do I comparing it to a much— need to fill in”, and so on, we did get a marked Richard Baron: Yes. To be spending 1/250th of all preference for a simpler system with lower rates the wealth you generate simply on shuffling money across the board, and get rid of special reliefs. That is around a tax system is quite a scarily high number, within the context of the same overall tax burden. It even if it looks good by international comparisons. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Treasury Committee: Evidence Ev 21
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron
Mark Garnier: I am glad you said that. Thank you. anything per cent is a hopelessly inadequate figure, isn’t it? It should be 90 something per cent. Q99 John Thurso: Can I come back to this question Paul Aplin: Yes, it should. If I ran my business with of service standards? Perhaps I might come to Mr a 12-minute response time to a telephone call I Aplin because I think the Institute, in its evidence to wouldn’t have very many clients left. us, was very critical of the measures that HMRC use for service quality. What would you like to see? Q102 John Thurso: Let me come on to the next Paul Aplin: I would like to see HMRC sit down with point. We have two sets of institutions: one that has some of its external stakeholders, with the spectacularly failed, which is banking, and another professional bodies, and agree on some performance that seems to be failing, which is HMRC. They both measures that we find credible, to use a word we try have an identical business model, which is to get rid to avoid using but HMRC seems to love using—some of human beings and put everybody in a call centre measures that its customers might believe. I think it is somewhere and dehumanise the whole process. pointless the department setting its own service HMRC are closing regional offices, getting rid of all standards. The measures I think they need to look at the people who know local businesses. How much is are post turnaround times. That is one of our biggest that having an impact on the ability to deliver frustrations. A few years ago I gather that the targets service effectively? within the department were turnarounds within 30 Chas Roy-Chowdhury: An enormous impact, because days or there was trouble. We regularly wait two to in 2005 when this Committee looked at the creation of three months for a reply to a letter and when we ring HMRC that is exactly what we said. I can’t remember to chase, the answer we regularly now get is, “We exactly, word-for-word, what I said but you can look can’t find the letter”. If you chase below two months it up. It was about not reducing staff numbers at the the answer is, “It hasn’t come to us yet”. If you wait time of creation of HMRC; we should keep the skilled too long the answer is, “We can’t find it”; so you have people; we should not reduce numbers at all until the to write again and go through the process again. That system had bedded in, and the creation of the is something I have had personal experience of. So a department had started working. That is exactly what credible measure of post turnaround times would be didn’t happen. So we now have the situation where very useful. those people who could leave did leave; the ones who Credible measures of the effectiveness of telephone were getting on into their 50s, I guess. They received call answering would be useful, because a couple of good pension pay-offs, but they were the ones with years ago HMRC was publishing statistics saying that the experience and knowledge in tax. HMRC have the call response times were less than 30 seconds in divested themselves of that knowledge base at a local 96% of calls. I invited a fairly senior member of level as well, which has not been very helpful to HMRC to spend a day in my office. I could not have giving the right answer at the right time to agents or planned it better because the first telephone call of the taxpayers when they phone up. They now have to go day to a helpline took 12 minutes to answer and through to a call centre anyway where the people getting the change to a PAYE coding took a further dealing with those are not tax specialists. So I think seven minutes; 19 minutes to do something that, that is exactly the problem we have. Lots of the people frankly, could be done in 60 seconds. But that member who knew about tax have now haemorrhaged from the of HMRC had walked into my office that morning organisation, which is now causing the problem. thinking that 96% of all telephone calls were answered satisfactorily within 30 seconds. I think it Q103 John Thurso: Is that a worry that all of you came as something of a shock. would share: that we are removing technologically proficient people and replacing them with process Q100 John Thurso: A point that I made when this people who don’t understand what they are Committee in the last Parliament was inquiring into processing? HMRC is that if one were to compare the way in Paul Aplin: Yes. Some parts of what HMRC does can which most Government bodies look at customer be adapted to a production line, to processing. I do satisfaction, but particularly HMRC, and compare it not doubt that. For example, a lot of electronic tax to how, say, the hospitality industry does it, the compliance, which is one of HMRC’s big success Government’s approach is simply not credible because stories, can work on that model. I think call centres it sets its own targets and sets its own levels, and— can work but not in the way it is currently being done. surprise, surprise—almost always more or less meets You still need people with training, with technical them. Do you think that it is now essential that HMRC knowledge, to deal with technical issues. has external credible customer satisfaction data? Paul Aplin: Yes, I do; absolutely essential. Q104 John Thurso: I do not want to be guilty of leading the witness, for once, but it would be perfectly Q101 John Thurso: The other point on that: in the possible to conceive an operation where regional local last report from HMRC the baseline that they were offices were smaller and confined to some really quite working with on general satisfaction—I think in high-class people able to have a portfolio of 2008—was about 72%. They were frightfully pleased companies, or whatever they dealt with, and have a that it went up in March 2010 to 76%, although centralised back-office system, which is where you explained that it has dropped back to 72% as being have your efficiencies. But HMRC seem to have said, inevitable, and forecast in September. But 70- “It is one or the other”, rather than perhaps doing what cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Ev 22 Treasury Committee: Evidence
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron most businesses would do, which is to take the back- said encourage, 43% were neutral and 36% said office efficiencies but use that to empower the team discourage. So the mood out there is not particularly in the local office. Is that a fair comment? good. Paul Aplin: I think it is. I think that model could Anecdotally, I have had grumbles about HMRC work. I think it can work, but it is not working at getting quite tight on arrangements to give you time the moment. to pay when you have cash flow problems. They were Robin Williamson: One thing that did work very well, very good about this a couple of years ago. They said, which I witnessed back in the late 1990s in “Look, we know people have problems; we would Wolverhampton, was a bus in the middle of the market rather have our money late than not have it at all”, square where there were good quality Inland Revenue and entering into arrangements to allow businesses officials and officials from the benefit office and from more time to pay. As I say, it is only anecdotal but I the local authority, who provided a one-stop-shop. have had grumbles that they are clamping down on People could go there on a Saturday afternoon when that. I think it is difficult to assess these kinds of data they were doing their shopping and could put their properly because you have to factor in the fact that questions about their tax to the Revenue person. At nobody is ever going to love the Revenue. Their job the same time they could sort out any benefit problems is to take money off you. they were having, run a benefits check and make sure they were claiming everything they needed, and if Q107 John Thurso: Funnily enough, in my there were any housing benefit problems a local constituency casework I find now that, whereas one authority person was there as well. Now, there is a used to be able to speak to somebody senior and say, model that cost comparatively little and which was “Look, this is a basically sound business; can you give sponsored by three Government departments, not just them time to pay”, and they would be up for that the one. It was a way of getting a whole range of arrangement because they received all the money in problems sorted in one go. the end, the response now is very much, “No, they have had the time; bang”. Even if they only get half Q105 John Thurso: The data seem to suggest that of what they might have received, it seems to be that, tax agents are particularly dissatisfied. Is that simply “Get 20p or 30p in the pound and close the case”, is because you know more or is there a particular better than, “Run the case and get 100p in the pound”. problem? Is that what you are saying there seems to be a shift Paul Aplin: I think it is because we deal with a large about? number of cases. Over the last five or six years we Richard Baron: Those are the sorts of anecdotes we have seen a huge change in the job we do. We have are getting but, as I say, it is only a few people who seen a huge change in the technical ability of the happen to raise that point. One can see, from the people we deal with and inevitably that is something Revenue’s point of view, that they do not want to we are unhappy about. But underneath that, it is more operate as a bank because they do not want to become than just unhappiness. I think what we see is the a lender of first or second resort to businesses. integrity of the system being weakened and, as a taxpayer, I find that very concerning indeed. Q108 John Thurso: How much might that also be Chas Roy-Chowdhury: But I think in the agent the fact that, because they are getting smaller and de- community we operate businesses and the more time skilling, they no longer have people who they trust to it takes the more cost you incur and that is where the make the judgments? problem is: things are just taking longer and it is Richard Baron: There may be some of that in it but harder to achieve the end result. It is very difficult to I do not have evidence either way on that. get that interaction with HMRC dealt with once-off very quickly, as used to happen in the past, and then it Q109 Chair: This is an interesting conversation, but is out of the way. It is much more of an ongoing saga. it is between middle-class people or professionals with good salaries and it leaves out a large number of the Q106 John Thurso: Last question for Richard population. Your customers are very lucky, because Baron. There seems to be much more dissatisfaction they have you to pursue the Inland Revenue and you also within the SME community. There is a feeling are an articulate, patient professional. But what, that HMRC either do not understand or are inherently Robin, happens to all the lads and lasses on Pay-As- suspicious of it. Is that something that you would You-Earn who run into difficulties with the Inland concur with and what are the causes? Revenue? It seems to me—as the offices are Richard Baron: What we do not have is data across disappearing, and as the telephone system is getting a time period to be able to say definitely that it is worse—there is a real hard attitude to the ordinary getting worse or it is getting better or it is staying the people who Pay-As-You-Earn, pay it steady, but run same. We did ask a couple of questions in our survey into some difficulty in terms of a coding or a demand about attitudes. One was: how would you rate the for payment. There is also a ruthlessness by which understanding that HMRC officials have of your they attack them because they are caught, “You are on business? The answers were: very good 1%; good 9%; Pay-As-You-Earn and we will have it from you and neither good nor poor 31%; poor 22%; and very poor we have the methods of taking it from you”, whereas 15%. Then we asked: if someone who is thinking the big corporations have professionals and lawyers. about starting a business knew as much as you do Would you like to comment, Robin? about HMRC would it encourage them to go ahead or Robin Williamson: Yes. There is definitely great discourage them from going ahead? Eighteen per cent inequality of arms between HMRC and the individual cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Treasury Committee: Evidence Ev 23
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron unrepresented taxpayer, as you say, with a problem Pay-As-You-Earn are getting hammered this way and with their coding or who are being chased for a tax they see big companies, and so forth, avoiding paying debt. They can’t go to the statute book and see tax—“Oh, it is okay to avoid tax; it is not illegal or whether the debt they are being chased for is statute- anything; you are prudent to do it”. We had Mirrlees, barred. They can’t necessarily go and check whether the people who are doing tax policy in the future, and the officer who is on their premises has the right to it was interesting. They put a lot of ideas up but ask for what he is asking for, or whether there is a dismissed a number of them that would be bring in limitation on their powers to do that. revenue and chose to put it on Pay-As-You-Earn These are all things that professionals who specialise because it was a captured tax base. That just shows in those areas would be able to tell them and, of you an attitude of mind: if you are on Pay-As-You- course, they have no access to them. The only thing Earn you can’t argue, whereas if you could get nice they can rely on is information put out by HMRC. adviser and a few lawyers you can avoid. But that More and more information put out by HMRC is starts to break down the trust, doesn’t it? Once you online, less and less on paper. That instantly excludes break down the trust it becomes something like, a great many often poorer, often older people, who are “Well, if they can do it we will do it”. We are in a not comfortable using the internet or have never used different ballgame in terms of income, aren’t we? a computer—people with disabilities who can’t—and Paul Aplin: I think we are. As Robin was speaking I people who live in areas that are remote and have was thinking about my parents. My mother is in her unreliable broadband access. 80s and my father— Chair: I find more and more on my estates, people Chair: I hope you think about them all the time. do not have a standard telephone, so every call they Paul Aplin: I do. My father is in his 90s. They are make is on a mobile, which is expensive. taxed through PAYE. They would not have a clue if Robin Williamson: It is. the coding was right or wrong but what they do have, Chair: Yes. because it is a generational thing, is an absolute trust Robin Williamson: Yes, you do not get the local call that a Government department is going to get it right. rates to 0845 numbers if you are ringing from a If I told them—as on one occasion I have had to— mobile, and they have to hang on and on. that a Government department had got it wrong, that We have a couple of very good tax charities. There is is something they fret about. If you extrapolate that TaxAid, of course, in Southwark, which also has a across the country; as I said earlier, PAYE is not national presence, and there is Tax Help for Older broken but people do put fundamental trust in it and People, which is a national charity. A lot of people that is my underlying worry about all of this. If that are finding their way to those charities. I can speak fundamental trust breaks down because people start for Tax Help for Older People. Certainly in the last having reason to think that PAYE is not working for three years while footfall in HMRC inquiry centres them, or that perhaps they can’t telephone someone has fallen, the calls into Tax Help for Older People who can help them and answer their question have virtually doubled. So they are stepping in to the convincingly, I think there is a knock-on effect. breach to some degree. Chas Roy-Chowdhury: As you were saying earlier, Paul, you were talking about people who are fairly Q110 Chair: Yes. But also, when we had Mark articulate, because I imagine your parents—and I Hoban here last week I was questioning him on the think of my mother in the same light—are able to see fact that the Government are ending the Financial through a few things and ask the right person or they Inclusion Fund from the end of next month, March. know us. The jargon in tax is not normal language, so The CAB are laying off 500 debt advisors. Now, a fair how many people are out there who are overpaying or proportion of their time will be on tax issues but they underpaying and they just do not know until much are going to be made redundant at the end of March; further down the line? I think that is where the theoretically, to be replaced sometime in the future. problem is; when they then try and sort it out they But if the HMRC are not geared to deal with the can’t articulate what the problem is on these helplines. interlude, if it is going to be even a short interlude— The people on the other end are not helpful in being I rather suspect it will not be filled at all—this is able to bring it down to a level where they can have stranding a lot of very vulnerable people. a conversation about it. I think the whole tax system Robin Williamson: One has to ask as well whether it itself is a part of the problem. We need to simplify it. makes economic sense to implement such cuts when We need to make it understandable. As long as we the result will be more people in debt; fewer people have self-assessment, where the vast majority of able to find their way out of debt; more people in people in the overall self-assessment system, trouble with their tax. That means more work for including PAYE, are not represented they need to be HMRC to do further on: more reworking; more able to engage in a way that is ordinary language. We complaints; more disputes; more appeals; more don’t have that and that is something that needs to reviews. The Adjudicator’s Office has already been be achieved. given extra funding to deal with copious amounts of Chair: Okay. But when Mirrlees suggested complaints, and I daresay is already struggling. simplifying it they went away from the dodgy stuff like corporation tax, where the customer might argue Q111 Chair: Paul, you mentioned the word “trust” with them and take them on, to pushing it on to earlier. British people are very good in terms of personal tax where it was easier to collect. paying their taxes in the main and there is an attitude Simplification could cost the ordinary worker out of mind that you pay your taxes. But if the people on there a bit of money; talking of which, David is going cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Ev 24 Treasury Committee: Evidence
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron to talk to you about big business, aren’t you, David; affairs of all of those small businesses. But we need large firms? to look again at whether we should be putting more into an exception, so that when the mass production Q112 Mr Ruffley: Yes, I will kick off. Mr Baron, the system gets something wrong for you, you can be IOD came up with some interesting data on the taken out of it and dealt with individually”. country’s 770 largest business that deal with HMRC’s large business service: you found that 86% of those Q116 Mr Ruffley: Sure, because you come to the large businesses rated HMRC’s service as good or conclusion, and I would agree with this, “The interests very good. That is quite a high figure. What do you of smaller businesses should be given full weight attribute that to? when resources”—HMRC resources—“are allocated”. Richard Baron: Firstly, I should say that those were How are you going to lobby for that? not our data. They were from someone else’s survey Richard Baron: We will keep on pestering HMRC. and we reproduced them. It wasn’t our survey—I hope When we do surveys or when we get anecdotes— there is a footnote there to explain that—so not our obviously with anecdotes we strip off the identifying data. details that would tell them which taxpayer it was— we say, “Look, here is another one. Is this a systemic Q113 Mr Ruffley: Do you think that figure is right? problem or is this just a one-off?” All we can do is Richard Baron: Yes, it came from a perfectly keep on pestering them. reputable survey. I think that it is an impressive figure because, as we were saying earlier, the job of HMRC Q117 Mr Ruffley: Pestering perhaps is not a strategy. is to take money off you and therefore you are not I just return to a point Mr Tyrie made: small likely to love them. But what has been done at the businesses, SMEs, are going to be key in the export- large end, introducing these personal customer led recovery that the current Chancellor of the managers who will co-ordinate the work of the Exchequer tells us will get the economy out of the different bits of HMRC who will have to interact with mess it is in. Small businesses are the backbone of a large group, does seem to have been a big success employment in this country, and it seems to me that story—to the extent that they have now extended it they are not being accorded the necessary and still further down the line into what they call the large appropriate level of respect, care and attention when and complex group who are outside the ambit of the it comes to HMRC delivering administrative services. large business service. So I think that illustrates very Now, “pestering” is what you talk about. Is there any nicely what you can do when you have a small enough sense you get from all the other small business group of taxpayers who are individually significant lobbying groups and organisations to make a united enough that you can devote that kind of personal attention to them. What goes on in the large business front to argue for better customer care, better levels of service is not a mass production business. Of course, service, so that it more nearly approximates the as we have been saying, that is what does not happen excellent service, apparently, that HMRC gives to big and, frankly, economically can’t happen across all the businesses? I quite understand we can never get that millions of ordinary taxpayers. bespoke approach from tax officials in HMRC, but to get nearer that gold standard, if you will. I want to Q114 Mr Ruffley: Sure. You also go on to make the understand what the IOD and others are doing to make rather interesting point that in 2008Ð09 20% of the case. Pamphlets and submissions, no matter how corporate tax revenues came from businesses with worthy, are fine, but is anyone getting serious about individual liabilities of less than £100,000; typically, this in the small and SME business world, apart the kind of small to medium-sized enterprises that from yourselves? Members of Parliament come across in their advice Chas Roy-Chowdhury: Can I just respond? surgeries. They don’t get similarly high levels of Mr Ruffley: Chas, please do comment, yes. service from HMRC. Would you agree with that? Chas Roy-Chowdhury: We had a meeting, which Paul Richard Baron: Correct, yes. was at, at the start of this year with the Exchequer Secretary and Chairman of HMRC and others. At that Q115 Mr Ruffley: What do you think could be done meeting we made these points, not just about small to rectify that? businesses but taxpayers in general at the smaller end. Richard Baron: I am afraid we are back to the One of the things that HMRC are going to be doing, problem of just looking at the economics of HMRC’s while reducing in some aspects, is recruiting more resources. You cannot give them that level of people for the helplines—the right kind of people with individual attention because there are just too many the right kind of skills. So there are interactions going of them. But of course they are very important. They on that are more than, I would say, pestering. We are employ lots of people and, as you have just noted, having concrete meetings, and we have these fairly they do pay a significant proportion of the corporation regular meetings in general across a range of areas to tax revenue. Of course, HMRC is not a business that drive home where the concerns are, where the you can deal with or not deal with as you choose. We problems are, as we have been discussing this all have to deal with it and it has certain morning. So HMRC are aware. I have not seen it responsibilities as a public department for that reason. written down, but there is a plan to try and do So I think that we are going to have to be in a position something about it. So, hopefully, we are getting of saying, “Yes, it will be, to some extent, a mass somewhere and it is a matter of seeing if it does turn production business. It has to be, dealing with the tax out to be effective. It may not be; we will have to see. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Treasury Committee: Evidence Ev 25
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron
Q118 Mr Ruffley: But is there a particular piece of Chas Roy-Chowdhury: Just following up from the work that the Exchequer Secretary is undertaking? Is meeting we had at which the Chairman of HMRC was that what you are saying? present, one of the things that he said is that part of the Chas Roy-Chowdhury: No, there was a meeting about new processes would be to try and encourage HMRC the way forward: what HMRC are going to be doing people to think about what they are doing, rather than with the new political administration coming in; with purely being process driven. I think, culturally, there the cuts that are being imposed on HMRC, how they is a problem because there is a process-driven attitude are going to deliver under those cuts. and they do not want to think outside the box. They want to have a very clear-cut area that they deal with Q119 Mr Ruffley: Can I just ask a question of any and that is it, if they step outside. I think there is also of you but particularly Mr Aplin. Is it the case that a morale issue, in terms of if they do something wrong HMRC are going to roll out its big business model to there may be consequences or there may not. I don’t smaller businesses? Do you recognise that? know, I have not worked inside HMRC, but I think Paul Aplin: I think there was an aspiration to do it a there is a morale issue as much as a cultural issue, year or so ago. which is affecting them—almost like a small animal in the car headlights—in terms of they being able to Q120 Mr Ruffley: Is it a hard and fast proposal to be actively do something about sorting out the roll out the big business service model to smaller problems. businesses? That is not your understanding? Robin Williamson: Specifically, on your point about Paul Aplin: That is not my understanding. processes and HMRC’s failure to see the effect this is having on ordinary taxpayers, the latest PAYE Q121 Mr Ruffley: Okay. Sorry, it was just a note difficulties are an example of that. There is a passed to me that suggested that they might. I just concession that has recently become rather better want to return very quickly to the Exchequer known than it was before—concession A19—which Secretary’s conversations with you. Don’t you think it says that if HMRC have delayed in making use of might be a good idea to hold the feet of the Treasury information about you, or affecting your coding, then Ministers to the fire on this and, rather than have in certain circumstances they will write off any general conversations, to give them a target to produce underpayment that results after a certain waiting something for you and colleagues who are interested period, but only if they think that you could in this area? reasonably have thought your tax affairs were in order. Chas Roy-Chowdhury: We will certainly be back, This is where the cultural issue comes in, as I think because this is part of the ongoing engagement. We HMRC—we have had this discussion many times will certainly be back—where things are not with them over the last few years—still have difficulty improving or they are not being addressed in the way in appreciating that people who do other jobs of work, we were told earlier this year—in a few months’ time who do not spend their time doing tax, do not to revisit that meeting to see what the progress has necessarily understand the way in which these been. processes work. They don’t necessarily pick up a coding notice and instantly understand what it is Q122 Andrea Leadsom: I want to go back to what telling them. Therefore, they will come up with Andrew Tyrie was saying because I completely share remarks such as, “It is up to you to check your coding his concern that, in fact, this is a broken system and notice and tell us if anything is wrong or how” when we have an organisation where staff morale is you have no idea how the thing works in the first extraordinarily low, which we have not really place. discussed; where customer service is, at best, confused—we get some reports that suggest it is very Q123 Andrea Leadsom: Is there a presumption that good but anecdotally all of your experience is that it people will pay their taxes or is there a presumption has become considerably worse over the last five that nobody will pay their taxes? years—significant cuts in budget that obviously puts Paul Aplin: I think there are two cultures within pressure on any organisation; then this enormous HMRC. I think there is a culture that is genuinely very move to turn everything into online electronic customer focused, does want to engage and does want reporting, away from human beings. It seems to me to try and deliver better service, and there is a that that is a complete recipe for a total breakdown of counterbalancing culture that does believe that all the organisation and I think we have seen a lot of taxpayers are trying to avoid paying tax and all evidence that suggests that that is exactly what is accountants are trying to help their clients avoid happening. paying tax, and those two culture are in conflict. I But I just wonder if you could all comment on the think there are some people at a very high level in cultural issue at HMRC. In the last evidence session HMRC who are extremely serious about delivering a there was some talk about the fact that the idea of good customer-facing service; again, we come back to moving to processing everything, to try and improve the fundamental problem here, which is resource. systems and make them more efficient, was leading to a failure any longer on the part of the HMRC to Q124 Andrea Leadsom: Is it resource, though? That understand that tax is difficult. It is not easy for people is really the nub of my question: is it resource or is it to do and that in itself is creating more problems. I a lack of clear strategy? Is it because of this rush to would be grateful if you could comment specifically automate everything away from the human face and on the cultural issue. to an automated position, possibly because of resource cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Ev 26 Treasury Committee: Evidence
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron constraints? Is it that the resources are simply not good enough, and that probably is not good enough there or is there, in fact, a broken culture within going forward. HMRC which means that we are trying to force everybody down an automated route, failing to Q127 Andrea Leadsom: But we do have this appreciate that that simply does not work for an awful massive backlog and a very specific point I wanted to lot of people and businesses? come on to is the iXBRL, the new corporate online Paul Aplin: I think it is three things. I think the cause filing system, and the fact that there seems to be a here is pressure on resource and funding. The second debate—which I gather the Chancellor will today be part of it is pace of change. There has been pressure, giving a final decision on—whether to delay the not just on funding but on driving change very quickly implementation of that system because accounting over the last five or six years. Then I think there is a package software isn’t ready. The Inland Revenue are question over the way some change has been saying, “Well, we don’t want to delay; we want to get managed; not all change but some change. When you on with it”. But surely, in light of the long chapter of combine those three things you get the effect that we disasters in other areas that have tried to go online, is are all seeing now. But I think the initial driver is this not simply going to end up with masses more pressure on funding. That is exacerbated by pressure problems for companies—who, as we have said, are to change quickly. If I could advise HMRC to do one going to be the life blood of our recovery—who will thing over the next couple of years it is this: just find themselves being fined for something that is slow down. beyond their control, and in the end all it does is create more workload for an already constrained HMRC and Q125 Andrea Leadsom: Yes. I don’t believe we more workload for the client, that is, the company? have touched on this, but the issue of National Chas Roy-Chowdhury: Some of us were party to a Insurance matching surely goes to the heart of this joint letter that we wrote into the Exchequer Secretary. issue of trust. I mean, if I have spent 40 years So, yes, we will probably get a response today at some working, paying my National Insurance contributions, stage. But we are very positive about iXBRL tagging and then discover I am not fully paid up when I come and we are very positive that it should come in. It is to retire because somewhere along the line my an appropriate form of software for companies to use. contributions were not being matched to my pension But, as you say, one provider does not have the pot—which is what I understand from the media has package completely ready yet. So there are companies happened recently for millions of people—that goes out there and agents out there who do not have the right to the heart, doesn’t it, of this issue of trust in full package yet to be able to implement this type HMRC to deliver a fair service to everybody? of software. Paul Aplin: I think it does. That has hit the headlines So what we are saying is there should be either a very recently but in fact National Insurance matching workaround or a deferral of the deadline—which is is a problem that goes back a very long time. April this year—for, say, six months. That is absolutely right. We should make sure that the implementation of this brand new system works Q126 Andrea Leadsom: Absolutely. But that is effectively for everybody. We would like it to work exactly the point, isn’t it? It goes back over a very from a later date rather than rushing it through from long time. Is it possible even now to go back and April, because we do think it will create bad match those NI receipts? If not, what does the headlines. It will create a bad taste in the mouth for individual do if they suspect that they probably should companies who are having a half-baked system. So let be fully paid up? How on earth do they prove it and us get it right first and then implement it. is the onus now on them to prove it? You are all We are very much on board, but this is an area where nodding. Is that a “yes”? we are having discussions with HMRC and we are Chas Roy-Chowdhury: I think it is a problem. Again, agreeing to disagree or disagreeing and telling them as you were saying, in terms of culture, how many quite openly about what our concerns are. At the end people at HMRC had the information and thought, of the day, I think this is one of those situations where “Well, we don’t know who this NI contribution is it will work effectively when it comes in, if it is from so we will just leave it”? Would that be good deferred, because we are having this open debate and enough if we were doing the same the other way discussion with them. It is not about winners and around? losers. If the Exchequer Secretary turns around and Andrea Leadsom: If it was in a bank, for example. says, “We are not going to defer”, we are not losers. Yes. If he says, “We are going to defer”, HMRC are not Chas Roy-Chowdhury: That is right. I think we need losers. It is getting it right for companies. to turn it around and see how we—as ordinary people—would accept it if it were a bank or how our Q128 Andrea Leadsom: You say it will be good clients would react. We would not get away with that, when it comes in but that is the point, isn’t it: when it and it would not be acceptable from our own comes in and is working properly. That is the thing professionalism point of view. I do not think to say, that concerns me. Are you talking to HMRC about a “Well, we did all we can”, is good enough because service level agreement? As I understand it, when they could always have found a way of finding out VAT Online became compulsory it was always where those contributions went, whether PAYE promised that there would be a workaround and there payments were right or wrong. I think, as I was saying would be a facility for people who could not go online earlier, there has been a culture of: near enough is to file VAT, and yet there have been around 100 cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Treasury Committee: Evidence Ev 27
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron prosecutions and fines for people who have failed to whatsoever as long as you make a reasonable attempt. pay and they are still arguing about whether they were If you do not have the software obviously you can’t able to or not. Take, for example, the market trader in make any sort of attempt but there will not be a my market town of Northampton. What if they do not penalty. If you do have the software, as long as you happen to have a computer? I mean, it is very easy to try to use it there will be no penalty”. There are lots assume every business has 20 staff and offices with of ways around this. There is a pragmatic solution computers, and so on, but businesses do not there for all of us. But particularly with Companies necessarily work like that, do they? How is this going House now saying that they will be going down this to be rolled out so that we do not simply end up with road, I think the idea that it is avoidable has now been yet another massive backlog of problems? completely dispelled. Chas Roy-Chowdhury: On this specific issue of I think one thing I would urge HMRC to do is look XBRL, there will a soft-touch approach from HMRC back at Lord Carter’s report because he did not say for the first two years, where they will not penalise HMRC should force the market on XBRL. What he where there are any discrepancies in the way that the said was, “HMRC should not require online filing has happened. But what we are saying is that submission of company tax returns until XBRL has where the actual software itself is not fully available been implemented and has bedded down”. Well, that for some companies there should not be the roll-out is not where we are today. now. We should defer so that everybody comes in at the same time. So we do have the service agreement Q131 Chair: Lastly, can I just come back to the backing up once all companies can file using this culture. I think you are being very gentle with the software properly, but there is a step before that so Inland Revenue. I will give you three instances where that everybody has the ability to file using this this Committee has crossed swords with them. When tagging. they brought tax credits in and they pulled stuff over from the DWP we were aghast at all the problems that Q129 Andrea Leadsom: So you think that on this it caused and the hardship, with people being made to occasion this is going to go through smoothly? Are pay back for overpayment. It was clear that if it had you confident about that? stayed with DWP they would have had a right of Chas Roy-Chowdhury: Depends on if we get the appeal; they would have known their right of appeal deferral, I think. Without it we may have a few bad and it could have gone to a tribunal. We never got that headlines for HMRC. from Inland Revenue. In fact we had to squeeze out Robin Williamson: I think on the point of the market of them Code 26—I think it was—which they never trader without a computer, that is where I think admitted to until it was put on the table. They would HMRC are going to need to use their discretion and not improve without being bashed around in here. give themselves a discretion in the regulations—if There was the Pay-As-You-Earn stuff the Christmas there isn’t one there already—to define certain before last. They did not say, “You can appeal under categories of people for whom it is impractical to clause 19”. It was the press who said that, and then expect them to file online, and create some sort of their response in the press was, “Yes, a lot of workaround, whether it is continuing to file on paper pensioners could do that but not many of them will or whether it is some other kind of personal assistance win”. We had the same with tax credits. There are that they are able to offer. three examples where they have the culture of a bully: they have the last word; they have the strength and Q130 Andrea Leadsom: The new system is about to there is no negotiation with them. I have found that be rolled out. Is that workaround yet available? in my casework. There is no negotiation with them Robin Williamson: I would have to ask colleagues whatsoever. In fact, my experience is they object to who have been more involved in this. MPs getting involved with their constituents. Do you Paul Aplin: I think the great problem with XBRL is think I am being too hard? Now, remember, you are about timing in that products have only come to all paying tax so you had better say, “Yes, George, market very recently. One supplier was way ahead of you are too hard”, or, “No”. They will be taking a the field and had their product out about 14 months close look at it. ago. The product my firm uses, we only had in Paul Aplin: I think there have been times over the October or November. December and January tends to last couple of years when they have been far more be a fairly busy time of year for us; so we are only combative than does them good. Perhaps a little work starting to get to grips with it now and we are weeks on a charm offensive might be appropriate on some away from the deadline. So I think what we need out of these things, especially when eventually they do of HMRC to get a soft landing or a soft take-off— have to give in. I have always taken the view that you whatever the best expression is—is some sort of delay. should give in gracefully. There is a willingness to do this. We have all spent the Robin Williamson: There is a particular problem still money on the software. We know that we are going to ongoing with tax credits, which I think is going to be doing this, and we know that we are going to be spread wider, and that is particular targeted doing it for Companies House in two years’ time. compliance initiatives where they see somebody who So there is no resistance to XBRL, per se, but we want they think has a partner living with them in their to do it in a controlled fashion. We can either do that house. It may be an ex-partner who is continuing to with a short delay and very light touch on penalties, use that address for certain purposes, and they will go or we can do it by HMRC saying, “Look, we want to at that like a dog with a bone. They will stop the claim stick with 1 April but there will no penalties because they consider that the person who they are cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG02 Source: /MILES/PKU/INPUT/012291/012291_o002_MP 11.02.08 - Original - HC731-ii CORRECTIONS IN PROGRESS.xml
Ev 28 Treasury Committee: Evidence
8 February 2011 Paul Aplin, Chas Roy-Chowdhury, Robin Williamson and Richard Baron targeting—usually a lone parent—is not entitled to quite often the initial finding of the compliance team make a single claim but should make a joint claim, is overturned. I think that is an instance of the sort of because of this rather shadowy evidence of somebody culture of: “We are right and it doesn’t matter what a living there. She is left with no money; writes in, long string of tribunal cases have said about whether appeals and it takes several months for the appeal to you are claiming jointly or singly”. That is just one be dealt with. example. We quite often get involved in those sorts of cases and Chair: Sadly, we agree. Gentlemen, thank you very if we are able to bring up the evidence that they much. It has been very, very useful and we have some should have looked at in the first place, or if we are useful information for our inquiry. able to get the matter before a tribunal on appeal, then cobber Pack: U PL: COE1 [SO] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 29
Wednesday 16 March 2011
Members present: Mr George Mudie (Chair)
Mark Garnier Jesse Norman Andrea Leadsom Mr David Ruffley Mr Andrew Love John Thurso John Mann Mr Andrew Tyrie ______
Examination of Witnesses
Witnesses: Dame Lesley Strathie DCB, Permanent Secretary and Chief Executive, HMRC, Mike Clasper CBE, Chairman, HMRC, Dave Hartnett CB, Permanent Secretary for Tax, HMRC, Simon Bowles, Chief Finance Officer, HMRC, gave evidence.
Q132 Chair: Mr Clasper and Dame Lesley, we will The last Administration endorsed the strategy, and start. Thank you for coming and thank you to your now the new Administration has endorsed the two colleagues. Mr Hartnett we all know. Mr Bowles, strategic direction and we have a spending review and I don’t think I have had the pleasure. a financial plan that fits that strategy. I think that gives I will start with Mr Clasper. I note from the accounts you some confidence for the future. that you started off doing three days a week and then The third thing that has happened is that our I presume you varied your contract to work two days intervention tax yield has gone up year on year on a week. Is this significant of anything? year. Before the last spending review it was £7 billion. Mike Clasper: I think it is significant of the fact that It moved to £11 billion last year. We think it is going when I joined HMRC, as I said to the Treasury Select to be somewhere between £13 billion to £14 billion Committee, the top team needed to be put in place as the out-turn for this year, and our target at the end and basically, in the first year that I was there, Lesley of the new spending review is £20 billion. Those are and I put in place the new top team. Going forward I quite significant numbers for the national purse, as think it is important that there is a separation between you can imagine. We have done all that while the executive role and the independence of the board, reducing our cost base and reducing the number of which is common in the corporate world. I shouldn’t staff. be doing executive responsibilities. I should be doing The two areas where we must do better are customer what my core role is, which is chairing the board. That service and engagement. I see strong light at the end is why I think going down from three days to two days of the tunnel on both of those. On the customer side, is a smart idea and of course it saves some money for the challenge is to get through clearing up the legacy the public purse as well. issue of dealing with eight tax years in one year instead of what we should be doing, which is in effect dealing with three tax years in one year; the last year, Q133 Chair: Yes, but if you were even more the current year and the future year. As you know, effective than you are we might save a lot more Lesley has committed publicly to getting that sorted money for the public purse, yes? After two years in out by the end of 2012. It will be ups and downs until the task, I would say you are at a dangerous stage, we get to the end of that period, but from then on in with cutbacks and some of the changes being a bit we will basically have the tax records of the country rocky. Do you see some light at the end of the tunnel? in the right place. Then we will be able to provide a Mike Clasper: The answer is, yes, but I would like to significantly better customer service. It will improve look at the last two years and where we are now. Let between now and then, but until we have done all that us talk about what is in place and then what we need it is going to be difficult to be anywhere near the sort to do better. What is in place—I think this is crucially of level that we would like. important—is that Lesley and I have built a new top On staff engagement, I think the sense of direction, team. That includes the non-executives but crucially and many other things that we will probably cover it is the leadership group of HMRC. When I joined later in the hearing, would give me hope that we can the department there were an awful lot of interims, make significant progress. I guess, on the financial temporaries, acting-up and so on. So I think we have side of the department and on the strategic direction a top team that I have a lot of confidence in. of the department, we are in good shape. We need to The second thing is that when I joined the department, do a lot better on customer service and we need to do although there were individual elements of a strategy a lot better on our staff engagement. for the total department, basically an overarching strategy for the total department—a one-HMRC Q134 Chair: On those two things and the department strategy—was not in existence. We put that in place. generally, how do you find it now? How would you It started with explaining what our purpose and vision describe it now? We had a short debate in the House was. Then we worked through what our strategic a month or so ago and I can’t think of any speaker objectives were. Then we worked through what the who spoke in glowing terms about the department— strategy should be to deliver them, accepting that of not even the Minister, who said some things had to course tax policy stands outside the department. improve—which is sad in a way, isn’t it? The great cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 30 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles danger in life is believing your own publicity, isn’t it? That is what makes me feel that we can see a Where do you think the department is? significant shift on that. Mike Clasper: The first thing, to reassure everybody, is that there is no sense of anybody on the board, or Q135 Chair: I think that has all been very helpful to the top team, not recognising that we have a start, because there is nothing worse than a defensive significant issue with staff engagement. I am not situation and an attacking situation. This should be sitting here saying that we are in great shape. It is a dialogue between politicians and people we have about where we are going. I think the best thing is the entrusted with a job, and a realistic assessment of common survey that is done across the civil service. where we are going with it. Because it is serving the There are some dichotomies in it, which I think some public, and the public are on occasion being hurt by of the unions brought up when they talked to you. actions that are taken. Our staff are committed to the purpose; if you go out Just something that I don’t think Dame Lesley can there, or even if you look at the data, you see people say, or whoever was sitting in her place could say, but who believe they are doing a very important thing for I can say as Chairman. I am tempted to think that cuts the country. They are committed to get the money in have gone too far, that you can’t keep going back to so that we can fund the nation’s public services. The a department year on year. This has certainly second thing—this is the one that suggests a sort of dichotomy—is that in general they like their work and contributed to the disengagement with the staff. They they want to stay. Normally, that doesn’t come with never know whether they are going to have a job in the next two things, which are that they don’t feel a six months’ time or a year’s time. You have had four positive sense of direction in the department and they or five years of that and you are now facing another don’t like change. I have to say, from my private 15% real cut. Is there a time when somebody like you sector experience, there is a difference between— says to the politicians, “Enough is enough. With the Chair: Nobody does though, do they? best will in the world you can’t keep coming back. Mike Clasper: Yes, but I think there is a difference Accept that we have a job to do”? between the public service and the private sector, in Mike Clasper: I think the answer to the question is, terms of the acceptance of change. That is yes, there is, but do I feel that the last spending compounded by the fact that we have not managed review— change well over the last few years. I think Francis Maude has said that one of the challenges going Q136 Chair: Have you reached it? forward is to significantly improve the public sector’s Mike Clasper: I don’t think we have and let me management of change. It is one of the things that has explain why. I will take a small example. If you are come up, and not just in HMRC. dealing with eight tax years in one instead of three; if Looking forward, we have to continue changing. you are dealing with a situation where the taxpayer There is no way we can deal with the financial state and ourselves are dealing with something three or four of the country and the fact that our customers are years ago—I am very conscious of the impact that has changing all the time; economic issues and tax on customer service, and I am sure we will come back policy—we have to deal with change. I think one of to it—it is very difficult to go back and say, “You owe the two most important things we have to do, going us money for three or four years ago”. If you are not forward, is to deliver that sense of direction and doing things in a timely way, if you are having to do opportunity that we have not been doing as well as eight years in one, then you get very challenging we should have been. The great advantage is that we outcomes. now have a spending review and a financial plan that The good news is, when you are dealing with three fits the direction of travel. The second thing is to have years in one and you get to a position where you are much better linkage between the top of the dealing with things in a timely way, there are clear organisation and the bottom. If I told you that we have efficiencies, and we have had significant investment today, in a large part of HMRC, 13 management in the IT systems to be able to deliver those layers and that we are going to move to seven or eight, you can see the scale of change in trying to get the efficiencies. On the flip side, what the Government top of the organisation and the bottom of the has done—it would be fair to say that I was as organisation into a much faster dialogue. passionate as anybody that this should be done—was I think we need better leadership. We have a great top to invest back some of those savings in going after team now, but we are going through the process of one of our core purposes, which is to close the tax both development programmes for our leaders and gap and the £900 million that has been talked about. making sure that the leaders below the people who are I think it is wise and sensible investment to close the here today, and below them, are the right people to tax gap and therefore improve the financial position lead an organisation. Sometimes that has not been part of the country. of the full criteria for certain roles that have large Could we do more? We could debate that, but given battalions of people. the scale of investment—we are talking about going We have to be persistent and persuasive in explaining from £13 billion to £20 billion—I think we need to change and we have to give the people who are get a bit down the track to show that we are definitely affected by that change more tools to deal with the delivering that progress, but I will tell you that if we change. Again, if you want a 20/20 hindsight, I am are, and we see opportunities that are not being taken, not sure that in the past we have given the people who I will be one of the first people to go and say it is had to deal with change all the tools to do it well. wise for the country to invest more in this effort. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 31
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Q137 Mr Tyrie: You said a moment ago you have to am sorry to trouble you with this catalogue of make progress on staff engagement but in fact staff ineptitude”. People are not getting through. There isn’t are disengaging from the customer, aren’t they, with so much engagement, is there? There is less. the centralisation programme and the decision to close Mike Clasper: No, as I said earlier, our huge issue is local offices? that people could not get through when all the issues Mike Clasper: Firstly, I don’t think the vast majority started to arise. I would like a copy of the letter and I of the staff are disengaged from the customer at all. If would like to be able to think that we can deal with I go out and talk to our staff about the customer, I that individual case. think they are a very engaged group. Part of the thing about the lack of sense of direction and engagement Q142 Mr Tyrie: Okay, but could I just say, what we issues is that, in fact, the staff are so passionate about are getting round this table, and what we are getting being engaged with the customer that they don’t like from colleagues in the House of Commons, is similar what has gone on, any more than we do, in terms of experience. I am sure this gentleman—who does not the issues that we have caused. want to be named—will be delighted that his case On the centralisation issue and closing offices, we are somehow gets priority because I have read it out in still going to have a massive presence around the the Committee, but that shouldn’t be the way business country. We are not all concentrated in London. is done. We have thousands, tens of thousands, hundreds of thousands of cases like this, snarled up, Q138 Mr Tyrie: But you are disengaging, aren’t not being dealt with properly. you? You know very well that I have the highest regard for Mike Clasper: I don’t agree at all. the culture of the Revenue, from the time when I worked in the Treasury myself, but something really Q139 Mr Tyrie: There are fewer customers having has gone wrong, hasn’t it? I am hoping that you are the contact that they feel they want. going to tell me that it is more than just the fact that Mike Clasper: I don’t agree. you had eight years to deal with in three. The Chartered Institute of Taxation said: “Ten years ago Q140 Mr Tyrie: There are more customers with the the Revenue had the reputation of being one of the contact they want from HMRC? best run departments in Whitehall. Today’s HMRC’s Mike Clasper: Let us take some examples. The reputation is in tatters as one disaster has followed question revolves around channels. If you said, “Let another”. Do you really disagree with any of that? us look at the number of people who are engaged with Mike Clasper: I don’t know what the Inland Revenue us in a way that they feel comfortable in self- reputation was before. I am not happy with the service assessment”, we are in the order of 7 million people— that we have been providing and none of us is; none I can’t remember the exact number—who do self- of the top team is. Basically, our contact centres have assessment online. It is something like 75%; three- been overwhelmed by the number of calls that were quarters of the population that could do it online are created by—I am sorry to repeat it—dealing with doing it online. If you look at the areas where we have eight years in one. The consequences of that—the our biggest challenge, they are that people want to distress of the individual you talked about, and of contact us on the phone, and if you also look at the many other individuals finding out that they have a research it shows that when they get through— tax bill back for three or four years—are something Mr Tyrie: If they get through. that everybody in the room would have sympathy for. Mike Clasper: I recognise that is what we have to do It is almost invariably tax that they should have paid. massively better. But when they get through, the general reaction to the quality of information and Q143 Mr Tyrie: But it is all caused by this “eight advice they get from our staff is positive. years in one” problem, is it? Mike Clasper: The eight years in one is a large part Q141 Mr Tyrie: Just on that, perhaps I can read you of the issue. We estimate— a couple of extracts from a letter that I received from Mr Tyrie: The lion’s share of the issue. a pensioner immediately after the debate that was held Mike Clasper: If I can go back to the— in the House of Commons. I am summarising a tiny Mr Tyrie: I just want an answer: is there some other bit of it, but he says, “I received from HMRC a letter massive issue sitting alongside eight years in one that saying I owed £6,759. I did not owe that sum so I we have yet to hear about? tried to call HMRC on five occasions. The constant Mike Clasper: There are several core issues around reply was, ‘One of our advisers will be with you the same thing: the number of phone calls that are shortly’. One of my phone calls lasted two hours and made to reassure, or that could be so easily done by 21 minutes without reply.” I am not giving you all the another channel, and that come in and over time we bad story in this letter, I can assure you, these are only have to not have come in. Because what happens excerpts: “I then received a letter dated 11 February when you are running anything like a call centre is from HMRC Banking saying, ‘You need to pay that there can be relatively small increases in demand; £10,276 now’. The letter was aggressive and we only have 10% more callers than we had last year, intimidating. ‘If you do not pay now the debt will but the issue is they are not getting through, so they be passed to our debt collection service. Enforcement recall and they recall and they recall, and somebody action will add legal costs to your bill and a 5% ends up with a two hour 20 minute phone call and surcharge can be made on any balance unpaid at 28 it is not acceptable. If we can reduce the amount of April’”. He ends by saying—this is a pensioner—“I demand—there are two aspects to reducing the cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 32 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles amount of demand, and one is dealing with stuff in a everyone, every single source of income, into one timely way. I have listened to calls. The number of place, and that of course is where we have discovered calls that are chasing— that many pensioners have not paid the right amount Mr Tyrie: Now we are back to how you are going to of tax. We do understand how distressing that is, and deal with that aspect of it. What I am asking you is we have been working through each of these years whether there is some other major driver of this crisis with Ministers and seeking counsel on how we can other than the eight years in one? ameliorate the impact of all of that. Mike Clasper: And some processes that have the By the end of 2012, we will have cleared all the open customer contact us when they didn’t need to. cases for the back years and we will have been through a full-year cycle of the new system. If I might Q144 Mr Tyrie: Can you give us a date at which you give you some hope, we have almost completed the think you will have got through this problem? annual coding cycle and, because of the learning that Mike Clasper: I think there will be a period of steady has been applied and the testing regime that we have improvement. I think we will see— gone through, that has produced an accuracy rate of over 97% as against 80% last year. That says we have Q145 Mr Tyrie: When are we going to arrive at what been able to clean up records throughout the year and you consider and what we will start to feel is then test and find out what is in the system. We have reasonable as far as complaints from the public are a full annual cycle to go through, from annual coding concerned? and then reconciliation. We will never be in a position, Mike Clasper: I think we are not going to be in a with a payment and accounts system, where great place until 2013. We have to get through— absolutely everything reconciles, because people have Mr Tyrie: Beginning or end? life changes throughout the year. Mike Clasper: Well, I am not talking about Chair: We will come back to customer care service. individual— Q150 Jesse Norman: I would be grateful for the Q146 Mr Tyrie: Do you have a plan? When do you shortest answers that you are capable of giving if that think you will be able to do this by? is okay. Mr Hartnett, do you think the continued Mike Clasper: We think we will be in a much stronger public controversy over the Vodafone case has place in 2013 and stronger again in 2014. damaged HMRC? Dave Hartnett: Maybe a little, Mr Norman. Can I Q147 Mr Tyrie: I want to know when you will have preface what I want to say by saying that, before handled the backlog created by the “eight years in coming here today, I spoke at length to our lawyers one” problem. because in the past we have normally, under taxpayer Mike Clasper: That one will be solved by the end confidentiality legal strictures on us, refused to say of 2012. anything about a particular taxpayer. I thought it might be helpful today if I could say Q148 Mr Tyrie: That will be by the end of 2012, so something about the mistakes and misconceptions that when you come before us at the beginning of 2013 are out there, because they are significant. I have legal you are confident that we are not going to have a pile advice that enables me to answer those questions, but of these letters? I cannot answer detailed questions about the actual Mike Clasper: By then we will be in a much stronger tax liability. place. We will be in an even stronger place if I come before you in early 2014. Q151 Jesse Norman: If the Chair is comfortable, I would be very interested in that. Thank you. Q149 Mr Tyrie: You are confident you are not going Chair: The Chair is always comfortable. to be faced with colleagues reading out letters like Dave Hartnett: Do you want to ask me some this, and you are confident that we will have dealt questions, Mr Norman? with the “eight years in one” problem? Jesse Norman: No, if you have a prepared statement. Mike Clasper: I am confident with dealing with the Dave Hartnett: I do not have a prepared statement but “eight years in one” problem. I am confident that there I have some notes for myself. will be massively fewer letters like that, but in an organisation that deals with tens of millions of people, Q152 Chair: How long is it, David? We only have a and hundreds of millions of contacts, I can’t guarantee couple of hours. that sort of letter will never occur. There are just too Dave Hartnett: Thank you, Chairman. I thought I many transactions; too many people. might start with the £6 billion, if that was alright, Mr Tyrie: It is a reasonable answer. because that seems to have captured the public Chair: Dame Lesley, you were straining at the bit. imagination, but it is not a number we recognise. So Lesley Strathie: I am not used to having so much I thought I would construct the £6 billion for you, support. We feel deeply, deeply sorry for the distress very quickly—how we think it was constructed and that we have caused to many customers in bringing why we think it is simply wrong. personal tax records up to date, and particularly The profits to which the £6 billion allegedly relates vulnerable customers. I think one of the big groups in arose in Luxembourg from activities in Germany and each of those years has been pensioners, and of course Greece. The calculation is based on gross income, not pensioners span people of many decades now. That on profit, so the calculation takes no account of non- is because we have introduced a system that brings taxable amounts—tax losses, overseas tax paid and all cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 33
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles the things you would normally set off in getting to a Q158 Jesse Norman: I understand. Thank you for tax liability. There are a lot of roundings and that. Can you tell us how the case was settled? What extrapolations in it, and there is no attempt at all to was the procedure by which you settled the case? analyse the controlled foreign company legislation Dave Hartnett: The director of our international and look at exemptions. Our view is that the £6 billion division and her deputy began a negotiation with is frankly—I hope this is not an inappropriate word— Vodafone and their advisors. When that stalled, I and absurd, and that no serious or reputable practising another commissioner in HMRC became involved and accountant in this country, be it public sector or negotiated a settlement with the chief finance officer private sector, would be able to endorse it. of Vodafone.
Q153 Jesse Norman: For the avoidance of doubt, it Q159 Jesse Norman: So it was a negotiation. It was is much higher than the actual liability although you not what you thought they actually had to pay, it was can’t discuss what the actual liability was? what you were prepared to settle for. Dave Hartnett: Vodafone put in the public domain the Dave Hartnett: What we do most often, Mr Norman, sum they paid, which we believe to be the actual is to negotiate the very best settlement we can. We liability, which is £1.25 billion. That is the real issue, had to balance out whether we were going to get more money for the country by litigating or more money by Mr Norman, about the £6 billion. This is—may I getting the right negotiation, and there were plenty of repeat myself?—an absurd figure. tax QCs in the UK lined up telling us and the media that we were not going to get a penny through Q154 Jesse Norman: Is there anything you want to litigation. add? Dave Hartnett: There are a few other things, if I can Q160 Jesse Norman: How many large business pick two or three things at random. There have been corporate tax avoidance cases have you litigated or allegations, which we haven’t felt able to counter taken to the Tax Tribunal in the last five years? before, that Mr Connors of Vodafone and I met Dave Hartnett: Quite a lot. We protected through regularly and in secret to cook up the deal. At no stage litigation last year—most of this number will be big during my involvement with Vodafone did I meet Mr business—about £6.25 billion. I am trying to find a Connors. I never wrote to him. I never received a list I have brought because I thought that it might be letter from him. I never had a text from him, or an e- helpful. Can I just illustrate with one or two? mail, or telephoned him or received a telephone call. Jesse Norman: The number that you have taken to We had nothing whatever to do with each other. the Tax Tribunal is the question I really want to get to. Secondly, I think there are allegations that I and my Dave Hartnett: I will have to let you have that in colleagues stood aside, experts and lawyers, in order writing—the number to the Tax Tribunal. But we to reach that settlement. Not true. We escalated the have, across all our tax litigation, about 10,000 cases Vodafone matter to the very best people in our in litigation at any one time. organisation, the director of our international division and one of her deputies, and our lawyers were Q161 Jesse Norman: But how many with what you involved throughout. might call your large business service? How many of The third thing worth saying is that I think I have read those were litigated? somewhere that I brought Mr Cruickshank of Deloitte Dave Hartnett: I can’t give you a precise number but into the matter. No, not at any stage. Of course I know quite a lot of the 800 or so entities that are in there. Mr Cruickshank, he is one of the country’s leading tax accountants, but I did not bring him into anything. We Q162 Jesse Norman: Were the procedures you don’t do that. followed on Vodafone ordinary ones for a case of this kind? Q155 Jesse Norman: On that point, do you mean Dave Hartnett: There was nothing special about this that you did not bring him in, or he was not brought case. It was worked by the most senior experts in the in? field, and two commissioners of HMRC. Dave Hartnett: He came in, I think, at the request of the company. Q163 Jesse Norman: Are they board members? Jesse Norman: So the company brought in Deloitte? Dave Hartnett: Yes. It was me and the director Dave Hartnett: Yes. We don’t do that. general for business tax, and our lawyers were involved as well. Q156 Jesse Norman: He is someone with whom you Q164 Jesse Norman: Was there any difference of have had no other relationship? view as to how the case should be prosecuted as Dave Hartnett: No. Over probably 15 years in tax I between the board members and the team involved? have seen him on many occasions, on many different Dave Hartnett: Not once the case had been escalated. matters, because he is one of the country’s leading I think one or two of our colleagues—not working on tax specialists. the case but elsewhere in the department—felt that we should have said to everyone in the department how Q157 Jesse Norman: He has advised HMRC? this case was progressing. When you think of the scale Dave Hartnett: No. He has not advised us. He has of it, this was incredibly market sensitive in terms of always acted for taxpayers. an amount of money, so we could not explain to large cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 34 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles numbers of people how the matter was being dealt Tax Tribunal but I would be interested to see the with, but it wasn’t dealt with differently from other numbers on that. Do you think you are offering a cases. credible threat to big business, in line with HMRC’s stated objective of charging people the right amount Q165 Jesse Norman: In 2008, the Public Accounts of tax and collecting it? Committee was very critical of the Revenue’s failure Dave Hartnett: I do, because looking at the to charge penalties to big businesses when they intervention yield, which I think Mr Clasper referred understated their tax payable. The number was about to earlier on, over the last four years we have £15 million and the Revenue promised to do better. increased that in relation to big business by more than How much better are you doing now? 25%. If I look at the list of cases we have taken to Dave Hartnett: If better is in terms of amounts of the Tribunal—this is all public domain information. money, the most recent year has been a lot less than Firstly, the Prudential in relation to tax-efficient off- that but the crucial issue is that in order to collect a market swaps was a very large avoidance case, which penalty, there has to be at the very least a failure to we have won. There were 30 other major companies take reasonable care. Most of the issues we resolve behind that. They were not named but they funded, in with big business in the UK are very significant part, the running of that case, so it was not a single differences of view on technical aspects of taxation, case. We are still considering for some of those and we cannot charge a penalty in relation to those. whether there is a penalty position. If I go back to the £15 million you mentioned earlier Q166 Jesse Norman: The actual number is that six on, I happen to know one element of that £15 million penalties were charged— rather well, and a large part of that £15 million was Dave Hartnett: I knew it was small. one case. Jesse Norman:—in 2009/2010 for a total of £442,000, which was one one-hundredth of 1% of the Q171 Jesse Norman: In other words, when you can tax that was under declared, which I have to say levy a good fine you do it? strikes me as a lamentable failure. It seems to me that Dave Hartnett: Absolutely, and the advice we get it isn’t better than you promised to do in 2008. It feels from the private sector is that a big fine puts senior a lot worse. What is the equivalent percentage of tax officials in big companies in serious jeopardy, and that under declared for small business? is a very big deterrent. Dave Hartnett: I don’t know precisely, Mr Norman, but there is a fundamental difference. Small business Q172 Jesse Norman: It does raise the question why in the UK makes up about 50% of the tax gap; big you do not do more of it to more companies, given business makes up less than half of that. We have that when you do it, you can raise a reasonable sum? more evasion in small business than we do in big Dave Hartnett: Every time we settle an issue, Mr business. In fact I cannot remember—maybe if I went Norman, we look at the penalty position and if away for a couple of hours I could think of necessary we take legal advice; sometimes external something—seeing a case of evasion in very big legal advice. business in the recent past. The crucial issue— Q173 Jesse Norman: Do you think you have Q167 Jesse Norman: Could you repeat that? You adequate transparency in the derivatives profits made cannot remember having seen a single case of evasion in the big banks—as to the tax creep of those? by big business? Dave Hartnett: Well, it has improved, very Dave Hartnett: It is mostly avoidance, Mr Norman. significantly. It has improved through the code of tax for banks that we drew up. The top 15 banks and Q168 Jesse Norman: I find that extraordinary, I must another 190, roughly, have now signed up to that. say. Okay. The equivalent rate for small business is Transparency is a key part of it, and we are monitoring about 200 times the rate for the large business service. that transparency very carefully. With a number of the If you fiddle your tax credits you go to jail, if you do biggest banks we now work in real time. it in a systematic and fraudulent way. Why are you so If I can turn your question ever so slightly; do we much less tough on big business? necessarily understand all the derivatives? Maybe not Dave Hartnett: I don’t think we are less tough on big as quickly as I would like. business. We will take penalties from big business— Jesse Norman: We know that in many cases, they do not understand the derivatives so that is not very Q169 Jesse Norman: It is 200 times lighter, the surprising. amount they pay relative to the tax that is under declared. That feels like pretty unequal treatment to Q174 Mr Love: Can I just come back to Vodafone me. briefly? How would you explain the widespread Dave Hartnett: What we have to measure is the reports in the newspapers that Vodafone had set aside incidence of at least failure to take reasonable care, or double the amount of tax that they actually paid? How worse, and that incidence is higher in small business did it come about that they estimated it much higher than it is in big business. than you did? Dave Hartnett: I don’t know how they made the Q170 Jesse Norman: So just to round off, the estimation, Mr Love, but we frequently see very situation is that you barely fine big businesses who conservative provisioning in relation to tax; very underpay their taxes. You say you take them to the conservative provisioning indeed, where it is cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 35
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles massively more than the sum of money we could Q179 Mr Ruffley: You are saying the £6 billion was possibly collect under the law. We did not collect a absurd and you suggested that was because it was a penny less from Vodafone than we thought we could. gross income figure, and did not take account of exemptions under the Act or any other write-offs or Q175 Jesse Norman: That cannot be true because losses, so that— you have already said you negotiated. So you had an Dave Hartnett: Yes. ambition for how much you wanted to take from Vodafone, which was thwarted by the company and Q180 Mr Ruffley: Okay. Just so I understand that. then you went into a negotiation. So what you have I take your point that you are trying your best. I just said cannot be true. certainly don’t suggest—like some rather cruel Dave Hartnett: No. Mr Norman, with respect, I don’t commentators—that you have sold out to big think I ever said that I had a figure. We looked at the business. I am not going to be as populist as that, but position; we did our calculations during the I have to say that some facts suggest that there is huge negotiation and we reached what we thought was the disquiet on the part of technicians in HMRC. Let me right number. just ask you these questions. Is it the case that you removed five officials from the controlled Foreign Companies Act legacy team Q176 Mr Love: You indicated earlier that all the tax following reports in various newspapers? I think we lawyers were telling you that— need to be forensic. Were five people removed from Dave Hartnett: Half of them, Mr Love. Sorry. that legacy team? Mr Love: Well that is a slightly different impression Dave Hartnett: I don’t know the number, Mr Ruffley. than you gave originally, but the overwhelming view of those in the know was that you could not go to Q181 Mr Ruffley: Was anybody removed from that litigation. Vodafone would have known that as well. legacy team? Are you seriously asking us to accept that Vodafone Dave Hartnett: We moved the work in order to would have made a greater estimate than you about provide assurance to the markets and companies that what their tax liability was? that work was being kept confidential. Moving the Dave Hartnett: My experience, Mr Love, is that work was the important issue. happens regularly. If I can go to another matter, far enough away, to illustrate the point, I remember that Q182 Mr Ruffley: Did you conduct a leak inquiry, we were pilloried in the media some years ago for not or anything similar to a leak inquiry investigation, collecting every penny of tax under a provision. We following the complaints about the treatment of the couldn’t get there. In law we could not reach the Vodafone case appearing in the press? provision. But I think I ought to make way for Mr Dave Hartnett: I think that is probably one for the Clasper. chief executive rather than me. Simon Bowles: If I may come in, just by way of Mr Ruffley: No. introduction I have spent 30 years in the private sector, many years as a finance director in public Q183 Chair: Who would have taken that decision? companies, so it has been my practical experience that Was it you? Can you answer the question? faced with a tax liability, one would try to be as Dave Hartnett: The decision, Chair, about the formal conservative as possible because what you don’t want leak inquiry lies with the chief executive. is two surprises: first that you make a provision and secondly, you discover you haven’t put enough aside Q184 Mr Ruffley: Is there a leak inquiry? Let us and there is another shock coming. So my experience establish that, shall we? very much echoes what Dave has described. Lesley Strathie: If I can answer that question, on any Mr Love: So the headline for tomorrow is, “Vodafone occasion where we have a leak of significance, and got it wrong; they are even more incompetent than particularly where the evidence, or the assertions or HMRC”. the print media or any other source, suggest that Chair: David, do you want to come in in this area? confidential taxpayer information may have been leaked, I would mount a preliminary inquiry, a fact Q177 Mr Ruffley: Thank you, Mr Chairman. Can I finding, first of all. say, Mr Hartnett, that I think your opening statement has been very helpful to Mr Mudie’s sub-Committee. Q185 Mr Ruffley: Not “would”. Did you, in this Can I just get one thing straight? You described the case? £6 billion figure in relation to Vodafone as an absurd Lesley Strathie: Yes, I am just putting it in context figure, and I take it that you are saying that £1.25 because the first thing is to establish what we know. billion was—did you use the words “real liability”? The second is to have an inquiry and, yes, there is an Dave Hartnett: I don’t remember using those words. ongoing inquiry.
Q178 Mr Ruffley: What was the £1.25 billion? How Q186 Mr Ruffley: Right. That is helpful. Don’t you did you characterise that? think that is unusual, Dame Lesley? Dave Hartnett: It was the actual amount of money for Lesley Strathie: I think every one of us who is which the matter was settled. It was our largest ever employed by HMRC takes taxpayer confidentiality cash settlement. very seriously, and I do distinguish between that and cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 36 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles any other kind of leak where someone decides to share colleagues. People have access all the way up to me, some information about our operation. as the chief executive, and indeed to a board and a Mr Ruffley: Or talk about your expenses or anything. chairman—there is a range. People can do that Lesley Strathie: I think taxpayer confidentiality is anonymously, so there is an issue as to why people very serious. choose—if it is on the inside—to give certain information outside and not use any of the channels Q187 Mr Ruffley: I am agreeing; we’ve got that. I that are available to them. want to get to the heart of the issue that Mr Tyrie raised in his question, and I agree with it. HMRC, or Q189 Mr Ruffley: Before you go to sleep tonight, the Inland Revenue, when Mr Tyrie worked there and Dame Lesley, I would suggest you ask yourself this when I worked in the Treasury afterwards, was a question: why experienced professionals in the byword for excellence. Leaks like this never Revenue, rather than speaking to you, as you have happened, but they are happening now. I want your indicated, decide to leak it to Private Eye. That is a assessment as to why you think officials are now depressing commentary on the organisation of which under investigation. Are there other examples in you are Permanent Secretary. recent history that you can give this Committee where One final question, Mr Chairman, and it is a technical such a serious leak inquiry was instigated? Something question. If you do not have it to hand, either Mr is going wrong with HMRC, isn’t it? Hartnett or the Permanent Secretary will be happy to Lesley Strathie: I honestly don’t know the history. I receive it in writing: how many cases have been didn’t work in— settled under the controlled foreign companies Mr Ruffley: You should. You are the Permanent legislation, so as to produce a lower yield to HMRC Secretary. Now, come on. than would have been the case if such legislation had Lesley Strathie: I am sorry, I never worked in the been applied in full in each of the last two years, Inland Revenue and so I can’t tell you how many where the settlements in those cases were between inquiries it had. I can tell you that we have had several £100 million and £1 billion and, secondly, over £1 preliminary inquiries— billion? The last two financial years and between £100 Mr Ruffley: As serious as this? million and £1 billion and over £1 billion, do you have Lesley Strathie: Nothing as serious as this. those figures to hand? Mr Hartnett. Mr Ruffley: Nothing as serious as this? Dave Hartnett: I don’t think there is a single case, Lesley Strathie: I would like to put in context that the Mr Ruffley. action we took around this, just in case you are asking it specific to Vodafone, was after three different Q190 Mr Ruffley: Not a single case? suggested leaks. That is when we felt we had to, in Dave Hartnett: Not a single case. I think we have order to give confidence back. Bearing in mind that settled the cases entirely properly, with good the relationship with large business is predicated on governance, and I don’t think there have been any shared trust and transparency, why would companies dodgy deals in relation to controlled foreign share their information with us if they felt that we companies. would not hold it according to the law as it requires us. Q191 Mr Ruffley: I wouldn’t be so defensive. I didn’t use the word “dodgy”. Q188 Mr Ruffley: We agree with all that; you are Dave Hartnett: I was trying to be helpful. telling us the mindlessly obvious, with respect. We all agree that taxpayers have to trust the organisation. But Q192 Mr Ruffley: Yes, or overly defensive. You can I put it to you that trust and transparency do not have not settled for lower yields than would have been seem to be in evidence in relation to the senior the case if the legislation had been applied in full. You management’s relations with its middle management have not settled any case between £100 million and and junior staff, because we have leaks here that you, £1 billion in the last two years, or over £1 billion in your own words, have suggested are the most in the last two years. Is that what you are saying to serious in recent times. You agree with that. It does this Committee? rather suggest as a bit of evidence that something is Dave Hartnett: I am saying that, Mr Ruffley, but I going badly wrong within the Revenue, in terms of need to say one other thing. Not about numbers. trust between the senior management—Mr Hartnett, yourself and others—and the people who are leaking. Q193 Mr Ruffley: It is not a “but”? They feel so outraged or suspicious that they are Dave Hartnett: No, no. It is the legislation. The leaking in an unprecedented way. Would you not legislation does not lend itself to the precision you accept that characterisation? are imbuing it with. That is the important issue here. Lesley Strathie: Mr Ruffley, I would say from a Remember this is legislation, which works very generic perspective leaking in an organisation is a sign simply: it says, “Is there tax avoidance? Could the of bad health. transaction have taken place in the UK?” and then if Mr Ruffley: Yes. it did—with Vodafone we have said it is Greece and Lesley Strathie: I accept that point. Germany with Luxembourg—“How much of it do you Mr Ruffley: You accept that. Very good. tax in the UK? What are the exemptions, losses and Lesley Strathie: What I would say is there are a whole all sorts of other things?” It is not simply a case of range of channels for whistle blowing inside the applying the rigour of the CFC legislation to get to the organisation, and indeed they are used by many precise number, because there is no precision there. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 37
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Q194 Mr Ruffley: You are denying that the question leakage it would be much, much easier to identify. But means anything? we did it as much to protect our people and the Dave Hartnett: I am saying that it is a very difficult reputation they hold because of that trust and question, but I was trying to go to the heart of what I transparency. thought you were asking, which is, “Have we gone soft”—I know you didn’t use those words—“in Q198 Chair: To the best of your knowledge, can you relation to controlled foreign companies?” tell me whether the people appreciate they are being Mr Ruffley: That would be a populist version of the moved for their protection? question I have read out twice, yes. Lesley Strathie: Certainly, the two directors involved Dave Hartnett: I don’t think so. in that decision-making went to considerable effort to Mr Ruffley: You don’t think so? see all those people and explain. We also ensured that Dave Hartnett: I don’t think so. the director general for business tax put a Mr Ruffley: Chairman, thank you. communication on our intranet explaining exactly what action we had taken and why, and stressing that Q195 Chair: Just for the record, can we go back to there was no suggestion at all that any of the people Vodafone and Sue Cameron’s allegation in the involved were guilty of any wrongdoing. Financial Times that five members of staff had been moved as a result of the leak on Vodafone? The Q199 Chair: I hear that, but it still does not answer answer as I heard it was, “No, it was more that some my question. Do the three people accept and staff had been moved pending an inquiry after three appreciate they have been moved for their protection? leaks”. What were the other two leaks? We missed Lesley Strathie: I can’t answer that. that. Lesley Strathie: There were three cases where stories Q200 Chair: Have you asked the union to check that came out in the media and there were complaints from their members are happy? customers that suggested there was a problem. Lesley Strathie: I know that the director general for I think the other issue— business tax has certainly talked to the trade unions as Chair: Sorry, Dame Lesley. Were there three leaks well. But I can’t answer. regarding Vodafone? Three separate leaks? Lesley Strathie: No. There was one concerning Q201 Chair: I am just trying to reconcile that with another company as well. your first brief answer to David, which was that these Chair: So there were two for Vodafone and one about people were moved as a result of three leaks and you another company. were conducting an inquiry. Are you still conducting Lesley Strathie: Yes. this inquiry? Chair: Is there the feeling in the— Lesley Strathie: Yes. Dave Hartnett: I was trying just to remind— Q202 Chair: Are these three people or five people Q196 Chair: Are you confirming that or saying that subject to this inquiry? it wasn’t right? Lesley Strathie: I can’t tell you where the inquiry will Lesley Strathie: Dave was confirming that it was end up. I can tell you that leaks are notoriously three companies. difficult to prove. Chair: Three separate companies? Chair: I can see why staff morale is pretty low. Lesley Strathie: Three companies. Lesley Strathie: There was no question of anybody Chair: Three separate companies, one of which was there being suspended or accused or anything else. Vodafone? Lesley Strathie: Yes. Q203 Chair: Dame Lesley, if you were moved from your job and you felt you were totally innocent, Q197 Chair: How many people were actually although I said to you, “Oh well, we have moved you moved, and are being inquired into? for your own protection, for your own good”, you Lesley Strathie: I think the important issue here is that would be aggrieved because you might enjoy doing the work was moved rather than the people. That was the job that you are doing. the first issue. This was a fairly large project that was Lesley Strathie: I absolutely agree with you, Chair. I coming to its end, so we completely changed where have spent many years doing formal investigations for the work was and set up a clean environment for the other parts of Whitehall, and I know exactly the legacy that was left to be dealt with. We did that as distress that it causes individuals, but we had to put much to protect all of our people from allegation of the business first. wrongdoing. Chair: So these people have been moved for their Q204 Chair: Just for the record, do you keep a protection. careful record of all apparent leaks? Are they logged? Lesley Strathie: Nobody has been accused of anything Lesley Strathie: Yes, we do. at all. We moved the work. Because we knew the number of people that had been involved in the work Q205 Chair: Good. Can you give us the figures over and were privy to the information, and what could the period of time, for example, since you have come. potentially have been leaked anywhere, we created a Lesley Strathie: Yes. clean environment where only the legacy maintained Chair: Thank you. very strong control so that if there was any further Lesley Strathie: We will give you a note on that, yes. cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 38 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Mr Tyrie: So that we can see over a run of years— requesting. To be honest—going back to my earlier all the period that you have records. comment about some of the things we are going to have to change—we are going to have to change the Q206 Jesse Norman: For the avoidance of doubt I way we do things in process terms to stop some of think we should have it for the last 10 years if you this unnecessary contact and burden on the customer, have the figures available, so we can see the trend. and that might change again. If you want the vision Lesley Strathie: I shall have to look to Mr Hartnett rather than precise details, then the vision would be for what we have, going back. The department is only that we deal with people on a timely basis and that five years old. their access is through the channel that they want to Jesse Norman: The department is only five years old? access us through, and when they do access us they Lesley Strathie: Yes. get the right sort of advice. I know that sounds very Mr Tyrie: But you will be able to get the aggregate motherhood and apple pie, but if you are talking about of the numbers. a vision, that is what we have to do. Lesley Strathie: I am simply saying that I will give you what I have. I can speak for HMRC because that Q212 Andrea Leadsom: Okay. So far, so good. But is what I run. I will tell you what we have. obviously from a vision you then have specific measurables and you have service level agreements Q207 Mr Tyrie: Well, I would be grateful if you and the customer needs to know what they can expect, would take a look at the organisations from which you and so on. Are you saying that you do or you do not were formed as well, so we can have these figures and have your own internal service agreements? see them over a run of years. Do you think that they Mike Clasper: We have a series of surveys that we do might serve as a proxy for morale? The higher the about people’s reaction. leaks, the lower the morale? Lesley Strathie: I think morale is much more complex Q213 Andrea Leadsom: But do you have specifics? than that. If I as a taxpayer want to know how long I can expect Mr Tyrie: Yesorno? for my affairs to be dealt with if I make a phone call, Dave Hartnett: It is definitely no. It is far more or whatever, is there a target turnaround time that I complicated. can look to? Chair: We are going on to customer care. Lesley Strathie: For what specifically, sorry? Andrea Leadsom: As I said: I as a taxpayer. Q208 Jesse Norman: A very quick tangential issue. Lesley Strathie: In terms of service standards, as an Can I ask how many employees, staff or advisers to individual taxpayer? HMRC, are in this room at the moment? Andrea Leadsom: Yes. Chair: Put your hands up. Lesley Strathie: We have a range of standards like Jesse Norman: There are lots. I count 12 or 14. I was turnaround times for certain types of post and others, under the impression it was a public hearing rather right across the different lines of business. Suffice to than just an HMRC hearing. It is helpful to know that. say—I think you will know from your postbags—we Thank you very much. are not meeting a lot of those standards because of the history that we have spoken about. Q209 Andrea Leadsom: I would like to come on to the subject of customer service. Mr Clasper, when we Q214 Andrea Leadsom: So you do have specific started the Chairman asked you about your moving service standards. If those are written it would be very from three days a week to two days a week and you helpful to receive an outline of what your turnaround said that you feel now that you have your strategy, times are, and also an idea of how you perform your vision, your objectives and so on. Can I ask you against them. what your vision for customer service is? Where does HMRC intend to be in three years and five years time? Lesley Strathie: Yes. Mike Clasper: In broad outline, I think the important thing is that we are able to deal with people’s tax Q215 Andrea Leadsom: How many people on the affairs on a timely basis. board of HMRC have specific call centre expertise and customer service expertise as their professional Q210 Andrea Leadsom: What is that defined as? training? Mike Clasper: I think it depends. If you are talking to Mike Clasper: Four or— a major company, it might be being right within the Lesley Strathie: Five. last two years. If you are talking to an individual who has sent in some mail to us, it is getting back to them Q216 Andrea Leadsom: There is genuine expertise in days, not months. about the need to have service level agreements, measurable targets for staff and measuring the ratio of Q211 Andrea Leadsom: Is that specified? Is there a staff to calls, and so on? document that you can send us as to what your Lesley Strathie: Yes. specific targets are for large companies or for pensioners, such as the gentleman that Mr Tyrie Q217 Andrea Leadsom: That is very reassuring. It mentioned? would certainly be very helpful to have some Mike Clasper: We have sub-targets in various areas information on what you target and what you are but I don’t think there is anything as precise as you are achieving against those targets. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 39
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Can you talk us through your stated intention to Q221 Andrea Leadsom: I have to contradict you. recruit 1,000 extra contact centre staff between April We have heard several submissions, from various and September to deal with volumes? Is that organisations, saying that there has been a complete happening already? Where are you going to recruit drop-off in the level of expertise of call centre staff in those people from? How will they be trained? tax matters over the last five or six years. We had Lesley Strathie: We will recruit them, first and evidence from the Low Incomes Tax Reform Group foremost, from staff who require redeployment from who said, “You can ring up and get the right answer other areas of the business, where that is shrinking. but, equally, you can get the wrong answer…The One of the things we have done in response to staff question of training has been raised. In one call that morale is to remove all the barriers right across the we took just this week, somebody had been told by a department to people applying from one business line call centre operator that they should be keeping to another. We think that will probably attract about records for seven years, an individual not in business”, 25% of those posts. The other 75% we will recruit and that they are required to provide the records if using the Government’s job-broking agency, Jobcentre HMRC can’t find them. Plus, as the main deliverer of those people. We all have countless examples—as Mr Tyrie read out—of individuals, small businesses, who are unable Q218 Andrea Leadsom: How will they be trained? to get the service that they need from call centres. In Lesley Strathie: We have very specific training for fact, we had evidence from the Federation for Small contact centre staff. It has been a fairly ring-fenced Businesses, I think it was, who said that for some part of the business since HMRC started to move people starting out in business it was a deterrent to work to the telephone. signing up for VAT, because staying in the black economy was much easier than trying to get on to a Q219 Andrea Leadsom: You don’t have any level playing field and signing up for HMRC, because concerns about the quality of the call centre training? it was so difficult to do it. Lesley Strathie: Yes, I have a lot of concerns because We had examples from various corporate we have so many different business lines and, in its representatives saying that what used to take an hour history, the department has constantly moved things or two—to change a PAYE coding—now can literally on to the telephone. The purpose of bringing these take three months, of constantly having to call and 1,000 people in is because we moved the renewals of call and call again. The issue is that the onus, the tax credits, which is an annual process when we need burden, and therefore the cost, is falling on the to establish that people are still entitled and calculate individual who is wishing to pay their taxes and the the final award, and because of that peak business on company that is wishing to pay its taxes, because the telephone. While we want to make sure that the HMRC simply does not have the expertise or the customers that have suffered through the stabilisation capacity to deal with those issues in a timely fashion. of PAYE don’t get a deteriorating service, we feel we Lesley Strathie: I would accept all of those. have to meet that peak, which is through July. So we need to bring them in and train them, but we will be training these staff on specific areas of business, not Q222 Andrea Leadsom: How can you then say right across the whole 14 lines. customer satisfaction is high? Lesley Strathie: Because we deal with 1 billion Q220 Andrea Leadsom: You told us in a written transactions a year. We deal with 60 million phone submission that in 2010 the majority—that is 60% of calls, so never on any day is everything going to work all calls to HMRC—went unanswered, yet in that for everybody in that sort of volume. I have to accept same written submission you say that customer them and apologise for them. What I would say is that satisfaction exceeds industry standards. How can there are a whole range of services in there that we are those two statements— talking about—through personal taxation to business Lesley Strathie: I think there are two things: one is taxation. I talked about VAT registration recently with the answering of all calls offered, which could be for the London Chamber of Commerce when I went to example one person on redial as opposed to actual talk to them and their tax committee, and we callers, but the satisfaction figure that you are quoting absolutely have had to tighten VAT registration. That is an independent survey that measures customer has been about looking at the entire process from end satisfaction across the various lines of business, to end and managing the risks associated with VAT including agent satisfaction and individual’s registration. satisfaction. That is quarterly. What that tells us is that Part of our change programme, going forward in the the great British public will suffer quite a lot, in return next spending review—a lot of it—is focused on small for the service they get when they get through to speak and medium businesses through a one-click to our staff, because the satisfaction level when they programme where they will be able to register online; do speak to our staff is very high. I think it is about they will be able to register a range of services, and a 87%. lot of what we will do will improve a lot of the things I think what it tells us, Ms Leadsom, is that many that you have spoken about. About 70% of small people have no interaction at all with HMRC, and businesses deal through agents. It is the others who many people would prefer to have no interaction with need some help because either they are not aware of HMRC, but people speak very highly in the main the web-based help, or they have difficulty getting it. about our contact centre agents when they get to speak In our calls, we prioritise agents who are trying to to them. help people, and we work very hard to turn VAT cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 40 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles registrations round with speed, balancing the risk from they receive a letter and they come back to us. I still fraud that we face. go back to the independent measurement of what people say, and this is only testing the people that Q223 Andrea Leadsom: Looking again at the have experience in using the service. We know, for training of call centre staff, you use to a great extent example, when we dipped and we know that we automated scripts to help call centre operators. Some dipped in our agent service in the second quarter. of the criticism has been that the staff do not really seem to understand the scripts that they are being Q226 Andrea Leadsom: I have some information asked to use. Is that your experience? How much here that suggests that there are 7.34 million calls testing do you do of whether your operators chasing progress, annualised, every day, so that is a understand what they are doing? significant number of calls that are chasing the Lesley Strathie: I think it is an improving picture. progress. NPS and the new PAYE— Lesley Strathie: We have a programme of work to eradicate 13 million of what we would class as non- Q224 Chair: Can I stop you there, Dame Lesley? I have been reading all your appearances before our value calls because, generally speaking, they are Committee and I think it is a very interesting form of people who do not trust us and want to ring up to words to use, “I think”. We are not exactly probing to check. There is no value to the customer, and there is find out what you think. Is it an improving situation no value to the organisation. It is how we move those or is it not an improving situation? through, improve face to face for the 25% of people Lesley Strathie: I believe on the— who will always need some kind of help, with better Chair: No, that is as bad as “I think”, “I believe”. If messaging and telephones to direct people through I am running something, I know whether it is getting electronically, and improving capability in our work worse or getting better or staying the same. Which force. is it? Lesley Strathie: Well, I know— Q227 Andrea Leadsom: You are telling us as a Chair: Because it tells me about how in touch you matter of fact that the statistics are improving, that are with your organisation, your answer, not what you you are improving in this area of meeting customer believe, not what you think. The worst thing requirements? somebody can say before a Committee is “I believe” Lesley Strathie: No, I said I was improving in terms or “I think” when they are running something. You of the skills that we have. either know or you do not, and if you don’t, you worry. Tell us, tell Andrea, is it an improving situation? Q228 Andrea Leadsom: But that is not resulting in Lesley Strathie: It is an improving situation, Chair. better customer service? Thank you very much. Lesley Strathie: No. Chair: Now wasn’t that good? There you are. Lesley Strathie: But I would like to add a few caveats. Q229 Andrea Leadsom: Why is that not resulting in What is available to our staff on our main contact better customer service? centre lines now, and the IT, is much improved. In Lesley Strathie: Better customer service, for me, starts many cases, they are not working from a script, they with people being able to access, and not enough are working to help individual customers and they people are able to access our telephone service first have all the information there. There are many cases time. We did a lot of work and delivered on a where in dealing with backlog of work people have programme of work that took our calls offered up to desk aids, various scripts to follow, and I would accept 76%, but then the NPS—the PAYE failures that we that people do not get that right on every occasion. had when we introduced the new system and the Andrea Leadsom: Is it not the case— capability to deal with that—knocked us off course in Lesley Strathie: Can I just say, in terms of being in being able to meet the demand. touch, I spend every evening dealing with MP correspondence at the end of the day, as you will know from the many letters that I respond to. In terms Q230 Andrea Leadsom: Are you projecting that of my understanding of where it is getting better and your improvement in customer service will also take where there is more to do, there is clearly more to do. until 2013? Lesley Strathie: It will take at least until 2012 to be Q225 Andrea Leadsom: Does it not concern you delivering the sort of service that I would like to be that, potentially, part of the reason for this mass of delivering on the phone, but it is not just a phone unanswered calls is the amount of repeat calls that you issue. I think that it is about service and not the past are getting from people who were not satisfied the first and existing channels. We have to get right face to time around, that you did not manage to solve the face, where it is located and for the people that need problem and so they keep coming back, so all you are it. We do increasing outreach, working with other doing is building up a bigger and bigger problem? partners to meet customer need. We do an increasing Lesley Strathie: I do not believe there is any evidence number of home visits to help elderly and vulnerable to support that. I do think that people do not always people who can’t operate in the system, and we will get the right answer, or sometimes they think they do much more web-based. The Government strategy have the right answer and then there is another issue, is digital— cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 41
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Q231 Andrea Leadsom: But you are projecting Q237 Chair: You do accept, though, that it costs the improvements in customer service and you have customer or the taxpayer more to ring on that sort targets to reduce your number of fails? of number? Lesley Strathie: Yes, we have, but I absolutely do not Lesley Strathie: Yes, and I certainly had experience believe—I would not like to mislead the Committee in my previous business in moving— at all—we can deliver what I regard as excellent customer service, meeting 90% of calls offered first Q238 Chair: What concerns me, Dame Lesley, is time, in the next year, until we have stabilised PAYE. that 2009Ð10 report to the Public Accounts Committee, “The Department uses 139 telephone Q232 Andrea Leadsom: Final question. You numbers. It plans to reduce this number”. It is back currently use 0845 numbers. Obviously with the to Andrea’s aspirations. How many numbers are you amount of time people spend on the phone and not using? This is 2011. How many have you dropped? being answered, and bearing in mind particularly that Do we know? We do not know. Do we believe that some of the poorest people rely on mobile phones to we have dropped some? Do we think we have? ring you, which costs them significant amounts, what Lesley Strathie: No, I did know it. I did know it when moves are you making to move to 0345 numbers? I quoted what we were going down to from the 139, Lesley Strathie: It is something that we spent quite a I think it was 54, but— long time working on across Government. We have a vast range of telephone numbers at the moment. I Q239 Chair: You were asked by the Public Accounts can’t give you a clear answer here as to when we Committee to move to the 03 numbers as soon as could move any of that to the 03, but I would be possible, and that was 09Ð10. Do you see where we happy to write to you. are coming from? There is a very good football manager, I think it is Ferguson, who was asking a Q233 Andrea Leadsom: Why not? player to do something and the player said, “I’ll try” Lesley Strathie: Because it is a vast business, and and Ferguson—a Scot like yourself, Dame Lesley— because we are trying to move incrementally in said, “In my book, you don’t try, there’s not such a bringing things down to one number. My aspiration is word as ‘try’. You either do or you don’t”. Are you that people can operate our services at lowest cost going to reduce these 139 numbers and when? Are possible. you going to move from the 0845 or whatever number to 03 numbers and when? Q234 Andrea Leadsom: These are all aspirations. Lesley Strathie: I have already accepted the We are not hearing anything about actual achievement challenge, Chair, but we do not have a single and progress; it is all aspiration. Surely, a telephone telephony platform. I have experience of this, of number is a relatively easy thing to change and would actually going down to a single telephone number and be a commitment to trying at least to ensure that some putting an entire contact centre service for Jobcentre of the cost to individuals, particularly vulnerable Plus on to 0800, and we have not— people, of trying to access HMRC could be reduced. Surely that would be a quick win. Don’t you feel you Q240 Chair: No, but you said to the Public Accounts need some quick wins? Committee you would do it two years ago. Lesley Strathie: I certainly think we do, but we have Lesley Strathie: Not two years ago. a huge programme of change to bring on board over Chair: Well, 18 months ago, then. We will split the the period. Let me accept that as a challenge and let difference. me agree to take it away and look at what we could Lesley Strathie: We will do it within the resources do to move it faster. It is not just about putting the available. The chief finance officer and I will do that. telephone in. It is all the places that use our numbers, that publish them right across Government and Q241 Chair: But that’s no good, is it? That is no elsewhere, so when we move a telephone number it is good. Andrea has put a figure on it. It is no use quite a big deal for us in terms of cost and the amount coming to a Select Committee and promising you will of letters, and so on. do something or you think you will do something or you are keen to do something. When will you do it? Q235 Mark Garnier: What is your revenue from Can we have an end date? There is a note coming 0845 numbers? from young David. What is he saying? “Bail out as Lesley Strathie: Sorry? soon as possible.” Mark Garnier: How much money do you make from Lesley Strathie: No, he has confirmed that when I said having an 0845 number? I thought we were going down to about 54, we have Lesley Strathie: We don’t have any revenue from reduced the 0845 numbers by 60 from the 139. That 0845 numbers. That is something that has been is factual. explained several times before. Chair: You have taken it down to or you have reduced it by? Q236 Mark Garnier: That is absolutely right, is it? Lesley Strathie: We have reduced it by 60 so far. I think I saw an e-mail this morning or something Chair: Since when? So far? going around. You do not charge 2p a minute? Lesley Strathie: Yes, in this last year. Lesley Strathie: No. Mark Garnier: Absolutely nothing at all? Q242 Chair: What about the move across to Lesley Strathie: No. cheaper numbers? cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 42 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Lesley Strathie: I have already made clear that I can’t went up roughly 10%, but the effect of that is to answer it. I have agreed to take it away and I have increase the number of calls. I don’t know whether I agreed that if we can do that we will, but I can’t have the exact right answer, but it is to go up 70%. guarantee we can because it is a huge investment. This is not about running the call centre, it is about managing demand. We have failed to manage demand Q243 Chair: You see, Andrew read out a letter. because we did not anticipate the scale of problems When I came in today, the Daily Mail had sent me a when we started up the new system. I am sorry to go pack of letters; you know they have been doing stuff on about it, but timeliness— in Money Mail. The letters—if I had time to read some Chair: No, we are more sorry. I will bring Andy in of them out—are just ridiculous: people waiting 30 because we are going to break in 14 minutes for a minutes, people phoning and phoning and phoning, vote and Andy and Mark have something, and then writing and writing and writing. The elderly are John has a very serious subject. Well, I am not having the toughest time with this. suggesting you are not serious. Let us take your percentage of calls answered. Chairman, you are running a business and you start Q247 Mr Love: I want to return to resource up a call centre in 2005Ð06. There is an industry management. Since 2006, HMRC has dropped from standard, not as you quote 90%, but the National 92,000 to 69,000 employees. During that time £1.1 Audit say 96% is the industry target. You start off at billion has been made in savings, yet in your 37%, so two-thirds of the calls are not answered when submission you said that that was without overall you start. If we go one, two, three, four, five years negative impact on performance. Would you still stand later, you peaked at 75%, and you are back to 40%. by that statement, Mr Clasper? Now, I do not care whether it is 75%; that means a Mike Clasper: What I would stand by is the fact that, quarter of people are not getting through, and the as I said right at the beginning, the intervention yield, industry standard is 4%. If I send in a striker and after bringing the money in for the country, has four years he has not delivered, what do you think I significantly improved over that time period. I don’t would do with him? Do you think I would continue think associating precisely the scale of the problems believing, “Just let me go, carry on, because I’m going that we have been talking about for a long time, which to do it some time”? You would not do that in real is this customer service issue, is a function of it or life, would you? would be solved by throwing massive resources at it. Mike Clasper: Chairman, I think Alex Ferguson I think the solution lies in what we have been talking would have got rid of him, yes. about, which is getting the system timely, getting the unnecessary contacts down, and making sure that in Q244 Chair: Yes, he would. Is that the answer? all channels we deal with people quickly and Mike Clasper: No, I don’t think it is. efficiently. That is the way to do it, and I am afraid our problems in solving the legacy issues of the past Q245 Chair: Why? These are many millions of have taken us off that path. people, many of them elderly, and because of their particular circumstances we have sent out letters Q248 Mr Love: I take from that that you would not asking them, amazing numbers, to pay thousands of wish to justify that statement that performance has not pounds within a month, via letter. They want to speak suffered, especially after all that has been said so far to somebody to get reassurance, or to tell them their about the difficulties that you face? side of the story, but they cannot get through. That is Lesley Strathie: I think performance in terms of the not something we can sit and wait for. We have waited Department’s core business is to collect the revenue five years. and pay out the benefits and credits that we do. As Mr Mike Clasper: I think, Chairman, you read out we had Clasper said right at the start, customer service and progressed to 75%. employee engagement are the two things that we are not proud of and we know that we have to do a lot Q246 Chair: No, Michael, that is not so good, better. I think the point is we are on target to make a because I anticipated that. Your first year went up total of £1.4 billion of savings by the end of this year, from 37% to 68%: commendable. If you had done the with that staff reduction of 29%, and manage the same the next year, we would be at the industry machinery of Government transfer of 4,600 to the UK standard. You put on 2% the next year, and then the Border Agency, increase our revenue yield and reduce next year you dropped 13%. If you can’t get fraud and error in benefits and tax credits at the same somebody to run a call centre, then how on earth are time. I suppose for us that is performance, but we you dealing with the rest of the complicated stuff? know that we are not delivering the kind of service Mike Clasper: I have limited previous experience of that we want to deliver to everybody. call centres. The productivity in our call centres has been consistently improving. What I mean by that is Q249 Mr Love: I think we will reach a point of the people— agreement, which is that the word “performance” is Chair: It is not showing in results. perhaps not the best one to use because it would Mike Clasper: The other part of running a call centre encapsulate the services you are providing. After all, is what you would call demand management. If you there are millions of people and businesses out there look at what has happened in the last year, the number that interact with you, and they certainly do not feel, of calls went up 10%. We did not expect that. I will and I think you have admitted that they don’t feel, as come back to that in a second. The number of callers if they have received the service that they are due. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 43
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Lesley Strathie: Absolutely. Q252 Mr Love: Can you tell us, then, what does a Mr Love: So that aspect of performance you accept, 7.1% real-terms cut over five years mean in terms of but in the other aspects that you have touched upon funding? Would it be £900 million by any chance? you feel that performance— Dave Hartnett: Can I give you some numbers, Mr Lesley Strathie: Yes. Love, which may help? Mr Love: That would be helpful. Dave Hartnett: Since 2005Ð06, across the department, Q250 Mr Love: You have already indicated that we have increased compliance yield from £7.4 billion there are significant further savings that have to be to £13 billion, which I think is a pretty significant made, and I will come to the issue of compliance increase. At the same time we have reduced where some money has been put in, but let me choose compliance resource by around 20%. I think the the area of business. I don’t know which one to ask, message of that from 2005Ð06 onwards is we know Mr Hartnett or Dame Lesley. It received over the last how to do more with less; different techniques, five years a significant increase in funding, even different approaches and, above all else, much better though the whole of the department was going down, risk management over the most recent years. Our risk yet one would suspect that over the next five year engines now are very sophisticated indeed. We can period it will receive a significant reduction. Are you profile individuals and businesses to great effect, and happy that you will still continue to be able to deliver? I think that will stand us in good stead going forward. You are being asked to deliver £7 billion additional tax. Are you satisfied that you can do that with the Q253 Mr Love: Mr Clasper, as you know, all other business section facing significant reductions? departments have faced roughly a 25% decrease Lesley Strathie: I think that the change programme because of the additional investment being made. we have lays out broadly what percentage of Yours is somewhere around 15%. reinvestment will be used in each part of the business. Mike Clasper: That is right. On the additional £7 billion, we expect only 5% of Mr Love: Did you or have you ever had a our investment to go into that area this year. The conversation with the Treasury that said, “If you biggest chunk of our investment—I think about 60% reduce us by 25% we simply will not be able to to 65%—will go into small and medium-sized operate effectively at that level of funding”? companies and into evasion, because that is where half Dave Hartnett: I was going to come in. the tax gap is, rather than what we have been doing Mr Love: I was asking Mr Clasper because he has for the previous years on large business. special responsibilities as the chairman. Mike Clasper: Thank you. We will be extending our large business model down Dave Hartnett: Sorry, go ahead, Chairman, and I will to the next 8,000 companies from the first-tier large follow you. business. Clearly, we can’t give a one-to-one customer Mr Love: Has there been a conversation of that service relationship there, but we have a point of nature? contact for those businesses, so we are building on Mike Clasper: There has been a conversation about that model. the fact that we needed the investment that was agreed Dave Hartnett: Mr Love, can I come in just very in order to improve the intervention yield, to take it quickly, if I may? One of the big strategic changes for up from the 13 to the 20. us in relation to compliance, more with the smaller end than the large end, is that a smaller department Q254 Mr Love: We could say that you had a cannot continue to constantly engage with smaller conversation that said, “It would seriously impair our business on a one-to-one basis, so we are developing ability to collect the tax level you are asking for, if new approaches. You may have seen in the media you reduce us by 25%.” some reference to our campaigns, where we are Mike Clasper: You are putting a lot of words into a developing a one-to-many approach with a number of conversation that I did not use, but what I would say pilots so far: offshore compliance, doctors and, most is that we were passionate that there is a tax gap we recently, heating engineers. It is early days, but it can close and that if we were at 25% reduction we looks as though the one-to-many approach will make would not have been able to close the tax gap any a big difference to us going forward. further, but with this reinvestment that we have talked about we will close the gap by £7 billion a year, which on any account is both an excellent return for the Q251 Mr Love: I take that point on board. Let me taxpayer and the right thing to do for business. For come to the issue of compliance because I wasn’t sure me, this issue of closing the tax gap is not just about where your focus would be on compliance. If you bringing the money in. look back over the last four or five years, there has My father is no longer with us, but he ran a small been a cut year on year of just over 7% in compliance. business and he paid his taxes when they were due, Now you are going to put £900 million back in. Would and it was in the small building industry. There is a I be right in interpreting that as the holes started to really big additional issue when people do not pay appear in your compliance effort and you had to plug their taxes, which is that the person who is cheating the holes, so that is why you have been given the gets more business because he undercuts the honest £900 million? trader. If you like, there is a family reason why I Lesley Strathie: No. No, I would absolutely refute believe passionately we should be going after this, and that. we got the money that we asked for to do it. cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 44 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Q255 Mr Love: I am always tempted—other people powerful case to go back and say that more might have asked me this question and I am sure it has been deliver more. asked of you before: why £7 billion? If we invest £900 As I also said at the beginning, one of our issues is million to produce £7 billion, wouldn’t investing £1.8 managing change well. It is a fabulous return, as any million produce £14 billion? But I do not want you to of us can work out. To deliver that scale of answer that question. improvement, we will not be able to do it by doing Mike Clasper: I could if you wanted me to. things only the way we have always done them. We have to deliver change. I think there is this balance Q256 Mr Love: What I want you to do, finally, between our capacity to deliver change, our certainty because I know that one of our other Members will that the changes are all going to work, and then, if go into this in more detail, is just to tell us the basis they all do work, the ability to go back and say we of the calculation of how you reached the figure of £7 think we can get even more with more money. I can billion as an increased tax take? say this: we did not ask for more money as a Mike Clasper: Do you want to go through item by leadership team because we recognise that capacity item? Because we can. issue. Mr Love: If it is going to take too long, maybe you can write to us. Q260 Mark Garnier: How big do you think the tax Simon Bowles: Very briefly, if I can speak on this as gap is? I led the spending review for HM Revenue and Mike Clasper: I think it is around £40 billion but I Customs on behalf of Lesley Strathie, we will defer to the expert on my left. demonstrated from our past record that we could Dave Hartnett: It is an estimated £42 billion. deliver efficiencies to meet the 25%, which was the Mark Garnier: £42 billion is where you think it is? constraint we operated under, but we also Dave Hartnett: £42 billion is our best estimate. demonstrated case by case how £917 million over the Mark Garnier: I have seen some at £70 billion, some period could deliver that run rate of £7 billion. It was at £120 billion, £140 billion. not a high level, “Here is £917 million”. It was built Dave Hartnett: £120 billion proportionately is where up area by area across each strand of the business. Mexico would be. I don’t think we are Mexico.
Q257 Mark Garnier: Mr Clasper, can I pick up on Q261 Mark Garnier: One of the points that was one point you mentioned? This £900 million being raised this morning, which I thought was quite invested into closing the tax gap, did you actually say interesting was that there is a lot of tax that could be it is going to increase revenue by £7 billion per year? paid perhaps by the bigger businesses. We had a lot Mike Clasper: Yes. on Vodafone earlier. That is where you are going to Lesley Strathie: By 2014Ð15. get the big hits but, of course, you then have all the Mike Clasper: 2014 end year position. other smaller businesses. You have the builders who have been rolling over your dad by offering 20% Q258 Mark Garnier: So it is not £28 billion over discounts for cash. Surely it is much more capital the four years? intensive to go after those smaller businesses? Mike Clasper: No, it builds up over time. Dave Hartnett: Absolutely. It is more capital Dave Hartnett: It is about £18 billion over the intensive. I will remember the sentence. spending review period. Sitting suspended for a Division in the House. On resuming. Q259 Mark Garnier: It is £18 billion. Let me just Chair: Thank you very much for your patience. We also be clear. You are putting 5% of the resources into had two votes but we have saved a bit of time. Mark, tackling big businesses and 60% of the resources into are you ready? small business. I am not sure if I caught that right. Basically, of this £900 million, that is where the Q262 Mark Garnier: Yes. Sorry, we were rudely money is going to go. interrupted. Good to be back. It is quite an interesting point because I was at a Dave Hartnett: I was halfway through, I think. conference this morning with ARC—your union— Mark Garnier: You were. Can you remember what where Mr Graham Black, who I am sure you know you were answering? very well, was talking about exactly this point, which Dave Hartnett: I do. I think, Mr Garnier, the they are very enthusiastic about. They do argue the proposition was that dealing with small and mid-sized point to a certain extent that if you spend £1.8 billion, business is capital intensive. you will get £14 billion back. Somebody was going Mark Garnier: Yes, it is. to answer that point. Do you want to address that? Dave Hartnett: I think—tell me if I have this wrong Mike Clasper: I am happy to lead on this. In order to because I am going to answer this—there was an get the £7 billion, we are going to be doing lots of implication that we might make more out of big things differently from before. There is a capacity business. issue: as you add more and more ideas, can you Mark Garnier: Yes, that is exactly right. deliver them effectively? I think what I said earlier on Dave Hartnett: If I can pick that up again, we would one of the questions is that if we start feeling that they not dispute for a second that small business is capital- are all working and all the changes that we are going intensive compliance, which is why we are trying to to go through in order to deliver that £7 billion are all change things. Let me give you two or three working extremely well, I think we have a very illustrations. The first is by suggesting to Ministers cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 45
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles that the law is changed. What sort of law has been massive issue for a business. If you are caught with changed recently? Massive penalties now, doubling fraud and evasion, it is not about fines and so forth. the penalties in certain circumstances for people Everybody on the board is probably in the position of hiding money offshore. Small businesses that are cash losing their job and the company will go down. There rich sometimes do that, and— is obviously going to be some case somewhere in the world where this is not true, but companies will not Q263 Mark Garnier: But not a builder’s firm. evade. What they will do is construct their affairs in a Dave Hartnett: Sorry? certain way that they think legally reduces the amount Mark Garnier: Not a builder. Or do they? Do of tax. Our challenge is, first of all, to block some of builders now have Jersey-based trust companies those ways by things like disclosure regimes and so looking after their affairs? on, and then, secondly, when they interpret what they Dave Hartnett: There is some of that, certainly. I was have done as legally meaning that they do not have to thinking more in terms of—you have seen some of pay the tax, challenging that interpretation and getting this in the media—hiding money in Liechtenstein, the money in. There is this thought that it is laughable hiding money in Switzerland, hiding money in havens, that companies will not evade tax, but the issue is they which we are now addressing quite forcefully. will not commit fraud because of the consequences. I think as well the whole new approach to penalties is helping because they are behavioural penalties in the Q264 Mark Garnier: Can I just come into this? It is way that they work now. They are higher: the worse quite an important point because there is a lot of talk the behaviour in relation to compliance, the more. It is about tax avoidance. What is your definition of all focused on this issue of how we change behaviour, avoidance? because we can’t manage a one-to-one approach. Dave Hartnett: I brought it with me, if that is all right. Finally, I touched on with Mr Love the big risk Mike Clasper: Thank you, Dave. I was going to try. engines, our Connect risk engine, which is like a big Mark Garnier: My goodness me, you look relieved. hopper, we pour stuff in and then profiles come out. Dave Hartnett: There are so many, Mr Garnier, but That is helping us, too, with the one-to-many the two we favour are planning involving a tax approach. position that is tenable, or appears to be tenable, but I will go on to big business and if I may, I will draw has unintended and unexpected tax revenue Mike in to say something. There is a tension, if you consequences. The second one is taking a tax position like, in relation to big business. The whole process of that is favourable to the taxpayer without openly the UK moving to a territorial tax system will mean disclosing that there is uncertainty whether the that there will be some reduction of tax, I think, in significant matters in the tax return accord with the the UK and some reduction in compliance. Reform of law. Those are the two practical interpretations of CFCs, which as a tax administrator I think is excellent avoidance that we use and we find they work pretty in terms of getting business into the UK, will have an well. They are interpretations that we devised which, impact as well. Our risk management in relation to I am really proud for HMRC, have gone round the big business is also probably better than it has ever world. been, and we are putting more people into tackling avoidance. You may have seen last week, for example, Q265 Mark Garnier: Yes, that is very good. David the double-dip leasing scheme that was stopped. We Gauke was asked, in a written question from Andrew had only seen that a couple of weeks before and were George, to define it, and he said, “Taking a view of able to move very fast, so we are improving our the tax treatment of a transaction that is tenable but intelligence sources in relation to that sort of thing. has tax consequences that were not intended by the One other thing that applies to big business, and I legislation”, which is what you said. He went on, should have said it to Mr Love earlier on—sorry, it “Tackling tax avoidance is essential and we, the was Mr Norman. I am not going to get very technical, Exchequer, make every effort to do so”. I think it but the way that group relief used to work for would be very helpful if you were to expand on that corporation tax meant that a large group of companies because, according to written figures on behaviours could move under-statements or technical adjustments driving the gap, avoidance is 17.5% of that £42 or anything around the group to cover those with billion, which is quite significant. Further down, the group relief. It is one of the reasons that they were list states that evasion is 17.5%; legal interpretation is mainly able to escape penalties. That law has been 15%. How is legal interpretation different from changed as well, so they can’t do that any more. Our avoidance after what you have just said? risk engines for big business, which are largely human Dave Hartnett: There can be circumstances, indeed but not entirely, are seeking out avoidance all the time. there are circumstances, where there will be utterly Where we can counter that it is usually on a one-to- different understandings of what the law means, which many basis and will bring in quite a lot of money. I is one of the reasons why we will litigate sometimes think Mike wanted to add something. if we cannot reach a shared conclusion. They will not Mike Clasper: Yes. On the discussion around be interpretations that stretch the meaning of the law avoidance versus evasion, I want to make a point or that involve carrying out transactions in a way that about evasion in the context of large businesses. I can bends the law in some way. We regard those as make this point because I sat as a director of two plcs avoidance. These are pure technical issues. A good in the FTSE 100, and was chairman of the audit and example would be what does the word “payment” risk committee of one of them until the end of 2009. mean? Tax litigation is littered with cases around what Evasion, which implies dishonesty and fraud, is a the word “payment” means in particular cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 46 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles circumstances. They tend not to be avoidance cases. and smuggle it successfully into the UK and sell it at Some are, but it is literally around the meaning of the half the price, you are going to make £1 million on a word. That is the legal issue, as opposed to bending container load. That is quite a valuable commodity. It the rules. is a light commodity. It is an easy one to push around. I am not specifically getting involved in facts, but it Q266 Mark Garnier: There are some wider issues illustrates well the point that the more you push a on tax avoidance, because surely one of the problems consumer, the more they are going to be prepared to is that we have a ferociously complex tax system in do that. Most consumers, I think, would be perfectly the first place. What discussions are you having with happy to pay the duty on cigarettes. Some would the Chancellor to try and simplify this? maybe buy a few more cigarettes at the duty free than Dave Hartnett: Most of our conversations now about they would normally have done because the tax is simplification are with the Office of Tax getting quite high, but when you have people buying Simplification. I represent HMRC on the board of the in street markets what are clearly illegal cigarettes and Office of Tax Simplification. The Chancellor—I think things, it is the behaviour of people who feel possibly I can probably stretch the rules a little to say this—is they have been pushed too far. My question revolves committed to tax simplification, and we believe in it around that fact. Do you think that high levels of duty, deeply as well. If you look at particular areas of tax high taxation and that kind of stuff, is going to push law—leasing for example, the thing we stopped last people increasingly into that very grey, and indeed week—they are fiendishly complex. I think it is a illegal, area? Do you think, therefore, that there is a fundamental truth that the more complicated the law responsibility by those who set the taxes to have a is, the greater the opportunity. mind towards that? Dave Hartnett: Let me tell you about our experience, Q267 Mark Garnier: Do you feel that you have if I may, because I am not sure I can properly sufficient resources to pay for the legal boffins you comment on the minds of those who set the rates. Our are going to need to be able to get stuck into this? experience is of two things, and I will do it by relation Dave Hartnett: We have always had a basic to tobacco, if I may. The first is that cheap offerings principle—we have come close once or twice to from India and China and other places—we and our stretching it—that where there are legal issues that colleagues in the Border Agency stopped a big require us to go outside, we will find the money. In a consignment, I think it was this morning; it might very large case we took not very long ago, we went have been last night—really test the resolve of people all over the department—I hope Lesley does not mind all over the country who might be prepared to pay in me putting it in this way—to find the money we the way you described, but actually see an needed to fund the legal advice, but we did it. We opportunity. always will. The second thing is coming through in our work in behavioural economics: tax rates, compliance costs Q268 Mark Garnier: You are happy that you can and all these things have a big effect on how people get sufficient resources to pay for the A team to meet are going to behave. We are starting now, more the A team of the other side, if you like? significantly than we have ever done, to tailor our Dave Hartnett: Remember, though, we have an A responses to behaviour, but I don’t think there is very team inside our department. We have some stunningly much between us in what has been said. Sorry to be good lawyers when it comes to dealing with this. so careful.
Q269 Mark Garnier: Fantastic. I think there is Q271 Mark Garnier: No, that is fine. I think my probably one last thread, a slightly more philosophical final question comes back to what Mr Love was one. Clearly, when tax is at an acceptable level, talking about earlier—the fact that we have seen a everyone is very happy to pay tax. I think we are all 25% cut in your budget for the next four years. You part of the club that is the UK and we are happy to have obviously had a significant cut in your budget in pay our membership fees to get the services we want. the past. You have a hand-back, which is £900 billion, But everybody has a line in the sand, I suspect, at which gives you an effective 15% cut. Do you feel which point they will start looking to adopt avoidance sufficiently resourced to not only tackle the tax gap measures and then, perhaps, evasion measures. If you but also to deal with the other problems we were look at something like the tobacco industry, which I discussing earlier, which are poor morale, call centres think in 2001 suffered a £3.5 billion estimated tax and all the rest of it? Do you think you can cope avoidance through smuggling and all the rest of it, with that? there is an argument that the higher up you push Lesley Strathie: I think it is a huge change programme duties, the more you create the opportunity for a black and the total capacity to manage the change is what I market. Do you think that is a fair comment? see as our biggest risk. Without going over the ground Dave Hartnett: I think it probably is. May I just take about employee engagement and customer service issue with one word only? I will do it very briefly. I levels, I think we recognise managing change through think what you have described really is evasion and that, but given how we are going to deliver that fraud rather than avoidance. additional £7 billion and the skills required, the specialist skills that we will be recruiting into, I Q270 Mark Garnier: I think it is, but my point is believe we have the resources to make the change. about creating opportunity; if you buy a 40-foot Because this is very much about reshaping; it is not container load of Silk Cut or something in the Ukraine just downsizing. It is about having skilled cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 47
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles investigators on evasion. It is about 20,000 extra visits things like incidents that the Information to small and medium businesses to help them in Commissioner sees. record keeping. There are lots of specific changes to We have two further areas that are related to how well the work that we are doing and I feel that we do have we are using our IT systems to deliver a better service, the resources. and how well we are using our people to deliver a I also feel that we have evidenced our case to the better service. It is no surprise that on four of those Treasury to such a degree that they have recognised we are doing reasonably well to very well, and on two that if we continue to show the delivery in revenue of them, because we have gone round it several times, that we have done, they will be open to strong we are not doing as well as we should. Underneath business cases for further investment if we can create each of those broad groupings there tend to be the capability to deliver against those. In some of the between five or six to three or four specific numerical areas you were talking about, Mr Garnier, like tobacco type measures; Simon will go through all of them if and alcohol, there are fast-moving risks. We you like. Between three and six measures are reported constantly change the methods in which we manage on monthly, checked as consistent and sensible by the smuggling in the country, but we have had huge leadership team, and then the whole board gets the success with our fiscal liaison officers abroad, as well data. as our work with the UK Border Agency, in reducing tobacco smuggling in particular. Q274 John Thurso: I noticed transparency on the website. Do you publish your board minutes? Q272 John Thurso: I have one quick question to Mr Mike Clasper: Yes, we do. They are published. Bowles, following the discussion earlier about telephone numbers. The 0845 does not cost you Q275 John Thurso: What appraisal do you anything; you do not get anything from it. But if you undertake of individual board members and the move the numbers to the other numbers that we executive committee, and of the board function as a discussed, there is a cost to HMRC. Have you made an estimate of what the cost to the business would be whole? if you were to move completely away from 0845? Mike Clasper: Let us take the board function as a Simon Bowles: I do not have that estimate to hand but whole. We have had reviews of the board I think I will see what I can write to the Committee on that. effectively once a year since it was created. In the first John Thurso: That would be useful because year, we had a fairly light review. We had interviews obviously at the moment, with the cost being on the by John Spence, who is the chair of the audit and risk consumer, there is no particular incentive for it to Committee. He led a series of conversations with all come down. If it is your cost you might start to the board members talking about effectiveness, which manage it. is the light version of what happens in the corporate Simon Bowles: I take the challenge, as we did earlier. world. Recently we had a review done by somebody from outside to go through the same process—but obviously with the benefit of not being a member of Q273 John Thurso: Can I come to Mr Clasper? I the board—about how we could improve and how we want to ask you about the governance on the board, needed to move on. That is how we assess the overall because you obviously lead the board. According to board, and we are about to make some reasonably the website, the board’s main role is to develop and minor but sensible adjustments, to a smaller board and approve HMRC’s overall strategy, which you described earlier so we do not need to go there again, less frequent meeting. but presumably you are now monitoring it to ensure In terms of the non-executives on the board, I take the its delivery. How do you monitor it and what role as chairman of getting feedback from the totality measurements do you use? of the board, and from Lesley and the executive, about Mike Clasper: I think the other two roles are, first, to how well they are contributing. I do a performance monitor the delivery and, secondly, to make sure that interview with the non-executive members. When it in areas of classic corporate governance we have the moves to the executive members, Lesley obviously very highest standards, whether that is auditing, takes the lead. She counsels the board, and often financial, health and safety, and so on. counsels the board on the performance of the We have a series of management information executives who sit on the board or sit on her team. measures that go through the leadership team that At the moment, as I said earlier, we are going through Lesley leads. That is looked at once a month. Or is it a process to improve the leadership of the whole once a fortnight? organisation. So a similar exercise is being done with Lesley Strathie: Once a month. the people who report to the people who report to Mike Clasper: Once a month, and the same numbers Lesley, and both I and two other non-executives have and the same monitors come to the board. They are sat through it to make sure that the process is being grouped in six areas. One is progress on closing the done both thoroughly and fairly. tax gap. The second one is on the customer experience. The third is on whether our cost base is Q276 John Thurso: I remember a quote from a sustainable, so that we are running the ship efficiently. leadership lecture at Cranfield that said there were The fourth one is in areas of our professionalism— only three things a leader has to do to be effective: things like data security, whether our staff are one is to have a vision; two is to communicate it; the behaving in the right way in terms of integrity of the third is to ensure the resources are there for it to be system, not leaking and so on, and measures against effectively implemented. Of course the chairman’s cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 48 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles role is to ensure that the leader is doing that. Are we have had one. So I think we get reasonably good you satisfied? marks on everything other than the one that is really Mike Clasper: I am very, very confident in the top disappointing for us, which is the sense the customer team. Thinking of those three things, I am both feels the tax system is not simple for them. confident and proud of the strategic thinking that has gone in. It has been tested by two Administrations and Q278 John Thurso: Dame Lesley, if we take the intensively tested by the Treasury in the process for vision as agreed and we look at the business model the spending review. I think we get a big tick there. that has been used to execute it, I picked up some of In terms of the resources, I think we now have the the things that have been said about call centres. resources and the plans that fit the objectives and People are given a script to follow. There were other ambitions that we have. things about no-value calls, which is a way of saying, On the middle one, I think the current team has all the “Customers are ringing us and we don’t quite know skills, and in a sense the confidence in the direction why”. You talked about improving face-to-face of travel, to be able to communicate well. It is a bit contact, doing more with less, and so on. The all- hard for me to say but coming in when I did, you customer satisfaction level in 2008 was 72.8%; it would not think that that communication had been peaked in March 2010 at, I think, just over 76%. It is done well in the past. It is difficult for me to assess now down to 72.5%. If you look at the graph it is why it had not been done well in the past but of the pretty flat, with a little bump in the middle. I would three things you said, it is as good as any three things argue very strongly that any service business that was around leadership. I would say the communication content to even think about a low 70s score was just one was a failing in the past and something we are not in the ballpark. High 80s or low 90s is where definitely going to fix. certainly any hospitality business would want to be. I look at the basic move away from a people-based Q277 John Thurso: I am going to come to Lesley in organisation spread round the country to a contact call a moment, but this is my last question for you. The centre-based operation, and I ask: is that a business vision that was published on 3 November 2008 is, model that can succeed? “We will close the tax gap. Our customers will feel Lesley Strathie: I take all your points as read; as far that the tax system is simple for them and even- as satisfaction levels are concerned, I think the first handed, and we will be seen as a highly professional thing I would say about the vision, and I don’t need and efficient organisation.” We have had evidence that to defend it, I wasn’t part of its creation but I am the tax gap is not closing. I think you would agree we proud of it and it guides— have had quite a lot of evidence that our customers John Thurso: But you own it. don’t feel the system is simple and there is quite a lot Lesley Strathie: I own it, exactly. It sets out the of evidence that you are not seen as a highly organisation we want to be. There is no claim in the professional and efficient organisation. You probably vision that that is where we are, but it is very much get a tick for being even-handedly awful with where we want to be. I think for many customers in everybody, but the others? You are expressing the various business taxes there are a lot of services, satisfaction. I don’t think it is terribly difficult to run as evidenced by 6 million on self-assessment, and so through that list. If I was still at Terra Firma or on, where service has definitely improved. The areas something like that, or BAA, I might not allow that where we have fallen have generally been in our to happen. agents, but we track that. Every month we discuss it Mike Clasper: On the tax gap, there is the fact that at the performance committee and look at what it is. the interventions by the department have gone from In terms of the contact centre business, it is part of £7 billion to close this year somewhere between £13 the business but everything is not on the telephone. I billion and £14 billion, so I am sorry but I think I think that the question we have all been asking need to correct you. I think we get a very big tick on ourselves as we planned for the spending review is that one. In terms of even-handedness, although you what is the service we want to offer? What do our say that obviously the level of service is an issue, I customers tell us they want from our service, and how think we should be proud of, and I am proud of, the do we get that right as we have to shrink our estate way that the people in the department deal with people further? I said some of these things earlier. in an even-handed way and there is no bias in the I sat in one of my offices this week where I saw an system. excellent face-to-face inquiry service, excellent I think, feeling simple, we are obviously failing them. meeting and greeting, then directing customers to the We have talked about that and we are not proud of right telephone for the service but encouraging the that at all. If I look at the word “efficient”, we have customer to come back if they weren’t satisfied with made hundreds of millions of savings and reduced the the service. Some people are reticent in the first size of the organisation dramatically and yet delivered instance. a higher intervention unit, so I think we get a tick The Government strategy is digital; not the telephone. on that. It is that we move as much of our service online and In terms of the progress that we have made on data then we provide assistance for people who can’t use security, the year I joined HMRC (2008Ð09) we had online, which was part of my concern about signing six incidents that went to the Information up to a massive investment in a single telephone Commissioner. That is not a good record at all. platform that we would need for some of the changes. Obviously, behind that are a lot more issues if you are Because that is the strategy, I think that we have to getting six that are as big as that. The last two years provide the services that allow people to engage with cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 49
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles us to meet their need. Particularly with an ageing access a tax officer at some point? Because the key population, and as we cease to be in every small town, point is the fact that they are part of a compliance I think that involves more outreach, more home visits. team doing a valuable job, which will have to be It is service we want. replaced somewhere else—that work will not stop— and they are able to offer that at a very low cost and Q279 John Thurso: I am interested because a whole very effectively. range of financial service businesses, and other service Lesley Strathie: At the last count I think we had about providers, are in the process of abandoning the model 20 colleagues in Wick. and reverting back to a more localised base, having John Thurso: Clinging on by their fingertips. discovered that while you can have efficiencies in a Lesley Strathie: Indeed, those individuals have been cost base, your actual yield goes down. I just wonder invited to apply for severance, and that is a process if you are still five years behind the curve, and you we are going through. We have made a commitment are going into this when everybody else is coming out that we won’t close before 2012. As you know, all of it. this was consulted on and decisions were made on Lesley Strathie: Having spent most of my life where we located. We have been working very hard. delivering labour market policy or creating it, I think I will deal with the staff first. We have been working we all forecast that when those jobs went and that very hard, including with the Scottish Government, to change occurred, lots of it would come back. We were look at how those skills would not be lost for people forecasting that before it left the banks, left these who choose to stay in the organisation. I think we are shores, and so on. I think we are well aware of the also committed to finding a way of delivering a face- model in creating the change. I am not saying that to-face service, but there is the need to reduce our HMRC did all of that brilliantly, but I think it does estate costs and to vacate the premises. I— come back to now, and that for those people who want to use the phone we deliver a good service. For those Q281 John Thurso: Forgive me—just a small people who want to do it electronically, the biggest question on that. I believe that property is part of the complaint I get when I go out and meet business and PFI arrangement. Nobody else is going to take it, so individuals is, “Why can’t I communicate by e-mail?” you will be going on paying it until the end of the PFI. They don’t say to me, “Why can’t I have an office Lesley Strathie: No, we won’t. here or come in here?” or the phones. They actually Simon Bowles: We have the ability to exit say, “Why can’t I just do everything on email?” That approximately 60% of our estate under the steps is the biggest concern. contract.1 John Thurso: You did better than DWP, with the Q280 John Thurso: If I may just continue this, and job centre. I will certainly come back to you. I thought one of the Lesley Strathie: No, we give 12 months’ notice and most interesting submissions we received is a longish then we can vacate. thing, so I will only pick out the core of what it says: John Thurso: They are still paying. “HMRC appears to have adopted the wrong strategic Lesley Strathie: Yes. We do realise the saving, but I plan for undertaking its activities. It has established do understand the labour market, I do understand the inappropriate key performance indicators, which jobs point, and I also understand the service point. As appear heavily focused upon crude measures of labour I say, we are working through the individuals first and productivity and which ignore the social significance when we come to the end of that process we then look of tax collection, and which also undervalue the at what service is needed in Wick, and how we important and highly significant contribution that provide that, because we want to deliver more and experienced members of staff can make to the overall more in partnership with joined-up services. effectiveness of the organisation”. Because I am sure Retford is going to be talked about Q282 John Thurso: Before I came in I tied a knot shortly, I will get in first with Wick, which since I in my hanky and said, “You will not mention Wick”, wrote to you asking you not to close it you have but, John, it was your presence that brought it out in speeded the closure up. I was thinking maybe I had me. It is a good illustration, but the point I am making better not ask a question because it might be closed is not specific to Wick. It is about the way you do next week. You have a team there that is doing a very business across the whole country and whether in fact good compliance job on film partnerships, which is a a big call centre model where, of necessity, you have particular area that I am sure Dave Hartnett is lower skilled, and lower paid, people following a interested in. Because they are there, and they are script, as opposed to a knowledge-based technically competent and trained, a lot of people can go and get driven work force in a more disparate set of offices, a very good and efficient answer from them. The next is not actually a more effective way. Because if you tax office is a four-hour train journey away, or a three do have it wrong we will find out too late to do and a half hour bus journey away, or a two and a half anything about it and after we have missed the boat hour legal car journey away. Is it right that a quite on the tax take. substantial community of people—small businesses 1 Note by witness: The HMRC office in Wick is not an HMRC and individuals—have the choice of either complying STEPS building. Government Buildings in Wick is a DWP with the electronic and the phone, or if that doesn’t office in which HMRC occupies space under a Memorandum of Terms of Operation (MOTO), the standard arrangements work they have that level of journey to talk to under which one Government department occupies part of somebody, if that is their choice? Or are we saying the space controlled by another. These arrangements allow that, no, it is not the right of everybody to be able to HMRC to surrender space at no cost. cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 50 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Mike Clasper: What we are trying to do is follow visits, and so on, but you are on a different tack. I where the taxpayer is going. This is an apples for think that is the difficulty we are trying to tease out. apples comparison. In 2006Ð07, in inquiry centres That you are almost saying—even Dame Lesley said face to face, versus where we are today, on the number it—ministerials say, “Online, telephone, and so on. of people coming into those places, the footfall had We are going that way”, and you are saying that is declined 40%. Although there are still lots of people what people want. That is what a lot of people want going into those inquiry centres, and Lesley has but there is a sizeable majority, and they are in your already explained the efforts we will need, outreach reports, and they are in papers, and we have been and so on, the number is going down and down and spoken to them, who do not want that. Not because down every year. The number of people who are they are being pig-headed but because they cannot going online to file self-assessment is going up and up manage it for various reasons; it could be age or it and up. Approximately 550,000 filed self-assessments could be education. There are a number of reasons, on the last day, and we delivered that service without and I think the number of older people has been it going down for one second of that last day. pointed out in terms of demography. The bit in the middle is the contact centres, and I was encouraged that you appreciated it, but you getting people who are choosing to use the phone to shrugged your shoulders and I can understand that, “I call on a valuable call. We do know why they call us, know that need is there but I have no brass to do and if it is a wasted call it is often our fault; it is anything about it”, but you see, while you are building because we are not on time and all those things. I a new Jerusalem there are millions who are bereft at think what you have to do is follow the way the not being able to get a sensible conversation, a taxpayer wants to go and, as Lesley or Dave was decision or a continuing dialogue. They phone up your saying, it is e-mail. Lots and lots of tax agents have call centre and finally get through, speak to Kevin, said to me, “We want to contact you with e-mail”. I and then a week later, phone the same number and don’t know how we can do that. There are obviously say, “I’d like to speak to Kevin” and they say, “Kevin security issues. I think we are trying to follow the who?” There is no continuity, no dialogue, and tax customer, not drive the customer. is complex. I would accept all the sort of problems you are having Q283 John Thurso: The core of my argument, or the as you are building this fresh system, but you cannot point I am putting to you, is that one of the measures forget that there are a number of people who don’t I have of your success is what I see in my clinics. If want that system and can’t use that system. You have I go back to what happened in the DWP office, and closed the offices. You have closed them all over the the changes there, around about the time that country. Against that central infrastructure of the happened, which from memory was 2003Ð04, the computer, the call centre and lines, there is no sign of level of cases that I dealt with on what was previously a human face, where people can wander in and sit dealt with by DWP, increased by an order of down and say, “Look, can you sort this out for me?” magnitude of 10 to 14 times. I mean it was a step It has largely disappeared. When it is there you have change, you could see it, and it has continued ever reduced the hours. Now that could only be either that since. you do not value it or you cannot afford it, and we Lesley Strathie: With no improvement? need to know which. John Thurso: No. Because I have a wonderful person Mike Clasper: There isn’t a difference between who works for me, I have some numbers that I am Lesley and— probably not meant to have. I have a work around the Chair: Why isn’t it happening? Is it because you system and I go nowhere near the call centre. I have people I can get to and I am not telling you who they cannot afford it or you do not— are because I don’t want to share that valuable Mike Clasper: No, I think the important thing is we information. If I look at tax, I can foresee that are moving into a world where the number of people happening as well. I can foresee you not getting them, in the group that you are describing—at least based but I am getting them, my colleagues are getting them, on what they chose to do, not what we chose to do— and we end up doing it. So the work is not in HMRC, is declining; the number of people who want that face- it is in MPs’ surgeries—not all of it obviously, but to-face interaction. Will there be lots of them? That some of it; it is in the cost of running Parliament, it is was your point, Chairman. Absolutely there will. It is in ministerial time and it is in head office when you just we have to deal with— have to reply to the letters I write to you about it. Chair: A significant minority. If that is a measure that I have observed in one area Mike Clasper: Forty million. A very small percentage where this has happened, and I suspect it is going to is still a lot of people. happen here, why should I have confidence that this is going to work the way that you are saying? Q285 Chair: I don’t know. In terms of special Mike Clasper: You can look at the online stuff and educational needs, Warnock used to say it was 20% say— of the population and work your education system on that basis. That is a hell of a number of people. Q284 Chair: Can I just stop you? You see, I think Mike Clasper: No, we have a group. It is part of our there is a difference between you and Dame Lesley. I strategy that people will always need help. In other was enormously encouraged by one of the answers to words, no matter how clever we are with simplifying John, which ended up saying she looked forward to it, how clever we are with information, how clever we appreciating the need for outreach, for even home are with online, they will continue to exist. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 51
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Q286 Chair: It is also wanting to speak to a human cannot use the methods that Ministers in the brave person and carry on a dialogue with some outcome. new world think they ought to? Because that would Mike Clasper: I think within that group there are start a dialogue between the politicians and yourself some who are happy to use the telephone, and are about the pressure that we can put on to get Ministers using it, but we have to provide the service that we to face up to the fact that face to face is needed in are not providing at the moment. We fully accept that. a tremendous number of circumstances. Can you do The second thing is that we have to take all these that note? opportunities for the residual group, which is—your Lesley Strathie: Mr Thurso, before you move on to point—going to be thousands and thousands of your next point, having lived through the DWP people. experience with you in Wick and HMRC, I would be Chair: Millions. No, it is not hundreds of thousands, very happy for us to have a conversation on the it is millions of people and the figures are there in all broader welfare and tax and the service for Wick. the reports. Mike Clasper: Let us not argue about it because we Q290 John Thurso: That is very kind of you. I will do not know the number but it is a very large number. not take up the Committee’s time on that. I am trying What we have to do is find cost-efficient ways, to be good. My overall concern, which I will just put because we do have a cost pressure on us. to you both and not expect you to respond because you have responded on this point, is that I have a Q287 Chair: Right, now hold on; just stop there, serious concern about the business model. I fully because that is what we normally get in Select accept change. My last three paid employments before Committees, “We have to find”. I have not seen any coming into this place were to take failing companies realisation, until Dame Lesley articulated knowledge and change them and turn them round. So I of the problem, that you were finding it. That comes completely understand. I am not sure if it is easier in back to a question we have asked time and time again the private sector. I think sometimes that can be pretty in this Committee, it is all right saying you are going tough if you have entrenched companies, so I quite to find it, but the old kid that is 76 or 80 that can’t understand that. I have quite a fundamental concern handle e-mail or call centres doesn’t have time for you that the actual business model is not necessarily to wait around and find it. “Go on, he is getting a correct, but I am not going to be any more right or script. He is getting a telephone script from the call wrong on that than anybody else. centre.” What I am concerned about is that there are robust Lesley Strathie: I believe from all of our customer and real measures, so that if you start to get that you insight that roughly 25% of the population will always can say, “Right, time to change course”. Because the need help around major events, like retirement and worry, particularly about public sector organisations, bereavement, as a couple of examples, and clearly, is you get such huge buy-in from everybody round while we have been through this transition on PAYE, about you, that you can’t find the handbrake when you that is a lot of people of any age, but particularly need it. older people. If I just leave you that thought, and ask my last One of the things that we planned in the spending question, which is on real-time information. I am review is to build on the work we have done in the allowed to do that, aren’t I, George? voluntary sector and organisations like LITRG. There Chair: Yes. are a lot of organisations who are much better than us John Thurso: Thank you. The universal credit is only at helping people. We fund £2 million in grant and aid capable of being introduced if there is real-time on that at the moment, and we feel that as we focus information, which is a huge benefit as well, because on service, as I was saying, on what people need— you will be working within a month rather than six or seven years or whatever, so we all accept that. This Q288 Chair: Dame Lesley, you gave them £165,000; comes from BACS, that will come from VocaLink, one was two years, another one was three years and I and the information will come through for use of think one was four years. That is not even yourselves and DWP. You have a contract with acknowledging the problem. Capgemini that runs until 2017, I think—2015 or Lesley Strathie: But what we do believe is that we 2017—which means that every single piece of IT will focus on the service and meeting the need. I work has to go through them. Will this new work be spoke to an old lady from Glasgow last week. When subject to that, and if that is the case are you just she spoke to her tax office and said she could not paying a percentage for something that could be done handle this, the contact centre said, “Come into without it? Glasgow and we will do it for you”. She said, “Son, I Lesley Strathie: A couple of points would be helpful. haven’t been into Glasgow for years” but we sent First and foremost, we absolutely want to build real- someone out to do it for her. time information under PAYE, because payment-on- Chair: Yes, very good. account systems only operate on maximum Lesley Strathie: So there are lots and lots of people information. It is a goal of HMRC to have the who don’t want face-to-face. information much quicker, be able to keep people’s codes up to date and have fewer under or over Q289 Chair: Just to save time, because John has to payments at the end of the year. The sharing of finish and John Mann has to come in, can you do us information with DWP is our ambition for universal a note about how you are implementing a policy that credit. Clearly, universal credit will have to deliver deals with those who, for one good reason or another, regardless of RTI but we are working hand-in-glove cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 52 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles to bring those things in. That is why we have to go some work on the management of change, although I through all that we have to go through to get PAYE do not recall any Ministers, past or present, ever into the shape we want. partaking in such courses, so I thought I had better In terms of our IT contract with ASPIRE, that does start with that. not cover new work and there will be a procurement Let us start with, Dame Lesley, your word route for what we need in order to deliver real-time “customers”. In the short time I have been here you information.2 have used it quite a lot, but as a taxpayer I am not a customer because I do not have a choice of where I Q291 John Thurso: I am slightly worried about your go. You are a public servant and it is a public service ambition. You are talking about an ambition, but I am to me, so why do you keep using the term talking to Ministers who tell me it is going to happen. “customer”? Where has that come from? How would you rate percentage that at the Mike Clasper: Mr Mann, we have been spending a lot introduction of universal credit real-time information of time talking about the service that we provide to— will be there available to you and to DWP? Will it I will use the word “taxpayer” as a neutral phrase. happen? Percentage: 50:50, 60:40? John Mann: “Customer” is not a neutral word and Lesley Strathie: I would be a fool to say 100% but when it is used in places like Cranfield on public that is how I feel. I believe that we can do this. service training, for example, and other management schools, it is not a neutral word. “Customer” is not a Q292 John Thurso: You are saying that barring neutral word. That has connotations of what the unforeseen it is going to happen? service should be. Lesley Strathie: Yes. I think the biggest challenge for Mike Clasper: Exactly. real-time information is data quality, because remember this is not about what we hold. We have Q294 John Mann: So let us talk about informed gone through that. We went through all that cleansing customers, or uninformed. You were giving some exercise. It requires a much higher level of clean data figures. How do you know those figures are accurate? than anything HMRC has had a standard for in the How do you know how many people would want to past. Bearing in mind how many errors come into the come and meet you in the modern communications system—as simple as VAT registration numbers, or it era? doesn’t reconcile, people give employers the wrong Mike Clasper: We do lots of customer research NI numbers, and so on. Data quality is key. The other sample levels, so when we are talking about thing is that we have to take 4.8 million businesses percentage of customers—as Lesley was in particular with us on this journey. So it is not the technology. groups—it is based on very large customer surveys. From where I sit, that is the least of my concerns in the amount of work that we have to do to deliver. Q295 John Mann: How do you do those customer Chair: We will be sending you some questions on it surveys? because we don’t have time to do it tonight. I would Mike Clasper: Sorry, I literally don’t understand the underline that this universal credit is important to the question. We ask people. We observe behaviour. We Government. We may have different political combine the two things together. opinions, and so on, but it is our pledge to deliver it John Mann: How? by 2013. If there are any concerns about not being Mike Clasper: Professional research organisations. able to do it you will not be thanked for saying it later John Mann: So you contract professional research than sooner. That is the whole point I keep trying to organisations? get across to you. We are not daft. We understand the Mike Clasper: To do surveys. financial pressures you are under. Do not be saints and John Mann: How do they do it? then get crucified for your trouble. If it cannot be done Mike Clasper: I am still not understanding the you don’t have to shout it from the rooftops, but I will question—in the sense that they do questionnaires or be starting to say through the system that there are they do detailed groups? difficulties here, because I would not want to be the person who cuts across a Government policy and has Q296 John Mann: Let me tell you how they do it. to take the blame. If you don’t think it is going to be This is rather a fundamental point, Chairman. The done, it wants flagging up now, not in a month or way they do it is they look at groups of people and 10 months. they take statistically valid samples—people who have, say, telephones in the register; or they write to Q293 John Mann: My apologies. I was debating people and they get the information that way. That is petrol crises in the Chamber before you broke to vote how they make their appointments. I put it to you that on those important matters, but I have come in a little if we take one group, let us take retired mine workers, perplexed having heard the answers to Mr Thurso’s who are about 500,000 in this country, what I am able questions. Mr Thurso raised Retford, so I had better to ascertain, having taken over 2,000 cases against reference the tax office in Retford, but also the individual cases of my constituents against solicitors, Cranfield School of Management, where I used to do is that client vulnerability was never once assessed by any of them. Client vulnerability would be literacy, 2 Note by witness: The ASPIRE contract does allow for new for example, or access to telephones, being used to work. RTI is within PAYE which is already covered by the contract. RTI work will be produced from ASPIRE through a dealing with professional bodies and professional rigorous requirements definition process, assured by Cabinet institutions. In your sampling those people don’t get Office ERG and fully and independently benchmarked. sampled. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Treasury Committee: Evidence Ev 53
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Mike Clasper: Can I just come back, Mr Mann? rather be outside the tax system or they would rather Procter & Gamble’s in-house research organisation is an agent is handling it, or third parties are handling it, one of the largest in the world, and in my Procter & and that it works. They would rather have no contact. Gamble career, I spent 23 years in areas of customer research. Let me give you an example challenging the Q299 John Mann: Until they have a problem. very issue that you are raising, which is that it is Lesley Strathie: Until they have a problem, yes. clearly very difficult to get to certain people. We have John Mann: I can assure you most of my constituents been working on how to improve the information that would like no interaction at all but if they have a we get from our tax credit customers. So we found problem they want it. groups of tax credit customers and we did tests on Lesley Strathie: Yes. how often they got certain mathematical questions Mike Clasper: Let us take some statistics we do have. right. In those tests we found one sort of question, Of the number of people coming to one of our inquiry which we asked them to do when they were doing centres, and there are still lots of inquiry centres their renewals, 5% of them got right. So what do we around the country where the access is exactly as it do? We start working on the fact we have to change has always been, we offer them an appointment within the nature of that renewal process and the form, so three days, somewhere between 97.5% and 100% of that they no longer have to do that mathematical the time. calculation. It is a little anecdotal example of the sense that we don’t just do blind surveys and don’t ignore Q300 John Mann: The number who ring up? the consequences. Mike Clasper: The number of people who come in and request an appointment, we do it between 97.5% Q297 John Mann: It is a good one. I come back to and 100%. the question, how many taxpayers would benefit from a face-to-face appointment? Q301 John Mann: Sorry, the number who come in Mike Clasper: How many taxpayers want a face to where? face? Mike Clasper: Who come in requesting an John Mann: No, how many would benefit? appointment at our inquiry centres. Our inquiry Mike Clasper: I don’t know how to answer that centres are marketed, so to the point of where the question in the sense of we know how many want demand is. a face-to-face contact. We know how many use by their behaviour— Q302 John Mann: Where is the nearest one to Retford then? Q298 John Mann: But you don’t. You know how Mike Clasper: I am talking about the general trend. I many have asked for one when one is available. That am not talking— is a different scenario. That is not logic, is it? You John Mann: Yes, but where is the nearest one to don’t know how many want one. You know how many Retford? have asked for one. I might want a bar of chocolate Mike Clasper: I can’t answer that. I don’t know but there is not one on the table. I would have to leave whether anybody can, but I can’t answer where the the room to get one. It is the same. You are selling in nearest one to Retford is. I don’t know where they Procter & Gamble, and it is the same when it comes to all are. the Inland Revenue, isn’t it, and Customs and Excise, Lesley Strathie: They still have an inquiry centre exactly the same thing. You don’t know. there. If, Dame Lesley, you are offering home visits, is there John Mann: Is it Nottingham, Sheffield? a maximum available if requested in a particular area? Lesley Strathie: No, sorry, I don’t know. Let us take my area. Take the Retford area, because John Mann: If I want to walk in where is the nearest there used to be 37 staff there working for you. I think place I can go? there are three left now, although they may have gone, Mike Clasper: We can get back to you on that. We but there were three. What is the maximum number don’t know every place in the country. of home visits that are possible? Chair: Equally, you can say you don’t know where Lesley Strathie: I can’t answer that question, Mr Retford is. Mann, and I can’t even promise to write you a note Mike Clasper: I know where Retford is, I used to on that. work on the railways a long time ago. John Mann: But give me an impression. I mean is it one a year, 10 a year, 100, 1,000? Q303 John Mann: My point is that of those 2,200 Lesley Strathie: I think what we are seeking to do is households that I took action on behalf of in relation follow the customer, and if you would rather I will to mis-selling—let us call it that to save time—by use the word “taxpayer”, but we have a lot of solicitors, the number who contacted the solicitor customers who are not taxpayers. We try to follow that themselves was well under 1%. All 2,200 had a need. We try to find a way of meeting it efficiently. I legitimate claim, but it was under 1%. In fact it was am taking your point but our customer insight work is well under 1%. Why is that? extensive. It is not just a survey on satisfaction Mike Clasper: I clearly don’t know the situation, but because we survey people who use the service to find I think what we are talking about in that instance is out what they thought of it. A lot of our work shows do people know their rights and can they contact the that a large proportion of our customer base would right people to give them the professional advice to rather have no contact from us at all. They would proceed? cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 13:59] Job: 012291 Unit: PG03 Source: /MILES/PKU/INPUT/012291/012291_o003_MP 110331 corrected transcript.xml
Ev 54 Treasury Committee: Evidence
16 March 2011 Dame Lesley Strathie DCB, Mike Clasper CBE, Dave Hartnett CB and Simon Bowles
Q304 John Mann: Are people confident? Do people has there been over the last three years from know how to? If they get on the phone are they Government Ministers in how to raise staff morale, so prepared to? This is the section of society that might that staff are motivated to come into work, motivated walk into Retford tax office. Some of them will be to perform well and motivated to stay with the the same cohort of 2,200—former miners with their service? redundancy money who have invested in a taxi Chair: That was the last question, so when we finish company, or whatever else. They are not very good at is in your hands. handling accounts and they have problems. Now, they Lesley Strathie: I have served two Ministers in two have nowhere to go any more. different Administrations since I arrived in HMRC, Mike Clasper: Can I just say, because somebody has both of whom have been deeply concerned about staff passed me some information, that Retford and morale, deeply concerned about engagement score, as Gainsborough, both of which are on the old railway indeed I am and everybody round this table and the system at least, will both have inquiry centres that will executive team. I would also say that both of those remain open and available. Ministers have been very active in engaging with the work force and getting out to visit people and see Q305 John Mann: Who will be in them? their work. Mike Clasper: HMRC staff. I would like to make a plug for my staff, in saying that the great thing we have to build on in HMRC is Q306 John Mann: How many? Are we increasing their passion for their work, their pride in their work the staff? It is good news if we are. and their determination to give good service to their Mike Clasper: The right number is the ones that meet customers. They are not engaged with HMRC as a the demand that turns up and what I can say, as I have department, as a brand, and that is a huge part of their said already, is somewhere between 97.5% and 100% work as we go forward as one single department. In of people who request an appointment get one within my conversations with the trade unions on this three days. We will continue to be in that space. I can subject, some of the things we have already done, like give you those numbers. I happen to know them, I removing barriers from people, moving from one line might be 0.2% out, but I am pretty confident in my of business to another, being able to up-skill them and numbers. redeploy them, and starting to paint a picture of hope for careers and better investment and targeting Q307 John Mann: Across the country there is going investment, and opportunities for jobs, are some of the to be the same range of walk-in centres available? things we have to do. Mike Clasper: No, it depends. Retford and I do believe that people need to understand just how Gainsborough are going to be fine. A tiny little place passionate and committed and how interested our may not have it, and then we are into what Lesley was people find their work, even if they think that HMRC saying, which is different ways of doing it. I should has not helped them to do it always. not say we need to find ways, Chairman. I should have Chair: Dame Lesley, Mr Clasper and gentlemen— said that in some cases we know what it is, and in Mr Love: Can we thank the audience for staying so some cases we need to find ways, because some of long? these things we have already done. Chair: Some of them might be on overtime I suspect. I hope they are. Q308 John Mann: My final question is on staff Lesley Strathie: I think it is important to remember morale. Obviously you have the worst staff morale in that many of these people are involved in the work the public sector. You have plans to deal with it, but and the briefing. It is part of their development to see you did before. How many in-depth discussions have how we perform. there been with Government Ministers in the last three Chair: I think it has been very, very useful, and I years over the problem of staff morale? What input think it has been more civilised than some sessions has there been from Government Ministers? This we have seen in the past. I think we have started a could be in a note if there isn’t time now. What input dialogue, which I hope we can continue. Thank you very much. cobber Pack: U PL: COE1 [SO] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
Treasury Committee: Evidence Ev 55
Wednesday 11 May 2011
Members present: Mr George Mudie (Chair)
Stewart Hosie John Thurso Andrea Leadsom Mr Andrew Tyrie Jesse Norman Mr Chuka Umunna Mr David Ruffley ______
Examination of Witnesses
Witnesses: Stephen Banyard, Acting Director-General, Personal Tax, HMRC, Phil Pavitt, Chief Information Officer, HMRC, and Mark Holden, Director IMS Change Programme Delivery, gave evidence.
Q309 Chair: Good afternoon. We are a bit depleted Stephen Banyard: It is both. It is a physical ability to in numbers but the fierce ones are here, so be warned; bring in data more regularly than we do now, so it is I will try and keep them in order. Mr Holden, you a channel of data. It is a place to hold it and it is the took a job in May 2010 and another job in March software to manage it, and match it, and so forth. 2011. It seems you are shooting through the organisation at some pace, aren’t you? Q316 Chair: What is the division between the two Mark Holden: I think it was a natural progression. I songs, software and hardware? was asked to expand the role I took on originally, Stephen Banyard: I am going to ask Mark Holden to which was quite focused on IT programmes, to comment on that. encompass the RTI programme. Mark Holden: I can’t give you a detailed breakdown of the split because predominantly there will be a lot Q310 Chair: Is it a promotion? Is it more money, of hardware that is already built into the infrastructure for example? that we will be using across both our existing service, Mark Holden: Yes, it is a promotion. so the NPS, our existing PAYE service, and also the national infrastructure that is within BACS, so there Q311 Chair: Promotion. You moved away from will be some expansion of that service. A lot of it money there, is it more money? will be in the configuration and development of the Mark Holden: No. software, but I don’t have the exact split on them.
Q312 Chair: Good on you. You have been given Q317 Chair: Did you put up a detailed bid with the £100 million to spend on improving the Pay As You division between capital and software, physical stuff Earn system. How will that £100 million be spent? and hardware? Because £100 million just seems a lot, Stephen Banyard: We are building a real time first of all, and it seems a nice round sum that covers information facility to build on to our existing Pay As every eventuality. Is that costed as we sit? You Earn system. Pay As You Earn collects the right Mark Holden: It has the initial outline costings that tax for the majority of people and RTI will build on you would expect at this stage of a programme, and it our existing Pay As You Earn system. It will bring is split between the development, which includes both benefits to particular groups. Employers will see a hardware and software, and also the business change particular reduction in their admin burden of about a costs of the organisation. third. It will improve our revenue collection because we will know how much employers have paid to their Q318 Chair: When somebody says “at this stage of employees during the year, and therefore how much the programme” that signals that it is pretty vague. tax they should remit to us. It will improve the Stephen Banyard: No— accuracy of Pay As You Earn for some people. It will help us reduce error and fraud in tax credits by £300 Q319 Chair: So you could give us it and we could million a year, and it will provide the dynamic have a look at it, couldn’t we? Who agreed this? Was information for the universal credit. it the board or the Minister? Stephen Banyard: It was agreed with the Treasury. Q313 Chair: Are there any more notes on there that We produced a business case for them, which detailed you want to read out? Is that it? how we thought the money would be spent over the Stephen Banyard: That’s the headlines of what it spending review period. does. Q320 Chair: I would not mind seeing the details of Q314 Chair: When you started that, you did not say that because it is a suspiciously large figure. When “the software”, you said “a facility”. What do you Dame Lesley appeared before us last year she said mean by “facility”? real time information is high cost, high risk. A few Stephen Banyard: At the moment, when employers months later she said that it would be available pay their— without problems in 2013. Why the sudden change? Which of you convinced her that it was the right thing Q315 Chair: No, is it physical or is it software? to do? cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 Stephen Banyard, Phil Pavitt and Mark Holden
Stephen Banyard: I think we have always thought it sure HMRC is confident. We are doing the right thing was a doable proposition. and we can do it.
Q321 Chair: Do you share a view then that it is high Q327 Mr Tyrie: Just following on from that point; risk, high cost? when Lesley Strathie came before us she said that the Stephen Banyard: There are risks attached to it. I do sharing of RTI information with DWP was an not believe it is high risk. We wouldn’t have ambition for universal credit. Why won’t you share committed to a timetable we did not believe we could the information with DWP? meet. We have looked at this in detail and we believe Stephen Banyard: Why would we? we can do it on the timescale, and we have designed Mr Tyrie: Why won’t you at the moment? a programme or an implementation that de-risks its Stephen Banyard: We will. HMRC takes the security introduction. For example, it includes a 12- month of its data very seriously and we share it where there pilot in which we and payroll software manufacturers is a legal gateway. We have legal gateways with DWP and employers will be able to test the service and learn but, from a public interest point of view, we are from it before we go live. collecting data from employers about income, which will be used by us to help deal with people’s tax— Q322 Chair: Do you agree it is high cost? Stephen Banyard: I don’t think it is high cost for what Q328 Mr Tyrie: I understand. You have answered we are getting. my question. Do you think you are going to be, and have you taken advice on this, liable in law? It is not Q323 Chair: So Dame Strathie was wrong? just a question of fulfilling your legal responsibility or Stephen Banyard: No, she was not wrong. is it that it might cost the Government money because Chair: She said the opposite of what you have said. you will get sued if you were to hand information over in a way that could be held to have been deleterious Stephen Banyard: It is relative judgement, isn’t it? subsequently? Stephen Banyard: We are subject to normal data Q324 Chair: Anyway, okay. Right, now we have security legislation— heard from a former employee about the difficulty middle management have of passing bad news up Q329 Mr Tyrie: I am asking you whether you have because they don’t get any reward for passing it up or taken advice on whether these legal restrictions have any thanks. You tend to shoot the messenger. There is real bite in the sense that you may find yourself some worry that if this is the culture that is here this generating a bill for the taxpayer. programme could run into trouble, and it is a key Stephen Banyard: We take it very seriously. We take Government programme. Are you certain you are proper advice on what we can do and we make sure going to deliver this on time, no problem? that we have the legal— Stephen Banyard: We are confident we can deliver it on time. We also go out and talk to our frontline staff. Q330 Mr Tyrie: There is a note coming up for my We talk to the staff, we talk to managers, we second question, so why don’t you tell me what the understand their concerns. We try and build them in. note says, that would be handy. Stephen Banyard: Shall I bring Phil in? Q325 Chair: So the unions and the staff members Phil Pavitt: The advice we have taken also who have given evidence to the opposite are wrong incorporated legislation, the Welfare Reform Bill, again? which obviously set out the criteria whereby we Stephen Banyard: No. We have listened to their exchanged the data, and that also took account of any concerns. We have tried to build a timetable and an liability, any restrictions, and any ongoing liability implementation that does reflect the real that may arise from the use of that data. Just to remind circumstances we will face. you, we already swap about 13 million pieces of data between us already, those two authorities, on a daily Q326 Chair: How confident are you that your basis, which is also covered by the same restrictions. partner, DWP in this exercise, is included, agreeing and is not confusing or adding to the difficulties in Q331 Mr Tyrie: The answer is yes, and if you get meeting the date? There has been some information this wrong you might find yourself generating a bill reach us that it is hard enough dealing with one as a consequence of people taking legal action against Government department, but dealing with two is just you at some future date. impossible. Is that wrong? It has always been my Stephen Banyard: We would work very closely with experience. DWP to make sure we were not in that situation. We Stephen Banyard: DWP have a very strong interest would manage that risk. in real time information because the universal credit programme has a strong dependency on it. They are Q332 Mr Tyrie: I am just trying to be clear that that therefore interested in it for that reason. It is also risk is there and that you are taking legal advice on it. important we work well together. They are a key I am asking you a very simple straight question. stakeholder so we cannot drive on in isolation to them Phil Pavitt: We have taken legal advice. and we have to produce something that works for us but also works for them. I think it is my job to make Q333 Mr Tyrie: You have taken legal advice on it, sure that they are confident, as it is my job to make the answer to that is yes. The reason you are taking cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 Stephen Banyard, Phil Pavitt and Mark Holden legal advice, and part of that legal advice, is the fact We are not asking them to do monthly or weekly that there is a risk of costs accruing because of reconciliations under RTI. We are simply asking them challenges— to send us the information behind their payroll Stephen Banyard: We have taken legal advice to payments. We will be totalling it up and at the end of make— the year they won’t need to do a reconciliation, or it Mr Tyrie:—with a transfer of that information. will be a very light reconciliation. Stephen Banyard: We would test all data transfers against our experts in that and to make sure that we Q341 Stewart Hosie: You are asking them to do that do have the legal cover. through the use of BACS, and you have said in the consultation employers with fewer than 50 employees, Q334 Mr Tyrie: I think I will give up on that point, which from memory is certainly 95%-plus of every but I think the answer is pretty close to yes, isn’t it? business in Scotland, will not be required to do that The answer is yes, there is a risk that you may find initially but they will at some point. When do you yourself footing a bill as a consequence of a legal foresee every business required to use BACS to challenge if you get this wrong. provide you that information? Stephen Banyard: No, I don’t think there is a risk. Stephen Banyard: We have no plans for every business to use BACS. We recognise that large Q335 Mr Tyrie: There is no risk of a legal businesses use the BACS system, and it looks good challenge? for them to use it, but for those that don’t we have an Stephen Banyard: Not in what we are doing, no. internet channel. For the very small employers we are developing an HMRC product that they can use. We Q336 Mr Tyrie: My question was, if you were to get do not see additional costs for them from that. this wrong would you be vulnerable to a legal challenge that could trigger costs to HMRC? Q342 Stewart Hosie: We have BACS for large Stephen Banyard: If we got it wrong then we would companies and those small ones who use it, there is a be open to challenge, yes. I am not sure what the form separate internet channel and there is a further means of the challenge would be. We are taking great care to of providing the same information. Before this is even make sure we get it right. implemented there are three points of failure, three weaknesses, a multiplicity of channels to receive the Q337 Mr Tyrie: I think behind you I am getting an information. How confident are you this model is answer yes, so I am going to go with what I thought going to work? I saw from a sedentary position behind you. Let me Stephen Banyard: You portrayed it as a weakness. just move on. Are DWP sharing the footing of the bill You could see it as a strength in that what we have is for the implementation of this policy? different channels. What we are trying to do is to Stephen Banyard: RTI has its own spending or has match what we are doing to the customers, the its own funding, which came as a side letter to our employers that we are dealing with. We provide a settlement. It is funded by the Treasury with a vote channel for large employers, which is one that they to HMRC. are used to using; we provide a channel for small employers, which they are used to using. We can Q338 Mr Tyrie: If this all goes turtle up who is easily combine the data. We are used to using multiple carrying the can? channels anyway. At the moment large employers Stephen Banyard: I guess I will. send their data to us at the end of the year using a channel called EDI, electronic data interchange. It is Q339 Mr Tyrie: You personally at HMRC? a bulk exchange channel. Small employers use the Stephen Banyard: I am the senior responsible officer internet. We put that together. Very few employers are and HMRC would, yes. exempt from using the internet and they can use paper. Mr Tyrie: That is very helpful. Thank you, Chairman. We put that in as well. I think you can see multiple channels as a strength, it gives you contingency. Q340 Stewart Hosie: The introduction of RTI will see an end to the single end-of- year reconciliations Q343 Stewart Hosie: You are satisfied that with and the introduction of multiple in-year multiple channels and it being as close to real time as reconciliations. There is huge concern that will it can be, we should set aside any worries about the increase the attendant cost to business and HMRC. difficulties HMRC have had recently in terms of Stephen, in your opening remarks you spoke about managing data, and expect and believe all this RTI delivering significant business savings. I am at a information coming in, in a multiplicity of ways, can loss. Maybe you can explain why you think doing the be operated in a real time basis that we should all work multiple times in-year rather than once a year have confidence in? will reap savings for business. Mark Holden: Could I just help to give some Stephen Banyard: At the moment employers operate confidence? The existing BACS channel is part of the payroll systems, which remain automatic every time national banking infrastructure of the UK. This is a they make a payment, be it weekly or monthly. They highly resilient, highly robust and well known, well send us the information at the end of the year, having understood channel for transmission. The internet done a reconciliation themselves. That reconciliation channels that we use are the same channels that we is a one-off. It is based on forms. It is about a third of use for our self-assessment filing each year, which their total burden from operating Pay As You Earn. supports some 7 million to 8 million filing through the cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 Stephen Banyard, Phil Pavitt and Mark Holden year. These are well understood, well managed and testing that we used on the codes, so that over time have good track records in terms of their delivery and the NPS data quality will be much improved. their sustainability. In terms of the concerns around Then we come to RTI. We very much recognise that those infrastructures, and our use of them, I think we for RTI to work well, we have to focus on data quality. do have a track record that demonstrates that we can We set up a separate project, or a project within the manage those services properly. programme, to deal with it. We have to work with employers, and we have developed a tool that enables Q344 Stewart Hosie: My final question on this then, us to look at employers’ performance and we can would it be your intention at some point to move to identify those who are having problems and those who the single BACS transmission channel so there is are not. We are going to deploy 50 customer uniformity across the board irrespective of business relationship managers to work in partnership with size? Would that be an objective? employers to help them and us match our data, and Stephen Banyard: We have seen in recent years a get it right. We are planning additional data cleansing greater take up of direct credit by businesses and if exercises so that we can raise the whole profile of data that continued we might want to use it, but we have quality, not only in HMRC but right along the supply no plans at the moment to encourage people to move. chain. In that way we believe we can produce data We are simply going into the market, as it is at the that is of sufficient quality. moment. Q347 Andrea Leadsom: Bearing in mind how much Q345 Andrea Leadsom: Just to press a bit, I think rests on it—including the welfare reform plans of this you can probably sense that there is a great deal of Government, do you feel confident that HMRC is scepticism around the room, bearing in mind the going to be able to deliver that absolutely crucial link enormous problems that HMRC have had in the last in the chain? few years, and the enormous inconvenience and Stephen Banyard: Yes, we are, and we will work very expense that that has given to taxpayers. What seems hard to make sure we do. to me extraordinary is that we have quotes from David Gauke in HMRC’s remit letter saying, “Real time Q348 Andrea Leadsom: Will the multi-year information is crucial to the delivery of the reconciliations following RTI exacerbate data quality Government’s welfare reform agenda.” Then we have issues? I am assuming it would do because any one Dame Lesley Strathie saying, “The biggest challenge error gets multiplied in multi-year reconciliations or for RTI is data quality” talking about the problems is that not right? with VAT numbers being in erroneously, and so on. Stephen Banyard: The multi-year reconciliations was Yet it does not seem to me that there has been an a one-off to enable HMRC to try and catch up last absolutely massive data cleansing programme. Surely year. The reconciliations hereon will be one year at a RTI is utterly dependent on the quality of the data time, at the time they should be conducted. Perhaps input. There is this enormous lack of credibility, I am go back to what I said before. Every part of the Pay afraid, about HMRC’s ability to deal with that. Can As You Earn cycle, which we are carrying out, we are you just address that head on, and tell us what you are testing very thoroughly to make sure what we are doing to ensure the quality of data? putting out to the public, what we are calculating, is Stephen Banyard: That is a very good question. The correct. We are using our most experienced staff to first thing we have been doing is that with our new do that. Pay As You Earn system we have been working very hard to improve the quality of the data on it. For Q349 Andrea Leadsom: Do you think we should example, a year ago, when we issued the annual ignore the experience of the past few years in codes, that was the first that the public knew that there assessing our level of confidence in HMRC’s ability were data problems—first the Department knew there to deliver RTI? were data problems. We have worked very hard over Stephen Banyard: I think you should take the past the last year to get the data into much better shape, into account, but you should also take into account and before we issued the codes this year we tested the lessons we are learning from the past. It is worth every batch, using some of our most experienced staff, saying—and perhaps may give you some comfort— and we tested each batch back to the customer record. that whereas the introduction of NPS was a big As a result of that the codes that we have issued this change, in other words one system completely year have been the most accurate and complete set replaced another, the introduction of RTI is an that we have issued for many years. addition to an existing system, and we don’t have to play it in as a big bang. We can phase the introduction Q346 Andrea Leadsom: Can you give us a of RTI into Pay As You Earn, and that is what we percentage accuracy that you think you have plan to do, so that we will first of all pilot it, we will achieved? Do you know what the percentage is? have early adopters, we will phase people on to this Stephen Banyard: We believe the percentage system and then we will phase the use of it. accuracy is 98.2% against something like 80% last Meanwhile, the existing NPS system, which is now year. We anticipate being able to move that up, but bedding down well, will continue to operate Pay As that is probably the most accurate set of codes that You Earn. we have issued for many years. We are continuing to implement every stage of NPS as we go through the Q350 Mr Umunna: Can I just ask about the IT annual Pay As You Earn cycle using that very robust system through which RTI is going to be delivered, cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 Stephen Banyard, Phil Pavitt and Mark Holden and perhaps if you could just start with clarifying for Q353 Mr Umunna: Are you able to guarantee to this us whether RTI will be delivered through the Aspire Committee that by delivering RTI through the existing contract led by Capgemini or whether it will have to Aspire contract you are giving maximum value for be delivered through another system? When Dame money to the taxpayer as compared to, say, delivering Lesley came in front of us she said that it was not it separately? I understand the reasons for delivering covered by the Aspire contract. It seems that we have it within the integrated contract. been subsequently informed by yourselves that it is. Phil Pavitt: The short answer is yes, and the second For the record, could you provide some clarity, answer is that things will change as the project goes please? on. I am sure things will appear, and they go through Stephen Banyard: Yes, I will ask Phil to come in on the same value for money process, which we have to that, but I would say that RTI is going to be an integral make public account for, and people can test that or part of our Pay As You Earn system, and I would want challenge that. But, yes. the people building RTI to be experts in Pay As You Earn, and Aspire are IT experts in Pay As You Earn. Q354 Mr Umunna: Just in relation to the contract, I would naturally look to them because this is not a and do correct me if my facts here are wrong, but my greenfield development. This is very much an integral understanding is that it was entered into around 2009, part of Pay As You Earn. beginning of 2010, for an eight-year period; is that correct? Phil Pavitt: To clarify what Dame Lesley said, on new Phil Pavitt: The RTI— systems we can go outside the Aspire contract and Mr Umunna: The Aspire contract I am talking there is a laid down reason to do so, which I am happy about now. to explain, should you wish. This is building on what Phil Pavitt: The Aspire contract started in 2004 and we already have, so falls well within the remit of the there have been three subsequent negotiations since Aspire work that we use. We are going through the that was done. There is a recent negotiation in 2009, Aspire mechanism to provide the service called RTI. which I think may be the one you are referring to.
Q351 Mr Umunna: Obviously the contract is Q355 Mr Umunna: That is the one I am referring delivered for a certain cost. Will the costs remain the to. Is it right to say that in terms of the way the costs same with the additional burden of RTI? are structured within that contract that there is a Phil Pavitt: The quotes for the service, both the actual reasonably low upfront cost to effect changes but as build of that service and the ongoing maintenance to you get further along into the term of the contract it that service, is in the business case that was referred is more expensive to make changes? to in the opening set of questions, and that then Phil Pavitt: Let me answer that in probably a more obviously is part of the ongoing fees that we pay for generic IT way first of all. I think the older software Aspire’s maintenance once the system is in place. gets, no matter what your contract, directly contracted, individually contracted, changes to those applications Q352 Mr Umunna: I suppose what I was getting at or that hardware is always more expensive. That is is, is it cheaper to deliver RTI through the existing not a contractual issue. That is whether you own the Aspire contract as opposed to having a separate IT directly or you own it through an outsource contract to deal with that, given the issues with the arrangement. Because as it gets older it gets more contract, which I will come on to? complicated to manage, the technology gets older or, Phil Pavitt: I think the common belief is if it goes of course, you have made so many additions to it that through an existing contract is there some form of to go back and do testing of it, to make sure it is accurate, becomes more complex. I think the life cycle additional payment or is it not competitive? I know of IT, hardware and software, as it gets older it all we are referring to RTI, but we are placing IT gets expensive. amendments and changes and new work all the time in HMRC. Each of those is subject to a well Q356 Mr Umunna: Then why enter into such long- articulated and very open rigorous process to get value term contracts, particularly given that as a department for money. If we are not happy as the requirer of those you are susceptible to change with electoral cycles? I services we are allowed to go either outside or look would rather it did not change so often in some cases, for some check of those services using an external sort but the fact is those are the boundaries within which of process. Value for money in terms of making sure you are operating, and whenever a new Government that it is not just some sort of black box, we have no enters, no doubt regardless of what party persuasion examinations of costs, that is not the case in this point. they are, they are going to cause you a headache The reason why the Aspire contract is quite valuable because somebody like Mr Gauke will come to you to us in this place, of course, is elements of that are and say, “Oh, I want all these changes made.” acting as a service integrator and what we get for that Therefore why enter into such long-term contracts is, of course, they take end to end responsibility for when you know that you are probably going to have delivery, they take end to end responsibility for daily to make a lot of changes and towards the end of these management, the commercial responsibility, all of contracts, and given what you say about software, it which we would have to do if we let the contracts is quite expensive later on. ourselves— Stephen Banyard: We have a very complex IT estate, Mr Umunna: I understand that. which runs a very large number of systems so, in a Phil Pavitt:—which is acceptable. sense, to be able to accommodate new Governments cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 Stephen Banyard, Phil Pavitt and Mark Holden with new ideas, you need a continuity of experience things that perhaps in the end, business case wise, do to know what the impact is on the systems you have. not cost in. I think you use it positively as well as My experience as a business manager in HMRC, make sure it does not stop you doing essential stuff. watching contracts change, as it did from EDS to Aspire, is that however carefully you try and manage Q359 Chair: You may have technically answered that change there is a discontinuity at that point of this, but say I was another computer company and experience. You do not want to have those breaks any wanted to bid, how do you know I won’t come in with more often than— a better offer? How can you convince me that this is not—it started with £2.5 billion or something in 2004, Q357 Mr Umunna: In a way that is an argument for was it? never changing your contractor. Phil Pavitt: The actual original contract was just Stephen Banyard: No, it is not an argument for never under £4 billion. changing. It is an argument for doing it sparingly. Phil Pavitt: Let me give you some reassurance around Q360 Chair: It went up to £8.5 billion. What does the contract itself to deal with the specifics. Longevity this give Aspire now as the third phase? How much of contract is always open to challenge in terms of its is it, this third phase? value for money, and what we have introduced in the Phil Pavitt: Basically, Aspire is a collection of last two negotiations with Aspire is two important organisations and we give them annual figures around elements. First of all we have asked them within the £700 million, depending on the size of the projects. costs we are already paying to renew the hardware and That then splits across organisations in it. So if you the core applications in the remaining period, which is are asking about the Capgemini side, or the Fujitsu 2017, of the contract for no additional costs, so we side, each of them get an element of it. Is that your are not caught out by your very question, which is as question? stuff gets old, it gets more complex to manage and renew and change. Q361 Chair: I might ask you to write to us with this The second thing is we have a new process, which we because the Minister is here for the next session, but call “costs not to exceed”, and basically for every of the £8.5 billion how much did Aspire get? change that we make on every new addition we make, Phil Pavitt: The whole contract goes to Aspire. we have to retire or remove costs from applications of hardware that are already in there. We are not Q362 Chair: That is what I am saying. Does the £8.5 untypical of many Government departments that often billion go to Aspire? stuff just stays in the estate because the Phil Pavitt: It goes to the companies that make up decommissioning cost can be quite high. We have Aspire, yes. asked Aspire to manage and keep those costs and now we are, through decommissioning, reducing our Q363 Chair: I am asking what is the total amount overall burden, so we have not seen that constant of money that goes to the third phase, this recently spiral up that we may have seen over the last few negotiated contract? years. Phil Pavitt: The £8.5 billion, which is the whole period, we have taken £1 billion off that, so it is the Q358 Mr Umunna: Do you find that because of the balance between now and 2017. It is easier if I write costs involved in making changes under the contract, it down and send it to you, so you can see the under Aspire, you, if you like, hesitate and sometimes breakdown. decide not to proceed with the implementation of updated and new technologies? Q364 Chair: Phil Pavitt: Sometimes understanding the cost is I hear that is £8.5 billion but when this where outsourcing can be very powerful, because is finished how much will have been passed to Aspire sometimes if it is not outsourced the costs are almost in money terms? What is this latest extension relating not visible to the person commissioning that change. to real time information giving the contractor? Why Understanding the precise cost does often ask people is it so difficult to tell me that? to, I guess, take a small check and just make sure they Phil Pavitt: But there has been no contract extension. are getting value for money. That is never a bad thing. The last contract extension was the 2007 negotiation. Does it prevent us doing stuff we have to do? Absolutely not. That is why we have good commercial Q365 Chair: You are just using words here. They negotiation and get the right answer. have, because you have extended their contract, this The change that has been made recently, between now big job that you have just received £100 million from and the end of the contract, will save HMRC over £1 the Treasury; how much of that is going to go to billion from what we intended to pay two years ago. Aspire? That is what I am asking. It is a real tangible effect of making sure. There is Phil Pavitt: Right, okay. nothing wrong with understanding the full cost before Stephen Banyard: We are still in contractual you launch in. Those companies that have not negotiations with that, but in a broad sense the IT part outsourced—and I come from the private sector, as of that would be about 70%. you know—sometimes when it is in-source, you go Chair: How much? ahead and the costs are kind of lost somewhere in the Stephen Banyard: About 70%. payroll side or internal costs. We do not get the true Chair: £70 million. cost and therefore perhaps you do go ahead with Stephen Banyard: That order of figure. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 Stephen Banyard, Phil Pavitt and Mark Holden
Q366 Chair: What is the figure? Just finish off the hardware organisations. Any company can join that question for me, which was how can you persuade the ecosystem, there is a way of getting into it, but many Committee that you could not have had someone else of the people in that group who we don’t do business to come in to even undercut, because the basis of them with are there in case they have the skill set we need. getting the privileged position at the moment is they So other people can join it. received it so many years ago at a low price, and it Organisations come to us direct and say, “Do you has been well worthwhile to put that low price in first, know what, we are not in the ecosystem, we are great hasn’t it? So with this big contract coming through at doing this and we have a mechanism for handling you would think the market would be fighting to that.” They are able to that, it is very open. We ask come in. them to join the ecosystem so they are part of that Phil Pavitt: I think there are a couple of answers to Aspire construction that you referred to. that. The first thing is whether those organisations Stephen Banyard: We also have rigorous negotiations who would like to undercut or be part of any bid for and we benchmark the costs against other suppliers. work for HMRC have the skills and the track record Chair: We keep hearing, Mr Banyard, about vigorous to do the work. That is the first point. There are 204 negotiations on all things like Vodafone contracts and organisations in the Aspire organisation. We call it an other people. It is a phrase bandied about with HMRC ecosystem, the supply side of it, which covers apparently. So there you are. Come on, we will finish virtually all the worldwide known application with you because we have the Minister standing. Thank you very much, gentlemen.
Examination of Witness
Witness: David Gauke MP, Exchequer Secretary, gave evidence.
Chair: Welcome, Minister. I am sorry to keep you David Gauke: I don’t have an operational role. waiting. HMRC is an unusual organisation as far as its David Gauke: Not at all. governance is concerned, in that it is a non-ministerial department, and there are good reasons for that. For Q367 Andrea Leadsom: Last November, Minister, example, I think there are good reasons why Ministers you sent HMRC its new remit letter introducing are not involved in matters relating to specific yourself as being the Minister responsible, and that is taxpayers. It is part of the traditions that we have in why you were writing the letter not the Chancellor. this country that Ministers, politicians, cannot be So my first question is one of measurability, as in how getting involved. One looks at some of the should we, as the Treasury Select Committee, be circumstances that have happened in other countries considering your performance as the Minister and historically in the US, for example, where responsible for HMRC? political opponents have had their tax affairs David Gauke: I suppose a way of answering that is to scrutinised, perhaps more heavily than they would explain how I look at HMRC and the way in which I otherwise have been, going back to the ’30s and so on. assess HMRC’s performance. There are a number of It is a non-ministerial department, but I have a close aspects of what HMRC has to do, and their relationship with HMRC in the sense that I have contribution towards reducing the deficit. First, of meetings with senior HMRC officials on a very, very course, is getting the tax in and their capability there, frequent and regular basis, whether that be Lesley including what is achieved through compliance yield. Strathie, whether it be Mike Clasper, whether it be Within that context, of course, the spending review Dave Hartnett, whether it be any of the director- involved £917 million over the course of the spending generals. In recent months I think it is fairly unusual review period, which is to be invested for increasing for me not to have had a meeting with Stephen that yield. Banyard most weeks, and sometimes several times a Partly it is looking at the customer service, which is week. clearly something I am sure we will come to in detail where there is a need for improvement. Partly it is My job is, to some extent, similar to what the Treasury about meeting the financial targets they have been set Select Committee has to do, in that my role is to in the sense of controlling their costs and finding scrutinise. It is not to operate, direct, but it is to efficiency savings, and in part it is their contribution scrutinise and question and press and push and ensure to what Government is doing across the piece and, in that the concerns that we, as a Government, have that context, clearly RTI, which you have been about HMRC’s performance are conveyed and that examining in some detail, has an important role to HMRC and the Treasury can work closely together in play in helping the Government achieve its welfare achieving the Government’s objectives. objectives. Q369 Andrea Leadsom: You have said that you are Q368 Andrea Leadsom: Obviously you will be very determined HMRC will be a far better department by aware that this Committee has been quite scathing the end of this Parliament. How will you assess its about some of the performance of HMRC, so can you performance? Do you have yardsticks so there are talk to us a bit about your role vis-à-vis HMRC? How certain targets that you have agreed personally with accountable are you for its performance? the department? cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP
David Gauke: I think there is a range of indicators Government and HMRC needs to deliver on that and that one can look at, that we as a Government have my role is to ensure that it happens. highlighted. Partly there is the compliance yield, and I have talked about the additional investment in the Q371 Andrea Leadsom: You set four objectives for spending review, and HMRC have said to us that they HMRC over the spending review period. At least two believe that that will enable them to increase of them are potentially rather contradictory—cost compliance yield by £7 billion a year by the end of reduction and improving revenues. We have received the period, and I clearly want to hold them to account quite a lot of evidence that suggests that the reduction to that. in staff and the constant cuts mentality going on in In the area of customer service, I regularly ask for the HMRC is having a knock-on effect in reducing their latest details on the contact centre performance. For ability to improve revenues. Do you think that that is example, I take a close interest in post and how true and is there something that you are intending to quickly HMRC is able to turn around post, and in the do about that? number of open cases, which, for example, have been David Gauke: I think both can be achieved. I don’t very significant in recent years and are coming down. think they are necessarily contradictory and, indeed, That is not an exhaustive list, but those are some of the history of HMRC over recent years suggests that the statistics that I think have been particularly it is perfectly possible to do that. The compliance important over the last few months, and I take a close yield over recent years has increased from £7 billion interest in ensuring that we move in the right direction to £11 billion at a period of time when resources have on that. been restricted through greater use of technology, I should also add that on a regular basis the Finance more advanced techniques, and so on. We are going Officer, Simon Bowles, and I sit down and we walk to be strengthening the capacity on compliance through the various indicators of HMRC’s because we are directing resources there. I think we performance, including sickness absences, tax yield— can increase the yield. all aspects of what HMRC are measured by—to see There is also scope for savings, and to come back to what trends are emerging, whether they be positive or personal tax for a moment, there was a time when negative. As I say, we do that regularly so that I can 17 million open cases would have to be dealt with be kept abreast of any movements, any changes, manually—clearly a very expensive process. Now, whether good or bad. following the implementation of the NPS system, it is more in the region of 3 million cases that need to Q370 Andrea Leadsom: Do you see an improving be dealt with manually—still a significant demand on resources but clearly less of a demand than having to trend? Do you think your ambition of it being far deal with 17 million cases. So there are opportunities better by the end of the Parliament will be realised? for efficiency savings, and some of that can be used David Gauke: There are certainly signs for optimism. to reduce costs, some of that can be resources that can I don’t want to be Panglossian here. There is still be redeployed to increase yield and, indeed, the considerable room for improvement in contact centre number of staff in the compliance and enforcement performances. But to give one example, in the first area is likely to increase over the spending review four weeks of the last financial year, so in April 2010, period after a period of time in which it has fallen, I think it was the case that only 38% of calls were but nonetheless been able to not only maintain but getting through. That is a particularly bad improve its performance. performance even by HMRC contact centre performances, but that was the figure this time last Q372 Mr Tyrie: You have opened up a discussion of year. It is currently just below 68%. That is not a the compliance yield, Minister. What criteria are you stellar performance but clearly that is a significant using to decide how much to spend on tax collection? improvement. But that has to be sustainable and that David Gauke: It might be helpful if I say a little about has to be achieved over the long term. But there are how the spending review settlement was worked out, some reasons to be optimistic about that. and to some extent it predates the change of The number of open cases has been up 17 million or Government, but in the usual conversations that so, but that number is coming down very substantially happen in the run-up to a general election between and I know this Committee has been told that by the Shadow Ministers and senior officials, I put to HMRC end of 2012 we should have eliminated, if you like, our view that we felt that if there was a strong the historical open cases and just be dealing with the business case for investing in particular areas to cases from the relevant year. increase the yield we would be more than willing to The post backlog and how long it takes to turn round look at those arguments. This occurred in March of letters is something that a lot of parliamentary last year and, if you like, I set HMRC a set of colleagues are concerned about. Again, there are signs questions about where they feel they could prioritise of significant improvement on that but too often resources, and so on. promises can be made—and this is not just about Following the general election, and in the months HMRC—and expectations can be raised. The running up to the spending review settlement, these important thing is delivering on that. The expectations areas were worked on by HMRC. Essentially, they are positive. The expectation is there will be an came initially to me and then of course to the other improvement by the end of this Parliament, indeed Treasury Ministers, in particular, the Chief Secretary, before the end of the Parliament, but clearly we need with specific proposals about areas where, with some to deliver on that. I say “we” collectively; the additional spending, they thought there was a very cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP clear business case that additional resources could be Q377 Mr Tyrie: There clearly is additionality at 20 brought in. to one; if you are spending an extra £1 million at 20 to We always said to HMRC that they could not be one, most businesses would leap at it, wouldn’t they? exempt from the pressures that existed as part of the David Gauke: But in the sense of not just throwing spending review, and HMRC always accepted that. money, let’s just have extra money that we are They came forward with a proposal saying, “This is throwing— what we think we can do to reduce costs and this is what we can do to reinvest in a way that would Q378 Mr Tyrie: You are going to pick up 19 to one, increase the yield”. I think it would be fair to say aren’t you, for the marginal pound? that pretty well the HMRC bid was accepted by the David Gauke: That is what we hope and expect, yes. Government. The Treasury kicked the tyres very hard and examined all the detailed proposals that were Q379 Mr Tyrie: Could I suggest that the contained within it, which broke down to, “Well, this Government come forward with some slightly more particular programme we think would cost X and carefully thought through criteria for deciding where produce Y.” We examined the various proposals and, on that trade-off it wants to park itself? It seems to by in large, the HMRC bid was accepted, and that is me to be the crucial number for deciding how much why we reached the settlement that we did. is spent in HMRC. To be frank, I haven’t had a clear feel from you about what yardsticks you are using to Q373 Mr Tyrie: If you don’t mind I will ask the decide whether that number should be 20 to one, 18 same question pretty much again, which is: what are to one, or 22 to one. All I have heard so far is there the criteria that you are using or that HMRC came to is a non-linear performance with respect to certainty you with in order to make that judgement? Why not of the yield at the margin above 20 to one. I add another few million to this investment? What are understand of course this is an average, but above 20 the criteria for deciding what that investment number to one on average. is? David Gauke: It is important to say there was not a, David Gauke: They took a view as to the amount of “Right, if it is above 20 to one you are in and if you investment in specific areas that they felt could make are below—” that is not how we worked. HMRC a real difference, where they felt they could quantify came forward with a range of proposals— it. For example, in the compliance areas, there were Mr Tyrie: We have had that. We have that firmly on particular programmes that they wanted to implement, the record from Mr Banyard. one of which, if I can use an illustration, was the David Gauke:—and they took an estimate of risk and campaigns that HMRC have launched and are what their capacity was. As I say, there weren’t launching aimed at particular sectors. They assessed proposals that were a little bit lower that we rejected. the optimum number of campaigns that they could launch and where they would have the biggest impact Q380 Mr Tyrie: May I tentatively suggest, as a with a yield that was identifiable and clear. member of this Sub-Committee, that you take a look at at least one other criterion very carefully, which is Q374 Mr Tyrie: Let’s try having a go at this question the whole economy effect. An increase in investment from a slightly different angle, for each pound spent in compliance yield will also generate an increase in how much across the board are you getting back? For compliance costs for businesses. What we need to be each marginal extra pound spent. looking at here is not just a narrow yield question David Gauke: Over the course of the spending review for HMRC but a much broader question, which is the period, the overall figure is £917 million, which it is overall effect on economic activity caused by changes believed will yield an additional £18 billion. So it is in tax collection policy. I throw that out as a thought; quite a significant return. I am not going to ask you to answer it. But, if I may say so, what is clear to me on the basis of this Q375 Mr Tyrie: That is 20 to one. So, let me exchange is that this is an area that has not yet been rephrase my original questions. What led you to thought through very carefully by the new coalition conclude that 20 to one was the right ratio? Government, and I think it would be helpful to have David Gauke: The view from HMRC—it should be some clear yardsticks to guide us on where on that made clear that within the 20 to one ratio some ratio the Government wants to take policy. particular proposals were more and some were less— David Gauke: All I would say in response to that is was that with further investment the level of that I think the particular programmes that we uncertainty increased, and their confidence on the identified are well targeted and, for the vast bulk of it, yield diminished significantly. So these were the this is about addressing criminal behaviour. I think it particular proposals that they felt confident would is right and incumbent upon us as a Government, at a yield a good return. time when we have to reduce the deficit, to take seriously tax evasion and other criminal attacks. A lot Q376 Mr Tyrie: The first criterion is ‘uncertainty of this is to deal with cyber crime and so on. As to increases in a non-linear fashion. There is always your point about the burden of— some uncertainty, but it starts to rise very sharply.’ Are there any other criterion? Q381 Mr Tyrie: Just before we move off that first David Gauke: Clearly, not unconnected, the scale of point, are you therefore saying that this is not an the yield was important and I think there needed to be uncertainty question, beyond this 20 to one ratio, that clear additionality. the rest of the yield is really evasion? cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP
David Gauke: A large chunk of the £7 billion a year criticism of HMRC and, as a Minister, I try as hard as by the end of the spending review period will be to possible to choose my words carefully and not fall do with evasion. Some of it is to do with avoidance, into the trap of kicking HMRC and HMRC staff when but a large chunk of it will be to do with evasion. they don’t deserve it, because the vast majority of I will— HMRC staff are trying to do their best and are really committed to doing a good job. Q382 Mr Tyrie: Minister, I think this whole area needs a lot of thinking through. Why don’t you come Q384 Mr Tyrie: As you know, Minister, I have said back to us in due course with some concrete as much in the House and I strongly support the suggestions for what those criteria might be? sentiment of your last point. May I just add one more Staff morale is at rock bottom. In fact, the latest thought for your consideration? Isn’t the lion’s share indicators from the autumn of 2010 survey suggest of the responsibility ultimately for Ministers, because that it has become even worse, and this is with a very it is Ministers who set the policy that creates the high response rate of over two-thirds. Do you think environment in which possible or impossible targets that it is the responsibility of Ministers to address are then given to staff and, if you agree with that, this question? don’t you think it might be helpful if you were to let David Gauke: The issue of staff morale is clearly one us know at any time if senior staff have come to you of the major concerns that exists within HMRC, and to say, “The policy you are asking us to implement is it is a question I discuss with senior figures within a contributory factor to the drop in morale”? To the HMRC on a very regular basis. In my role as the low morale, I should say, because it can’t drop much relevant Minister for HMRC, clearly it is significant further. to me. I visit a lot of HMRC officers and I am David Gauke: It is possible for policy decisions to struck—this is not an original observation, I know have an impact on morale, but I don’t think in all others have said this as well, but I think it is true— honesty that the issues of staff morale that currently that the staff I meet are very committed to their job, exist are as a consequence of policy decisions that very engaged in what they do, very determined to do have been taken, at least for some time. I think there their job to the best of their ability, but clearly the are historical legacy matters, and we may talk a little relationship staff have with HMRC as an organisation about the impact that some of the decisions that were is a very bruised one, and I think that is very long- taken in the mid-2000s had on HMRC as an standing. This is not something new, although it organisation. But I take your point and it is perfectly probably did not help that the numbers from last possible that decisions taken by Ministers could have autumn were more or less done at the same time as the an impact on morale, but I don’t think in all honesty overpayments/underpayments story was running very that is the cause of the position we are in at the hard in the press. There is a big challenge for senior moment. management within HMRC, and indeed middle management within HMRC, to try to turn that round. Q385 Andrea Leadsom: That does seem to me There’s too much of an attitude of, “HMRC is them implausible, if you will forgive me, because there is and not us” among the staff and that is something that no doubt that it is Government policy decisions over we—whether me, as the Minister, or the Chairman or the last 10 years towards HMRC that has in large part the Chief Executive or the board as a whole or, as I created the low morale. It surely must be. Most of say, other levels of management—have a real the problems in HMRC date back the merger of Her challenge to try to turn that around. Majesty’s Revenue and Customs and Excise and the massive changes in IT systems, the move towards Q383 Mr Tyrie: I will just have one more go at automation, the reductions in staff, the cost-cutting. asking that question. You are quite right that senior As we all know, in all walks of life, any one of those management in HMRC have an important role to play, is a big contributor to lowering morale. Those are all middle management in HMRC have an important role political decisions, so it seems amazing that you don’t to play. My question was—let me put it slightly think that policy decisions have a hand to play in the differently—to what extent is this your responsibility low morale. and to what extent is this a management David Gauke: No, that is not quite what I was saying. responsibility? Again, what are the yardsticks for Let’s take the merger. Logically, it is sensible for determining the demarcation between those two? Revenue and Customs to be one organisation rather David Gauke: It is clearly principally the than two. responsibility of the senior management, and within Andrea Leadsom: I am not really challenging the my remit letter there is a particular target on staff decision, just the impact. morale, but staff morale feeds into meeting some of David Gauke: That merger clearly gave rise to a lot those other targets which are important. I will do of questions and was not implemented as well as it everything that I can to support senior management in might have been. In drawing the line between policy improving those staff engagement scores. You ask and operational decisions, in that particular context I how we measure this. I think those staff engagement would say that was largely the operational decisions. scores are clearly the starting point and the principal Another one of the challenges that HMRC had to deal means of measuring it. My role is to support senior with was the implementation of tax credits. Now, management in trying to do that. I would just add one there I think policy decisions had a very disruptive other thing. I am conscious that there is some fair effect on HMRC and as a consequence a lot of criticism of HMRC, but there is also some unfair resources were directed to clearing that mess up and cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP taken away from elsewhere, and that had the impact April to September this year to try to address that and on open cases within the personal tax system. So there try to improve— is a relationship there. Q388 Chair: Do you really think as a Minister Q386 Andrea Leadsom: Presumably Government though that you are not responsible or not able to tell had a hand in deciding not to reconcile open cases in them where to spend their money? Surely that is the 2010, which led to this enormous backlog. one power you have as a Minister—how they David Gauke: Indeed, yes. That obviously predated implement that. You direct the resources and if— this Government, but yes, there would have been a David Gauke: Strictly speaking, that is not the decision that Ministers were at the very least aware situation. It is a non-ministerial department, but— of. It is not a hard and fast line. The particular Chair: Where do they get their budget from? problem that we have at the moment is that there is a David Gauke: No, they get it from the taxpayer and legacy of a lot of problems with an organisation we are their representatives. through the mid-2000s that has taken a long time to Chair: You are the Minister. build up trust and recover from. There is a big David Gauke: But let me make this point— responsibility for management to try to address that, Chair: Yes, sorry. and it is probably easier for management to sort the David Gauke: We do sit down regularly. I express my problem out than it is for Ministers to sort it out. views, my concerns. HMRC senior management talk Maybe I should put it this way: Ministers can make to me on a very regular basis, letting me know their the matter worse, but I am not sure that Ministers can thinking. There is a regular, frequent exchange of make things better. views. We bounce ideas off each other, there are Andrea Leadsom: Yes, that is possibly true. discussions and it tends to be a collaborative process. The governance as such is not one where I, as a Q387 Chair: I raised this with Dame Lesley, and I Minister, can in any way micro-manage how HMRC thought she was putting the Minister—no, I won’t say do it, but I would expect and hope that my concerns that, but I think your answers to the question leave the are reflected in how HMRC go about dealing with problem unsolved. I am sitting here, and it was my their budget. Government who started the regular cuts in HMRC, and your Government are continuing them, and it Q389 Chair: As we sit, we know there is a difficulty seems from this side of the table from the evidence with their call centres. Have you given any of your we have collected that some of the problems will not feelings, thoughts, ambitions, instructions to Dame be solved unless there is more resources. We have Lesley— something in from the Public Accounts Committee on David Gauke: Yes. call centres, so we might deal with it later, but the answer from the Department is that they accept there Chair:—or is just something you have noted as a is a problem, but they need more resources. Now, if problem? you won’t take responsibility for it, it is the senior David Gauke: No, no, we discuss this on a regular management’s responsibility, but they are happy to basis and, if you like, my role, I think, is to hold continue. Year after year HMRC come to Committees HMRC’s feet to the fire and ask the question, “Well, in the House and accept there are problems, but they what are you going to do about this? How are you are always going to deal with them in the future, and going to improve it?”, some of which is about they never do. Ministers go time after time, so nobody improving the capability of dealing with the existing is going to. If the thing continues, they either ask you, number of calls, some of it is about reducing the Minister, for more money to deal with it, or if they number of calls in the first place. I express my views are not asking you for more money to deal with it, it on the subjects very forcefully on a very regular basis is clearly signalling there is no intention to deal with indeed. I suspect that I have discussed this particular it, they are prepared to put up with it, call centres and matter in three or four meetings in the last fortnight all sorts, the closure of offices, and it is the taxpayer probably. So there is that exchange of views. I don’t who is suffering, often the elderly, vulnerable. Now, want to say, “Look, it is hands off, I don’t have at what stage do you say, “Enough is enough. You anything to do with it.” I suspect I am probably more either sort this out, come clean with me and say it is engaged with HMRC than most Ministers in my resources and then it is my responsibility, or if you position, but we also have to recognise that there are are not asking me for that, I want it sorted out”? When people there who are full-time managers of do you have that conversation? Are you going to have organisations and in operational decisions I hold them that conversation? Have you had that conversation, or to account, in a way a bit like a non-executive do you disagree with the analysis? chairman. Of course, we already have a non-executive David Gauke: There are particular areas such as chairman, but I try to provide support in that role. contact centres where very clearly the performance of HMRC for many years has been well below that of Q390 Mr Tyrie: Would you be prepared to go away most other contact centres. This is something that we and have a think about the extent to which the morale all know about, and I certainly discuss it on a regular issue is linked to policy, and say something publicly basis. Now, I am not in a position to direct HMRC on it, or send us a view on it? precisely as to where they spend their money, but I David Gauke: I am more than happy to do that. As I certainly welcomed the decision to take on 1,000 staff say, I think this issue is— over the peak period for tax credit renewals from Mr Tyrie: I would stop there if I was you. cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
Ev 66 Treasury Committee: Evidence
11 May 2011 David Gauke MP
David Gauke: Let me say this: I think that how we corporates programme, but not all of those have been are going to fix this is something that HMRC has a settled, as I understand. responsibility to do and my job is to hold them accountable. I think Ministers can make matters Q396 Mr Ruffley: The figures I have in a written worse, and I fully accept that point. parliamentary question is 2008/09 settled six, 2009/10 settled 12, and 2010/11—so up until this March just Q391 Mr Ruffley: The Public Accounts Committee gone—seven, and those opened for the corresponding said of the 2009Ð10 annual report of HMRC: “There years beginning 2008/09 is four, then seven and then is little transparency for the taxpayer over the way that 2010/11 13. There seems to be quite a spike tax disputes with large companies are resolved.” What historically for those settled in 2009/10. Is there any do you think as a Minister you can do to improve particular reason for that? the transparency? David Gauke: I think that was— David Gauke: We have a long-standing principle of Mr Ruffley: It was way out of whack with all the taxpayer confidentiality, and that does constrain preceding and subsequent years. transparency. It is the case that the National Audit David Gauke: Yes. Obviously that predates my time Office is looking at the governance of some of the in office, so I am not privy to ministerial decisions settlements that have been made with large businesses made in advance of a year ago. The litigation strategy to ensure that that governance is appropriate, and that set out by HMRC, though that did predate the change is absolutely the right thing to do. People do need to of Government, has sought to try to settle where they be reassured that everything is done in a proper way. consider that to be appropriate. I know that a lot of allegations fly around in this area. A lot of it, as far as I can see, seems to be pretty ill- Q397 Mr Ruffley: Because under the coalition founded, but unless we abandon taxpayer Government those number of cases, high-risk confidentiality—perhaps there will be a debate on that corporates programme, has doubled in the last 12 particular subject; there hasn’t been up until now— months. Why is that? clearly not all the information is going to be in the David Gauke: I believe because HMRC—as I say, I public domain. am not involved in any decisions to settle—had been further advanced in their settlements. Q392 Mr Ruffley: But you think there can be an improvement on the current arrangements? Q398 Mr Ruffley: But it is fair to say, isn’t it, David Gauke: We need to ensure that the governance Minister, there is quite a lot of public interest is all that it should be, and having a respected third expressed through the media about large companies party, if you like, such as the National Audit Office, and the tax they pay? to review and examine the governance of HMRC in David Gauke: Yes, yes, but I should also add that of this particular area I hope will provide that course simply looking at the number of cases settled reassurance, and quite possibly constructive proposals doesn’t necessarily represent a complete and accurate as to what can be done. picture of the size of settlements or tax liabilities. Some of these vary in size quite significantly. Q393 Mr Ruffley: I know you don’t want to prejudge the NAO, but what improvements in Q399 Mr Ruffley: Which brings me elegantly on to governance might there be? my next question: how many tax investigations were David Gauke: I think you probably have it right, I settled for a sum of more than £10 million in each of don’t really want to prejudge what the NAO says. the last three years? HMRC is convinced that everything has been done David Gauke: I don’t know whether you have the properly and there has been nothing wrong with the numbers in front of you, I don’t have them. process in accordance with the current governance Mr Ruffley: Or what about something that might arrangements, but I look forward to hearing what the stick in the mind: tax investigations settled for more NAO has to say, and if there is scope for than £100 million in each of the last three years? improvement, clearly we should look to follow it. David Gauke: I suspect at that point we might be running into issues to do with taxpayer confidentiality. Q394 Mr Ruffley: When do you expect that work to What I can say is at 31 October 2010, there were in be done and when do you expect it to be published? HMRC, as a whole, 22 businesses where the total David Gauke: I am not quite sure what the timetable value of tax under consideration in respect of all is on that. July, I understand now. issues on those businesses was greater than £250 Mr Ruffley: 2011? million. David Gauke: Yes. Q400 Mr Ruffley: Could we just go on to Q395 Mr Ruffley: Just for the avoidance of doubt. settlements under controlled foreign companies In each of the last three years, how many cases dealt legislation? Do you have any figures to hand on that? with under the HMRC high-risk corporates What I am particularly interested in is how much tax programme have been settled? was estimated to be at risk, that is to say, before an David Gauke: I would have to check the numbers and inquiry had been completed, what was estimated to be I don’t know whether all those numbers are in the at risk involving CFC legislation in each of the last public domain or not, but if you bear with me one three years, and in how many cases the tax at risk was moment. Right, 38 cases within the high-risk more than £100 million. cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
Treasury Committee: Evidence Ev 67
11 May 2011 David Gauke MP
David Gauke: First of all, before returning to the Q404 Mr Ruffley: Yes. In the Vodafone case, details, it is worth making the point on the estimated because of the adverse publicity about what may or number that of course, almost by definition, that is a may not have happened allegedly, did you have any preliminary number, and until the work is— discussions with senior members of HMRC who were Mr Ruffley: It is why it is an estimate. involved in that decision to settle? David Gauke: Exactly. David Gauke: I had no discussions about Vodafone in Mr Ruffley: But you will have estimates, won’t you? advance of the settlement. David Gauke: Well, I can’t provide those figures now, but I am quite happy to write to the Committee to Q405 Mr Ruffley: The question I think arises of the provide those numbers. But I would just make this numbers of officials who resign or retire, leave HMRC point: sometimes those estimates are therefore used and then go on to work either for tax consultancies or as, “This is the money that is surrendered.” They are, law firms or FTSE 250 companies. Do you have the as you rightly say, estimates. They are preliminary data on the number of officials who at one time or until HMRC is able to investigate these matters more another have worked on the high-risk corporates fully, puts more work in and discusses this further programme or its predecessor, those who have left in with the relevant taxpayer, who provides more the last three years and how many have gone into any information. Those estimates are very, very much of those consultancies, law firms or companies? ballpark figures, and by no means likely to be an David Gauke: I know we have provided numbers of accurate assessment. staff who have moved from HMRC to companies or Mr Ruffley: But it still will be interesting, because it firms, as you mentioned. Whether they are for high- is one of the metrics you use, or your officials in risk corporates— HMRC use, so I think if you could write to the Committee about how much tax was estimated to be Q406 Mr Ruffley: Is that information available? at risk in cases involving CFC legislation and how David Gauke: If that information is available, we will many cases were over £100 million, that would be certainly be prepared to provide it. useful, if that is available. Mr Ruffley: I just wondered if— David Gauke: I am very happy to provide anything David Gauke: Yes, as I say, we have the overall we have on that. All I would say is that it would be a figures, but we won’t at the moment— mistake to look at what the estimate is and the final Mr Ruffley: Not those who have worked at any time settlement and say the difference between the two— for the high-risk corporates? Mr Ruffley: No, I quite understand. David Gauke: —be able to break it down. Let me see David Gauke: —is tax that has been lost somehow if we can do that and I will provide that. by HMRC. Q407 Mr Umunna: Following on from Mr Ruffley’s Q401 Mr Ruffley: Sure, but it is not a nugatory questions, could you provide us with the aggregate value of claims brought in court in relation to the point, is it, because you will do estimates for a reason? high-risk corporates programme and the aggregate They must be of some assistance to the Revenue in value of the sums for which those relevant cases were estimating what they think the possible yield is before settled for each of the last five years? Is that they go through the full inquiry, which is what I would information you can provide? That doesn’t involve be interested to know. any breach of confidentiality; I am just asking for the How many are in the team at HMRC that deals with aggregate value. these high-risk corporates? David Gauke: Let us see if we can do that, and if we David Gauke: That can vary from time to time. I think can’t, we will give you an explanation. But no, let us again, if I can’t provide you the numbers in the next see if we can provide that information. few moments, I can certainly let you have details of the size of that team. Q408 Mr Umunna: Minister, before I move to Mr Banyard, because I have a couple of questions about Q402 Mr Ruffley: Sure. The senior members of that a case of record, I noticed in the answer that you just team, by which I mean the person or persons who gave that you said that you weren’t consulted in decide finally to settle, when to settle and at what relation to settlements in advance of them being made. quantum to settle, who are they, what grades of Do I take it from that answer that after settlements officials are they? come to perhaps the public’s attention, you do then David Gauke: Well, again, that will depend on the ask questions? There have been a range of written particular settlement, the size of the settlement and the questions and answers, and also oral ones with, for nature of it. Depending upon which settlement, it example, the Member for Haltemprice and Howden, could be very senior staff indeed. about this. Do I take it that you take an interest after the settlement and ask questions? Q403 Mr Ruffley: Have any settlements ever had to David Gauke: Yes. HMRC will not and cannot be referred to you at all? provide to me information that is not in the public David Gauke: No, and nor would they be. I cannot domain. But as I was saying earlier, I have regular be involved in those decisions, for the reasons I was conversations with senior HMRC staff and I would outlining earlier. It wouldn’t be appropriate for need to ensure that I am comfortable or that we can Ministers to be involved in decisions that could be comfortable with the position that has been taken benefit or disbenefit specific taxpayers. within the constraints that exist, which are significant. cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
Ev 68 Treasury Committee: Evidence
11 May 2011 David Gauke MP
So I have not sat down and had someone talk me proceedings in relation to them carried on for another through the Vodafone settlement, but nonetheless I, as four or five years. Again, that is all a matter of public you would expect, I would seek reassurance on the record. I suppose this is a matter of public record, but governance here and ensure that there is nothing that you may or may not wish to comment on it, but the strikes me as being unusual or wrong. intention was in that case for Goldmans to use the EBT vehicle to avoid national insurance contributions Q409 Mr Umunna: I will come back to you. Mr in the sum of £23 million through a complex share Banyard, can I just ask you about a case which has purchase arrangement and, as it stood at the end of been reported, because it was heard in open court, and 2009, there was around £10.8 million worth of interest that relates to Goldman Sachs. For a 26-month period owing in addition to that. So we are talking around in the late 1990s, that investment bank set up an £40 million. Are you able to confirm any of that? offshore vehicle to pay bonuses to their London Stephen Banyard: No. bankers, and under the arrangement London staff who were employed by that vehicle were seconded to the Q413 Mr Umunna: Could you perhaps tell us why, London offices and essentially were employees and or could I perhaps invite HMRC to clarify what worked for Goldman Sachs’ headquarters here. That happened in that case, because there have been details arrangement was subject to proceedings which were of the settlement or leaked details in the media in brought by—well, which occurred between HMRC relation to this particular issue. You will understand and Goldmans that started in and around December that insofar as the public is concerned and the people 2002 and continued through to the end of 2009, we represent are concerned, they would expect large because HMRC was concerned that this arrangement corporates and wealthy individuals to be required to was being used to avoid the payment of national contribute to the Exchequer and meet their tax insurance. Now, all that I have just said is a matter of obligations in the same way as everybody else. Now, public record and has been heard and discussed in when your colleague, Dave Hartnett, has appeared in open court, and there are various judgments in the front of us before, and was, I think, questioned by Mr interlocutory hearings which have formed parts of Norman in relation to the Vodafone case, obviously a those proceedings online. Are you familiar with view was taken within the organisation that there those proceedings? needed to be clarification to assure the public as to Stephen Banyard: I am not particularly familiar with what the terms of that arrangement were. Now, in them, but the settlement terms are not in the public relation to Goldmans, there are serious allegations domain and I couldn’t comment on them here. which have been made in the media in relation to HMRC settling this case and also in relation to Mr Q410 Mr Umunna: I am aware of that, and you will Hartnett in particular. Would you consider as an note that I have not asked you anything about the organisation publishing or providing to us information settlement terms. I have just asked you about the case about that case so that the public can be assured that so far. Just in terms of the arrangement that was the the proper procedures have been followed? subject of those proceedings, which was an employee Stephen Banyard: I think the sensible thing would be benefit trust, those were in operation in a number of for us to take that away and write to you. other companies at that time. You, HMRC, also brought proceedings against them in relation to those Q414 Mr Umunna: Could you perhaps just tell us— arrangements, and again, all of those proceedings are Mr Ruffley asked about the people who decide upon a matter of public record. Now, you will note I have the settlements—just a bit about the process and the not mentioned the companies, I have not even cited procedure involved in deciding whether to settle the proceedings, but you will agree, or perhaps you such cases? could confirm that what I have just said is correct? Stephen Banyard: I am not a member of the high- Stephen Banyard: We have taken settlement risk corporates programme, so I don’t have first-hand agreements, or we have worked on EBT with other knowledge of it. The settlements are settled at a level companies, yes. appropriate to the size and the complexity of the case and the precedent value. It might be at director level, Q411 Mr Umunna: With respect to those companies, director of a large business service, it might be more and these were companies with whom you had similar senior, depending on the size and the severity of the proceedings at around the same time as Goldmans, case. The processes followed are laid down. I can’t you successfully litigated those proceedings and personally tell you what they are here, but again, we settlements were reached in or around 2005, which could let you have a note which would tell you how secured the full payment of national insurance. Again, we go about that. I have not named the companies and I have not cited the proceedings. I simply asked you to confirm that Q415 Mr Umunna: Could you also tell us in relation what I have just said is correct. to the particular case that I have raised whether the Stephen Banyard: I believe so, but I would need to internal procedures were met in relation to the look into it in detail. Goldman’s settlement? Stephen Banyard: We could do that in the letter as Q412 Mr Umunna: Okay. However—and again, this well. is a matter of record, because it is all in the Goldman’s interlocutory hearing I have just referred to— Q416 Mr Umunna: Thank you very much. Finally, Goldmans refused to play ball over EBTs and so the can I just ask you, Minister, going back to the answer cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
Treasury Committee: Evidence Ev 69
11 May 2011 David Gauke MP you gave me before in relation to taking an interest in in the public domain, but I am not in a position to matters that have arisen after settlement, because they comment on specific cases. become an issue of public interest, are you aware of Mr Umunna: But you have said that part of your job the subject that I have raised this afternoon? is to scrutinise and I would argue although you don’t David Gauke: I am aware that there are a number of have operational responsibility for what happens at press reports and press comments. HMRC, insofar as the public is concerned, they will Mr Umunna: That wasn’t the question I asked. want to know that you are ensuring that there isn’t David Gauke: On this specific one, I have to say I one set of rules for wealthy individuals and very large have not had any specific conversations with HMRC corporates and investment banks and another set of staff about this particular matter. I have not— rules for everybody else. David Gauke: Of course, but as I say, we have the Q417 Mr Umunna: So you are not aware of it? NAO that is looking at the governance in this area. David Gauke: I think I am aware of issues with regard They are able to do that to a considerable degree of to Goldmans along these lines, but this is not a subject depth and we await their report in July. matter which I have discussed with HMRC senior Mr Umunna: Thank you. management. Q420 Jesse Norman: Minister, just to pick up on the Q418 Mr Umunna: Minister, you said that you last point about Vodafone, of course it is right, as you speak regularly—almost every day, it would seem— have said, that you should not be, as it were, inserting to HMRC officials, including Mr Hartnett, who yourself into every process of tax recovery. The appears to, according to the report, have settled this amounts in this case are enormous or potentially case. Given that it is a matter of public interest and enormous, and so I suppose that would be a basis for you meet regularly with the HMRC personnel I have personal investigation. You will recall that the amount just cited, why haven’t you asked any questions about received was £1.25 billion on about 10 years of this particular case? potential tax paid. Do you know if that sum included David Gauke: I have discussed with HMRC the any interest that was accruing over that period of general governance and the arrangements as far as time? settlements are concerned with large corporates. I David Gauke: I would have to check that. I think the have had discussions that have been about the answer is yes but again, I must stress that I am not governance with regard to Vodafone and in advance informed of any details that are not in the public of Mr Hartnett speaking to this Committee earlier in domain, so I am not going to be a useful source of this year. I was aware that he was going to set out information to you if you want more details that are further details to this Committee, but I don’t see it as not already out there. my role to discuss each and every case just because there has been a press report critical of HMRC in that, Q421 Jesse Norman: I understand. As far as I am as long as I am satisfied that the general approach aware, it isn’t out there. I wrote to Lesley Strathie a taken by HMRC is the appropriate one. month ago for further information on this and I have yet to hear the detail on it. It would be an interesting Q419 Mr Umunna: But isn’t that a slight disclosure. There are a number of inconsistencies in contradiction, because you did take an interest in even Mr Hartnett’s clarification that would merit Vodafone, you did ask questions about that, because further investigation. He made the very interesting it was a matter of public interest, and presumably—if general claim that, as far as he was aware, there had you will let me finish—politically sensitive? I would never been a case to his knowledge in which a large say the same characteristics apply to the Goldman corporate had failed to pay the tax that was due. case. You have just confirmed you are aware of this David Gauke: Correct me if I am wrong and you were and you are aware of these reports, yet you don’t seem obviously asking the question, but I think it was in the to have asked any questions in particular about this context of whether there had been penalties levied on politically and publicly sensitive topic when it has large corporates and whether a large corporate had come to your recent conversations with HMRC been guilty of tax evasion. officials, one of whom has been named in connection with that particular case. Q422 Jesse Norman: That wasn’t the phrase he David Gauke: I am conscious that a lot of allegations used; that certainly was the context but it wasn’t the seem to be made on the basis of little or no evidence, phrase used. The other inconsistency that was very as far as I can see. I also made the point that within striking was in his claim that they had essentially gone the constraints that exist as far as client confidentiality through a long process of negotiation that had been is concerned I don’t expect—indeed, I am not rather stalled until he had intervened and yet the entitled—to be talked through details that are not in amount of money had been exactly what the Revenue the public domain. I do have an interest in ensuring had been seeking. Those two claims don’t seem likely. that the overall governance is correct, there is nothing It is likely that the Revenue didn’t settle for the full that appears to be out of place, and I do that in a amount that it was seeking during this process in generic case, but I think it would be fair to say that negotiation. That would be something to look at if you on Vodafone, which has been a particularly high- were so minded. profile case, I had further discussions, but again, no Parallel to that is the case of WPP. Are you familiar specific information was provided to me. Of course, with the settlement recently that may have been done in the Vodafone case there were more details that were by the Revenue in connection with WPP? cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
Ev 70 Treasury Committee: Evidence
11 May 2011 David Gauke MP
David Gauke: I am not aware of, again, anything that removal of staff from local offices. I think myself that is not in the— is one of the reasons why customer service performance appears to have gone down and why Q423 Jesse Norman: No, I don’t remember the exact morale is poorer because it is harder to sell—and, of date when it was concluded. I mean, it would be course, an awful lot of cost has been placed in the interesting to know whether it was connected with hands of the individual that didn’t exist before because WPP’s decision to relocate back in this country and they could to the local office and get the tax sorted. that would be something else to look at. I am sure you Of course technology doesn’t require centralisation, share my view, Minister, and it came out of testimony you can use technology to localise. At some point, with Mr Hartnett, that there is quite a disproportionate will you be sympathetic to the idea of looking at effect in terms of the penalties levied on small relocalising some services in order to provide better businesses as compared with large businesses. Small tax advice and better service to local people? businesses pay penalties at a rate of about 200 times David Gauke: I think it is worth making the point that those of large businesses. Now, there is undoubtedly demand for the face to face service is diminishing. I under-compliance of small businesses, there is no saw one figure showing that it has fallen by 40% in doubt about that. The question is really whether you the last year or so. There are occasions where monies might, on our behalf, as parliamentarians, be able to are spent on an Enquiry Centre, for example. There is satisfy yourself that those procedures are fair and have one example, I can’t provide names for commercial been fairly implemented because they do hit firms confidentiality reasons, but there is one Enquiry very hard in our constituencies. One firm in my area— Centre where HMRC has been paying £162,000 a year Herefordshire has some activities in the defence area in rent and that Enquiry Centre gets, on average, four and this firm does some imports and exports of kit, appointments a week. There are another two examples equipment, uniforms—brought the Revenue in to help where the rent is £26,000 and £34,000 a year and they it to think through a difficult issue of coding and was are getting, on average, one appointment a week each. then appalled to discover a team that basically then It is clearly not sensible to pursue that but we can be, went on a fishing expedition in its own offices for a and I think HMRC can be and is being, more period of time. It is clear that the Revenue has imaginative in the sense that there doesn’t necessarily extended some grace to some small businesses, but need to be a separate HMRC office incurring all those there does seem to be an unfairness in the way that it costs. HMRC can make use of job centres or council is proceeding against these two different classes of offices and so on and be much more creative in the taxpayer. way that is done. By and large, although there are David Gauke: Obviously I can’t comment on the local offices that have been closing and have been individual constituency case that you have. The closing for a number of years, it doesn’t mean that penalties regime exists where a taxpayer has either face to face services are being withdrawn. But HMRC been careless or has been dishonest, in very broad does need to be proportionate to the customer demand. terms. Now, large corporates may be many things. If, in one particular town, there is only one They may be very aggressive in their tax planning and appointment a week, then HMRC really does have to they may well engage in tax avoidance, and HMRC think long and hard about how many resources it will try to address that. But, by and large—I think is devotes to providing face to face service in the the point that Mr Hartnett was setting out—Mr traditional way and whether there other ways in which Hartnett’s experience, which is considerable, is that it could be done, perhaps through engaging the large corporates don’t tend to be careless or dishonest. voluntary sector, for example? Are there other ways, They are many things but not that. So that is why perhaps by moving around, having travelling HMRC penalties don’t tend to be levied on large corporates. Enquiry Centres? I think HMRC is looking at how SMEs, a minority of them, are careless, and a that service can be provided more efficiently while minority, a small minority, one would like to think, still protecting that desire for face to face service for perhaps are dishonest, and that puts at a disadvantage people who really need it. the majority who are honest and careful and comply with their tax obligations, and clearly a significant part Q425 Jesse Norman: I wonder if you just couldn’t of the tax gap does lie within the SME sector. So relocate some central processing into local areas to HMRC does have a role to pursue that and that is why give them critical mass. A classic example is the there is a penalties regime, but if you are making the Herefordshire tax office. That office used to have 95 case to me that there may be occasions where HMRC people and now has 10 people and, of course, that get it wrong but there are SMEs who are pursued by isn’t just customer facing people, it is people with HMRC in a way that is disproportionate and unfair expertise who have been pulled out, so you don’t get and unreasonable, of course that does happen. the answers. The net result: a lot of additional cost on Jesse Norman: And who may be neither careless the individual business or the individual person. It nor dishonest. would just be a mater of dividing up the pack slightly David Gauke: Indeed, yes. differently from centralising in large office blocks. David Gauke: Yes, I can see that argument, but I can Q424 Jesse Norman: One of the things that has been also see the alternative argument that at a time, more very striking about the progressive reorganisations of than ever, when we have to find efficiencies, where the past decade in the Revenue and Customs has been we have to get more for less, can there be some the essentially pulling away from the customer, to the rationalisations that involve savings? That has been a removal of local offices, closure of local offices, course that HMRC has pursued over recent years and cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP there is indeed some evidence, if one looks at the litigation and settlement strategy. It states: “Where its compliance yield, for example, that has gone up over legal advice is strong, it should not accept settlements recent years at a time when expenditure in this area from less than 100% of the tax and interest due for has been reduced. I think there is quite a strong less than 100% of the tax and interest due.” Now, you counterargument to be honest. say that you don’t get involved with any of these negotiations or settlements until they have occurred Q426 Jesse Norman: Absolutely. The compliance and so, in terms of your scrutiny and accountability yield is, I think, a useful gross measure but, of course, remit as a kind of actor on behalf of Parliament, you if what you have is a long tail of people who aren’t are really absent from the scene, and then afterwards, paying the right tax because they are not being once you have become involved, the flag of taxpayer pursued or because they have been poorly coded or confidentiality goes up. Meanwhile, we are left none they have just slipped through the system, the the wiser as to whether or not HMRC is doing its job compliance yield can go up but morale and the feeling properly and whether people within it are behaving that you ought to be paying tax and there are people properly. What is the route out of that? Do we need you know who aren’t paying tax who should be, to set up a new Committee of the House akin to the which is very corrupting to morale, that could Security and Intelligence Committee where continue. So, as you say, it is a bigger picture. Parliament can hold HMRC to account on these To go back to RTI, what political decisions, Minister, matters and do so in a way where we don’t have all do you think will need to be made and by whom to these confidentiality issues because we are not getting safeguard the delivery of that? Obviously it is going much information? I think the only incidence of that to be quite a tough task. happening, as you have acknowledged yourself, is in David Gauke: Well, obviously you had a session with relation to Vodafone because of the numbers involved. Mr Banyard earlier to talk about that and— They were huge, those numbers, but how can we have confidence if we are struggling to really hold you Q427 Jesse Norman: I am talking about the political accountable? side really. David Gauke: As I mentioned earlier, and as you will David Gauke: Yes, and it is a challenging timetable be aware, the National Audit Office is reviewing the but HMRC is confident that it can deliver on that governance in this area and we await that response, timetable. Again, I discuss this matter regularly and but I do— ask the questions about whether it can be achieved and I, for one, welcome this Select Committee’s interest in Q431 Chuka Umunna: That is governance though, this particular area. The performance and reform unit, Minister. We are looking at what is— which used to be the Prime Minister’s delivery unit, David Gauke: It is governance, but let me point out is very heavily involved in scrutinising, for example, that one of the risks of an alternative approach is that, the data quality assessments and so on. It is important if politicians from whatever party find themselves that we get this right. It is important that we can becoming intimately involved in decisions as to deliver this and that we don’t jeopardise the workings whether a taxpayer has paid the right amount of tax— of the tax system, but we can make an important a highly technical matter where, let us be honest, most contribution towards bringing in universal credit that of us, as Members of Parliament, are not hugely well would have a significant benefit to the country as a qualified to make that judgement—the risk may exist whole. in future that these decisions become increasingly politicised and popular taxpayers get a better deal than Q428 Jesse Norman: Is that a nice way of saying unpopular taxpayers regardless of what the law says. you don’t think there are any specific political This is a matter for the law. This is a matter for strict decisions that can be taken between now and it legal requirements and accountability, and the happening? challenge here is to find a way in which—and I can David Gauke: It is largely an operational matter. It is understand that— a big operational matter but I am keen to be, within that constraint, engaged and interested and asking Q432 Chuka Umunna: So you don’t think the status searching questions as other Ministers are in DWP. quo is necessarily entirely satisfactory. I appreciate what you are saying, Minister, and I know you used Q429 Jesse Norman: But you will only be given to practise law, as did I, so I completely understand publicly available information in response to that. the confidentiality aspect. Do I take from what you David Gauke: This isn’t to do with client are saying that you agree that the status quo is confidentiality. This is not about taxpayer frustrating and not terribly satisfactory, but that if we confidentiality, at least not yet. can, we need to look to a better system that does not Jesse Norman: Thank you. necessarily take us down the adverse avenue that you are rightly pointing out to me now? Q430 Chuka Umunna: Minister, I am left a bit David Gauke: I find it frustrating that sometimes troubled by some of the answers you have just given allegations are made. We have to remember that some to not only Mr Ruffley and Mr Norman’s questions of these allegations question the integrity of dedicated but mine too, because it leaves me wondering where public servants on the basis of little or no evidence, on earth is the accountability in the settlement of some and it concerns me that some of these decisions are of these tax disputes? I am reading from the Public becoming politicised and it is quite difficult for Accounts Committee report here and this is HMRC’s HMRC to answer back because they are not entitled cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP to put confidential information into the public domain. sequestrate by Hogmanay” with no human It is not possible for me, as the Minister, to see all the intervention. The constant complaint is, “Why doesn’t information, but is the solution that somehow someone from HMRC come and understand my politicians become more intimately involved in these business?” particularly if we have just been through a decisions, scrutinising them and sitting there with a difficult economic period. These aren’t people who are tax rule book and the financial figures for a particular misbehaving; they are not being wilful, they are not taxpayer, trying to work out whether a settlement that being evasive, they are not trying to avoid, they want has been reached? Whether that is, in any way, an to pay their dues and they are at their wits’ end when adequate or satisfactory solution, I have to say I really the threats emerge quickly without the human do doubt. intervention of someone saying, “Ah, I can see what you’re trying to do here”. How do we build this into Q433 Chuka Umunna: But slightly the complete the culture? opposite end of the spectrum— David Gauke: Yes, I should make the point that David Gauke: Yes, I suppose, but even finding a HMRC’s time to pay process—that was introduced compromise, I think there are some real challenges under the previous Government—was one that I think, there. But, as I say, the NAO is looking at this across the board, was widely welcomed and particular area and I am sure that HMRC would want considered to be a good process, effective and well to engage constructively with any recommendations run, which provided a lot of support for small the NAO would come up with. businesses going through temporary difficulties. That Chuka Umunna: Thank you. time to pay process continues, it is still in existence and for those who are going temporarily through a Q434 Steward Hosie: This Sub-Committee has had difficult period where they can’t pay tax, HMRC evidence that investigations into SMEs and continues to be sympathetic. It is not designed for individuals can appear heavy-handed or targeted, there those businesses that are only viable on the basis that is a presumption of guilt. I know when you were in they don’t pay tax, and I don’t think anyone would Opposition you were concerned about the impact of disagree with that. So we are at the point now where those sorts of investigations on individuals and SMEs, there may be businesses that have been in the time to but now we are looking for an extra £7 billion in pay arrangements for some years where clearly compliance yield, what assurances can you give that HMRC is going to be less sympathetic for a further they won’t more heavy handed, that things will be request for time to pay because it has been going for done proportionately and properly as the Revenue some time. strive to find that additional cash? There is, again, a balance that needs to be struck on David Gauke: I think it is a very good question and I the basis of collecting debt. HMRC has had to write think it is one of the challenges that HMRC and any off considerable sums every year of outstanding debt tax raising authority has to try to meet to be effective, for businesses that then go bust; that is largely where to ensure that there are sufficient deterrents in place, the write-off belongs. And to protect those taxpayers but that there is a culture of compliance with the tax law that exists for all businesses. Businesses that that do pay their taxes on time, it is important that aren’t tax compliant, SMEs or large corporates or HMRC is effective in collecting debt, but I entirely individuals, if they have done wrong, should fear the agree with you, Mr Hosie, that there is a balance that consequences. Equally, and this comes back, I needs to be struck in not being overly aggressive. One suppose, to one of the questions put by Mr Tyrie of the challenges is HMRC has to make so many earlier, HMRC shouldn’t be getting in the way of judgements. It deals with so many businesses, so businesses trying to do their business in a way that is many individuals and so on. It will get some of those disproportionate exactly as he set out. It is a constant judgements wrong and there will be some hard cases, balancing act and that is a big challenge for HMRC. and by and large, as Members of Parliament, we tend Where they have developed in recent years is at to hear about them pretty quickly when they happen. having a better understanding of, if you like, customer But, as I say, I think HMRC is striving to get that segmentation—to use management speak for a balance right. Stephen, you wanted to come in on this. moment—but understanding where the risks lie, what Stephen Banyard: We put a lot of effort into helping are the characteristics of the non-compliant, how to businesses get it right in the first place, so we have a allow the willing and able to get on and leave them team of 350 who give workshops, seminars and help alone, as it were, and target activity on those most to small businesses, particularly those who are just likely to be in breach of the law. As these techniques starting up, to small employers, new employers and become more sophisticated and useful, then that is so forth. So we put a lot into that. We have developed something that gives HMRC an opportunity to target the business link website; we have put a lot of material their activity more skilfully. on to that website that will help businesses. For example, there is a simple record keeping system there Q435 Steward Hosie: I think that segmentation is on the net that they can download and use. We have sensible. I am sure the professionals in the Revenue people who go out and do record checks and help will understand the risk sectors perhaps more than we people, so we put quite a lot in at the front end to would, but whether it is a risk sector or not, on many encourage and help people to get it right but equally, occasions business people, small business people have we know that 35% of small businesses are said, “Out of the blue, we received a threatening letter. attitudinally non-compliant, so we also have to go You pay the money by Christmas Eve or we’ll in— cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP
Q436 Steward Hosie: Sorry, can you just explain David Gauke: I am not sure I would agree with the that? Does that mean their attitude is wrong in the point about the early pilots and my understanding is view of the Revenue or they are simply doing the that they were fairly successful. As far as private debt wrong thing? collecting agencies are concerned, on the basis of, as Stephen Banyard: No, they are not predisposed to I say, the pilots which seemed to be successful, we want to complete the tax return fully and accurately. have rolled this out further. There is greater flexibility in making use of private debt collecting agencies as Q437 Steward Hosie: 35% of businesses? opposed to taking on full, permanent HMRC staff. As Stephen Banyard: Not that they do. We have done a a consequence of the work that has already been customer analysis, customer research, and asked undertaken with private debt collecting agencies, people what their attitudes are to paying tax. something like £140 million has been recovered that Essentially, you ask people are they willing to pay tax would otherwise have had to have been written off. and are they able. You don’t ask those questions, you Clearly much more than that has been recovered but ask it in a much complicated way. If you do that, then that is like the additional— in small businesses about 8% would come in under a Steward Hosie: That is the marginal benefit. group that we would call “rule breakers”, people who David Gauke: Yes, that is the additional sum and, understate their profits and their tax, but for every one indeed, we think over the years ahead pretty who does that, there are another four who would if substantial sums, I think something in the region of they thought they would not be caught out. £1 billion, will be recovered.
Q438 Steward Hosie: So the Revenue’s attitude at Q442 Steward Hosie: HMRC have said they are not the outset to a whole group of taxpayers, and this is selling debt as part of the current exercise, which fascinating, is one in 12 of you are going to cheat and leaves the option of selling debt open. Would you like one in three of you want to cheat. That is a hell of an to take the opportunity to rule that out because that is attitude to take to the broad mass if that is the policy a real fear for a lot of people that Crown debt might you have just given us. become debts sold to anybody and subsequently, Stephen Banyard: No, no, no. The approach is that down the line, to who knows who? we want to encourage people to comply. We need to David Gauke: That isn’t what we are focusing on at understand where they are. We need to provide the moment and were we to do so, then clearly there systems that encourage people to declare their profits would be a need to look at the safeguards that would fully and that is where we are. It is far more effective be in place. So that is not an immediate policy for us to encourage people than to go in and try and decision, but I don’t want to rule it out. I think it is find out after the event what has been understated. So important that HMRC recovers as much debt as is the whole thrust of our compliance policy is aimed at practical and, as I say, when in recent years something encouraging people to get it right. like, I think it is, £1.5 billion or so a year is written off, that is clearly a substantial amount of tax gone. If Q439 Steward Hosie: Indeed, and that is a good there are ways of improving debt collection, then I thing, but what you have just said is astonishing. I think it would be a mistake for HMRC not to explore have never heard this before. So your inspectors and those possibilities. all your other staff have a working assumption that at least a third of your clients want to cheat. Q443 Steward Hosie: That’s worrying. Do you not Stephen Banyard: I don’t think they go out with that see a difference between Crown debt and say the debt assumption at all. Our inspectors go out and look at on a hire purchase agreement to buy a fridge? Is the facts as they see them. They don’t go out with Crown debt not something more significant that ought preconceptions. not to just be commodified, put into the marketplace and sold on like any other piece of tax? Q440 Steward Hosie: Right but attitudinally, you David Gauke: Well, as I say, it is not something that know one in 12 will and one in three or more want to. HMRC has immediate plans to do, nor is it something Stephen Banyard: That is the result of our research, that has been explored in any great detail up to now. yes, but that is not the way in which our staff go out Steward Hosie: But it has not been ruled out. and conduct their business. We risk assess particular David Gauke: Until it has been explored, I think it cases, we look into them. We look at them would be a mistake to necessarily rule it out, but I dispassionately. We do not go in with a pre- don’t anticipate that happening in the immediate judgement. future.
Q441 Steward Hosie: I think we will come back to Q444 John Thurso: Thank you, Chairman. this because this is a fascinating area and it is the first Apologies for being late. As I warned you, I was I have heard of it, but we will come back to this chairing another Committee. Minister, can I pick up a another time. I have two other questions just on debt point that Andrew Tyrie made, which is regarding the and the use of private debt collection agencies. As I compliance investment? I think a memo went round understand it, early pilots were not particularly from the Head of Compliance quite recently and it successful, particularly in terms of the cost- was good news. In order to deliver, 500 more posts effectiveness, but there still appears to be a drive to were required. Of course, it is not just the money; it use external debt collection. Why not just employ is the human resource. At the same time, in the other more HMRC staff? part of the organisation, there are a lot of people going cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP and if I look at the example that I know, which is in Q446 John Thurso: Excellent. Can I move on then Wick, there are 20 people employed, most of whom to talk about customer satisfaction? Overall, starting are now working on compliance; some 10 plus of at the baseline June 2008, customer satisfaction was whom are on partnerships and I gather doing a very rated 72.8%. It peaked in March 2010 at 76% and good job and are being highly praised for that. When the September 2010 figure is 72.5%. Are you content the office closes next year, none of them will stay with that? because they want to live up there, not in a foreign David Gauke: No, I think it needs to go higher. It country like the central belt of Scotland or somewhere needs to improve. I am not content. else. Does it not seem a shame to lose that high quality resource to replace it with trainees who need to be Q447 John Thurso: What do you think would be an trained and all the costs that go with it? Without appropriate target of satisfaction? asking you to revisit again the decision for long-term David Gauke: I am loth to put a specific number on closure, would it not be sensible to find a two, three- it and there are a number of ways in which this can year solution so that that team could go on working? be measured. I am not saying, you know, that For example, if property is the problem, HIE, the somehow there is a magic number, whether it is 80% Highland Council, lots of people would find property or 78% or whatever, I don’t— as you were saying to Jesse Norman. I am sure there are other examples of this where the need locally to Q448 John Thurso: Most service orientated keep some jobs, particularly over the next two or three businesses would be aiming for high 80s, low 90s. years, and the need for HMRC to retain high ability David Gauke: Yes, I think, being on a par with what people could be found by innovative solutions. Is that is the norm, we have to bear in mind where HMRC not something you think you ought to looking at? starts, and so the first thing I’d be looking for is a David Gauke: If I may, I will follow your route for pretty significant improvement on where we are; up me not to get too involved in the individual case, and by 5% or so. And I think that, as I was saying earlier, I know that you have pursued this matter for many it is not just about that one particular number but we years with great tenacity. I understand you recently need to be looking at the number of calls to contact met with Lesley Strathie to discuss some of these centres that get through, the length of time it takes for points. I think what HMRC are trying to do in this post to be turned round and the overall experience of area of, if you like, strengthening the compliance the taxpayer. In that context, for example, the Office capacity and indeed expanding the number of staff of Tax Simplification is looking at the experience of working in the compliance and enforcement area, SMEs and, if you like, the administrative experience, while at the same time there are reductions in other the processes that SMEs go through in order to have parts of HMRC—and I have talked earlier about a better understanding of how that can be improved. where there are some opportunities to reduce staff— So, as I say, I don’t necessarily want to put a particular is wherever possible to retrain HMRC staff to enable number on it. If we are looking at this as a year zero them to move from one part of the organisation to another, to maintain the skills that they already have way, it starts at too low a level and we need to see and to indeed strengthen them so that they are able to significant improvements. have greater flexibility. That is something that HMRC is looking to do and I think that is absolutely right for Q449 John Thurso: There is a whole raft of them to do that. So there may well be staff who are independent management science around this and it working in one part of HMRC that is losing staff, but ain’t rocket science. In other words, any company that they can be retrained, reskilled and become part of relies on or has a high regard for customer satisfaction one of the expanding areas. can go to very competent specialists, design something with very particular inputs and outputs and Q445 John Thurso: My point is that you have staff set of targets and have it measured independently. I who don’t need retraining. They have the skills, they personally think it would serve any part of the are doing it, they are very good at it, they get praised Government that has a customer satisfaction, but for doing it and it seems the only impediment to would this not be particularly appropriate for HMRC? keeping them from happily working is the need to get David Gauke: Yes, potentially. We clearly need to find rid of the property cost, which I fully understand ways in which the service that is provided to taxpayers because you have two big elements of cost in HMRC; is improved and if there is value that can be added in you have property cost and people cost. If you can get the way that you suggest, then— rid of the property cost through innovative thinking by local councils, enterprise bodies, whatever, shouldn’t Q450 John Thurso: My concern is that if you say, HMRC be open to those approaches? It won’t last “Yes, it should go up but I’m not going to set a forever obviously, but for a period of time that would figure,” your successors and my successors, as it were, be an innovative solution to what they are seeking could be having this conversation in a decade’s time. to do. Also, in virtually every company I know, there is a David Gauke: Where there is a strong business case correlation between customer satisfaction and staff in being innovative—and I talked earlier that I am morale because if staff are looking after their pleased where HMRC are innovative in the use of customers, it feed backs to them, so you can kill two property and so on—let’s put it this way, I am birds with one stone. Do you not think it would be a certainly not going to be stepping in the way and good use of ministerial direction setting or whatever preventing them from doing that. to invite them to set a high target, a considerably cobber Pack: U PL: COE1 [O] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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11 May 2011 David Gauke MP higher target, and perhaps then hold them to it quite Q454 Chair: Are you happy with the tone and strongly? content of the letters? David Gauke: I think it comes back to what I said at David Gauke: Again, I think there is a balance that the beginning of the session when I set out a whole needs to be struck and we have to put this in the range of things that I asked HMRC about, that I context in which those letters should be used. If there expect to see them improve. There are a whole host is a tax debt that has been outstanding, there have of measures that are being put in to improve the been requests put in, very often repeated requests, for performance of HMRC. I think what we want to do is that tax debt to be paid, then I think it is right that get those measures in and then I would expect to see HMRC continue to pursue them and set out the substantial improvements in the level of customer reasons why. There is a need to get that balance right satisfaction. As I say, if we can see the improvements so as not to unwittingly scare people and I think it in the time it takes to turn post around, the number of partly depends on who the recipients are and what the phone calls that get through and the waiting time for overall context is. getting through to a contact centre—there are measures that I have pressed HMRC to bring in, that Q455 Chair: I will let you read the note. HMRC are bringing in—I hope and expect to see a David Gauke: Largely what the letters say is what the significant improvement. As I say, I would hope and consequences can be for not complying and they expect us to see an increase roundabout 5% on the really are an accurate assessment of what the consequences can be and it is important that we are current numbers pretty soon. honest.
Q451 John Thurso: From April this year all Q456 Chair: In one of the letters, for example, one businesses have to do all their PAYE, et cetera, online. part of the letter suggests that there would be public Now, there is an aspiration for 98% of the population disclosure, public embarrassment as your name to be on broadband. Unfortunately, that is not 98% becomes public, which immediately suggests just that, geographic coverage and there are vast tracts of the that there is going to be disclosure of people’s names. North Highlands that are still at 50 kilobytes. It is Now, it may not mean that but it is phrased to give extraordinarily difficult to do an online filing because the recipient that idea. Do you not find them it keeps breaking down; you can’t get through. In one horrifying?1 I take what you say and I am glad you business I know, it is a choice between either spending said it. It is understandable that certain recipients several hours trying to do something that used to take would be very, very upset, but there doesn’t seem to half an hour, 20 minutes, or finding a friend in a be any way of filtering or an ability to filter who they neighbouring town where there is broadband. Is it not go to. They are being sent out to anyone in the belief appropriate that, unlike the telephone where we have that the Department is owed tax. There is no said it has to be up every Glen, and unlike electricity, suggestion, “Come in and discuss it.” People are which is a utility that is absolutely universal, where getting letters saying, “You owe thousands of pounds there is not a universality of a utility, we have to have and it has to be paid in three weeks’ time or the exceptions for those areas that do not enjoy that utility, bailiffs will come in and it will be public”. Now, how otherwise you are asking people to comply with is it acceptable for a Government Department to send something that they physically can’t do? letters in a tone that you would get from a third-rate David Gauke: Yes, I think you make a good case on bailiff? the part of many of your constituents here. There are, David Gauke: My understanding is that those letters are sent out after early communications have been as I understand it, some provisions for reasonable made by HMRC, where there has been no response. excuse not to do something in a particular way and, In that context, it is not unreasonable to point out therefore, there is greater flexibility. some of the potential consequences of not responding, of not paying an outstanding sum and an attempt to Q452 John Thurso: The only people who can get off encourage taxpayers that owe a debt to engage with are religious organisations; I don’t necessarily think HMRC and to engage pretty quickly with HMRC. the local hotel can qualify, unless it is temperance. One of the sanctions potentially available to HMRC David Gauke: No, I suspect you’re right. I think we is public disclosure and that is something that do need to look at this particular issue and see whether Parliament granted HMRC that capability and— there can be some flexibility shown and, as I say, if 1 Note by witness: The powers of disclosure referred to in HMRC are asking taxpayers to do something that is, Q456ÐQ459 apply to situations where taxpayers have to all intents and purposes, not possible, then clearly deliberately concealed and understated their tax liabilities: so that is unreasonable, but I think HMRC need to look called “deliberate defaulters”. These powers do not apply to at what can apply in those circumstances. debt alone and HMRC does not make information about debts public nor does it threaten to do so. However the John Thurso: Thank you. consequences of certain enforcement measures may legitimately put information into the public domain, for example where action is taken in the courts. In addition, Q453 Chair: Minister, I just have one or two matters. visits by HMRC officers to people’s homes and premises One of my colleagues has gone who was going to ask may be visible to third parties, especially where, as a last specific questions. You will have read these letters that resort, goods or property need to be removed. The references have been sent out and have been in the Mail on in HMRC letters which warn of potential embarrassment refer to the impact of those events, and their purpose is to Sunday. Now, have you seen them? make such actions unnecessary by persuading debtors to pay David Gauke: Yes, I have. or make contact. cobber Pack: U PL: COE1 [E] Processed: [25-07-2011 14:00] Job: 012291 Unit: PG04 Source: /MILES/PKU/INPUT/012291/012291_o004_MP Treasury Sub-commitee 11-05-11.xml
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Q457 Chair: When? When did they do that? David Gauke: Well, just one point of clarification; David Gauke: I think it was in the last Government. that 5% number in the questions from Sir John was about the customer satisfaction number. You are Q458 Chair: Are you saying you are going to use it? absolutely right, we do need to be getting up to that David Gauke: I don’t think it is something that has 90% number on calls getting through in order to be necessarily being used yet but it is something that is consistent with other call centres. A smile flickered available to HMRC. across my face for a moment because the questions you were asking me were very similar to some of the Q459 Chair: Would you contemplate using it? questions that I have been raising with HMRC. In David Gauke: I think that would depend upon the particular, this point about how do we know that we individual circumstances. are on track? HMRC are setting out plans by way to show that we will get up to that 90% number over the Q460 Chair: One of the things you said, and it brings coming years. The question I have been asking— me to a next question, concerns call centres. If it goes to an elderly person, there is the question of how can Q464 Chair: Over the coming years? they can get hold of the Department, yes? There are David Gauke: Over the years. Stephen, you’ll have to offices disappearing; there are 30% of the calls not remind me as to what the timeframe— answered. Is it sensible to send these offensive letters out in this way? I am sad that you are. I hear the Q465 Chair: No, we have pressed Dame Lesley for a qualification, “It is my understanding”. I would timetable because she is going to the Public Accounts welcome an assurance from you that you’ will go back Committee, she has come to hear, it is always going and have some words with the appropriate person. to happen. When I first heard of them, I refused to believe a David Gauke: Over the spending review period— Government Department would send letters out with Chair: Four years then. that tone, with those threats and I had to be convinced David Gauke: Yes, and, as I say, part of that is about that they were genuine. What does Mr Banyard say increasing the capability, part of it is about reducing to that? the demand. One of the questions that I have been David Gauke: Let me make this point. As I said asking HMRC is how do we know that we are on earlier, it depends upon the individual context. I think track. Because you are absolutely right, Mr Mudie, to these letters are acceptable if it done in a way that is make the point that this is something that has been a highly selective, well targeted at those people who problem for a number of years and hasn’t been have previously refused to respond to earlier addressed and we have to make real progress. communications. Q466 Chair: Yes, I know it is bad. But the last thing Q461 Chair: Do they check the age, though? is you have put money in and a direction in the remit David Gauke: I would have to check. under customer satisfaction to do something about persuading more people to go online. The figures we Q462 Chair: Yes. Do they check the age? Do they have were horrifying from an officer in National check the past history? Statistics; something like 9.8 million people over 60 David Gauke: I think they look at their past history are not on the computer. Now, the call centre is a but I am not sure whether there is necessarily an age shambles, but you have given instructions to do profile. something about online that will not help the elderly because they don’t use it; 9.8 million of them. Do you Q463 Chair: I think it is horrifying. Well, call think you could just have another look the next time centres; you say you have discussions. We had you send a remit letter? discussions with Dame Lesley and the things have David Gauke: Where we can, and it is appropriate, been going for something like seven years and you we need to get people online but you are absolutely have still not reached the target. Now, what they seem right to say that online is not a solution for everybody to do is kid each Minister on that we are getting there. and HMRC must have the capability of dealing with We had the treatment about, “We are going to get those people who aren’t online and, in particular, there. We are going to do this. We want to do this,” pensioners. It is a very, very fair point that you raise. but it never happens. I know, as you said, you are looking for a 5% improvement; it needs a 20%, 30% Q467 Chair: Minister, thank you very much for your improvement to get to the targets. They don’t even long session this afternoon and thank you very much accept the public sector targets. They say it is 90% for coming out. when it is 95%. Now, do you think it is possible for David Gauke: Thank you. It is a pleasure to be back you to go back and have harsh words with Dame in the Committee. Lesley, because people are ringing, holding on for Chair: You are at the wrong side of the table. Cheers. ages, not getting through; a third of the calls not David Gauke: Thank you. getting through for a public department on an important thing like tax? Treasury Committee: Evidence Ev 77
Written evidence
Written evidence submitted by the ICAEW Tax Faculty Introduction 1. We are writing to provide written evidence in response to the Treasury Sub-Committee announcement on 27 October 2010.
WhoWeAre 2. The ICAEW operates under a Royal Charter, working in the public interest. Its regulation of its members, in particular its responsibilities in respect of auditors, is overseen by the Financial Reporting Council. As a world leading professional accountancy body, the ICAEW provides leadership and practical support to over 132,000 members in more than 160 countries, working with governments, regulators and industry in order to ensure the highest standards are maintained. The ICAEW is a founding member of the Global Accounting Alliance with over 775,000 members worldwide. The Tax Faculty is the focus for tax within ICAEW.
Scope of the Inquiry 3. The announcement of the inquiry sets out the following questions the Sub-Committee proposes to consider, namely: — HMRC’s performance as an organisation and whether it is delivering its key aims; — what the implications are of HMRC’s spending review settlement; — whether HMRC is able to deliver the Government’s aims on tax compliance; — whether PAYE reform is necessary; and — what HMRC’s priorities should be for the future? 4. We have considered these questions in turn and have also summarised below our views. We recently undertook a survey into HMRC’s service standards, which was published on 16 November 2010. This survey underpins our comments and a copy can be downloaded from http://www.icaew.com/index.cfm/route/175054.
Executive Summary 5. The evidence from our member surveys confirm the experiences that our members are reporting to us, namely that HMRC’s performance and delivery have deteriorated since the Sub-Committee undertook a similar inquiry in 2007. 6. In 2007, the Sub-Committee recommended in its report (published on 17 July 2007 as HC 483) that HMRC should give “high priority to the preparation, in consultation with users of its services, of measures of service quality which properly capture the experience and needs of users”. Three years later this recommendation has not been implemented. HMRC should now work with the professional bodies to implement this recommendation. 7. On the basis of our members’ experiences since 2007, we are concerned that HMRC’s spending review settlement will lead to a further reduction in service standards, especially if HMRC is to take on additional responsibilities for the reformed welfare benefits. 8. We are not convinced that HMRC will be able to deliver the Government’s aims on tax compliance. 9. As regards PAYE reform, we believe that the department should concentrate on rectifying existing problems and ensuring that systems work properly, with minimal error rates, before introducing further radical changes. We are not convinced that a fundamental reform of the PAYE system is either desirable or necessary and poses significant risks for HMRC. 10. As for HMRC’s priorities for the future, HMRC needs to improve the ways that it communicates with tax agents. Members experience great difficulty in contacting HMRC, whether by phone or post. In the private sector, e-mail is now the de facto standard business communication tool and HMRC needs to prioritise the development and roll-out of e-mail solutions and tools. 11. HMRC also needs to concentrate on getting the basics right. Data should be processed in a timely and accurate manner. Simple processing requests, for example reporting a change of address, often have to be repeated. This processing inefficiency wastes time for taxpayers, their agents and for HMRC.
Answers to the Questions Posed by the Sub-Committee HMRC’s performance as an organisation and whether it is delivering its key aims 12. In 2007, the Treasury Sub-Committee undertook an inquiry into the Government's efficiency programme in the Chancellor’s departments. We submitted written and oral evidence. Our written submission, which was Ev 78 Treasury Committee: Evidence
published as TAXREP 34/07, concentrated on the effect of the efficiency programme on the levels of customer service provided by HMRC. 13. In our 2007 representation we welcomed in principle the then Government’s aim to create world-class tax services through sustained investment and far-reaching reform but expressed concern that this programme had led to a decline in customer service. We remain very concerned about the negative impact that the efficiency programme has had on HMRC’s efficiency and effectiveness since it started in 2004. 14. We note that when we expressed these concerns in the past, the Sub-Committee asked Treasury officials during the 2007 inquiry whether the risk of efficiency savings leading to lower quality services had materialised. Their response was that: “… precautions we have taken have been to include measures of service quality as part of the assessment … whether an efficiency saving has been made. So in order to know whether an efficiency saving has been made rather than a service cut been delivered, that will be clear”. 15. We did not find this a satisfactory response then and believe that our concerns have been justified by what has happened in practice. 16. In 2007, we decided to undertake a survey of our members’ experiences of dealing with HMRC. We undertook a similar exercise in 2009 and a further one earlier this year. The surveys were not designed to provide statistically significant results but rather to provide a snapshot of members’ experiences. However, we used similar questions so that we would be able to identify trends year on year. 17. The surveys covered HMRC’s telephone services, postal services, repayment processing and HMRC’s overall service standards. 18. The surveys show that service standards are not satisfactory. The overall impression is that standards have if anything fallen over the period of the reviews and there is as yet little sign that HMRC has turned the corner in its drive to improve processing efficiency and effectiveness. 19. Paragraph 110 of the Sub-Committee’s 2007 report, published on 17 July 2007 (HC 483), made the following recommendation: “We recommend high priority to the preparation, in consultation with users of its services, of measures of service quality which properly capture the experience and needs of users. ...Weexpect HMRC to ensure that there is proper consultation with users and with the NAO in formulating appropriate measures. Subsequent performance against the measures should be subject to consistent methods of measurement and regular publication [and]...werecommend that they be subject to external validation ...”. 20. We are disappointed that although we entered into some discussions with HMRC about this, no substantive progress has been made. HMRC has recently published a Business Plan for 2011/15 which is available at http://www.hmrc.gov.uk/about/bus-plan-2011–15.pdf. Section E of this plan states that it: will set out the information that will enable users of public services to choose between providers, and taxpayers to assess the efficiency and productivity of public services, holding them more effectively to account. By publishing a wide range of indicators, we will enable the public to make up their own minds about how departments are performing. 21. The only “impact indicator” that appears relevant in measuring HMRC’s service standards is on page 14 which is that: “Customers find us [ie HMRC] straightforward to deal with”. 22. Given that it is now over three years since the Sub-Committee’s recommendation was made, this response is disappointing. We believe it is essential that HMRC grasps this issue and works with stakeholders to develop a set of reliable indicators. In the long term this would help to drive improvements in service standards and be to the benefit of HMRC.
What the implications are of HMRC’s spending review settlement 23. HMRC’s settlement is challenging. It appears that HMRC is being asked to do the work it already does with an overall budget reduction of 25%. However, because it is also being given a net investment of £900 million to help it do more to tackle tax evasion and avoidance, the net effect is that the spending settlement to 2014/15 proposes an overall budget cut of 15% in real terms. 24. Over the last control period, HMRC’s budget was cut by almost 30% and staff numbers fell by about the same amount, with overall staff numbers falling from nearly 100,000 to 70,000. Our member surveys since 2007 have painted a picture of gradually deteriorating levels of customer service. 25. We understand that the latest settlement will involve further staff reductions, this time from the current baseline of 70,000 down to 60,000. It seems likely that there is a link between reductions in HMRC’s headcount and its levels of service. Staff cuts of this order can only be achieved following a successful move to IT-based processing solutions. It seems to us that staff numbers may have been cut in anticipation of savings through IT rather than as a result of them. Treasury Committee: Evidence Ev 79
26. We believe that new systems—whether clerical or IT based—must be adequately tested before the systems they are intended to replace are abandoned. We question whether such parallel running has been used by the department. Most of the UK tax system functions around an annual cycle. It seems likely that testing has been to a much shorter timetable causing unforeseen practical problems. These have resulted in unexpected volumes of telephone calls which have created more service issues for HMRC. 27. Given this, it is difficult to escape from the conclusion that if HMRC cuts its staff by a further 10,000, we will see a further reduction in HMRC’s service standards.
Whether HMRC is able to deliver the Government’s aims on tax compliance 28. Given our comments above, we are not convinced that HMRC will have the resources or the capability to deliver on tax compliance. Although the CSR proposed increasing resources on tackling tax fraud and evasion of £900m over the review period, we have yet to see how it will be translated to effective action on the ground. 29. Our recent member survey suggests that inadequate staff training remains a major problem for HMRC. The complexity of the UK tax system is a contributing factor and although simplification is being discussed, we do not think that it can be achieved during the control period under review.
Whether PAYE reform is necessary 30. The accuracy of PAYE notices of coding has a critical effect on the cash flow of the majority of UK taxpayers. The recent PAYE furore has served to focus attention on the PAYE system and whether it its fit for purpose. Our response was published as TAXREP 36/10. 31. In view of our comments above about HMRC’s service standards, we have serious concerns about the ability of HMRC currently to deliver even on its existing commitments. We believe that the department should concentrate on rectifying existing problems and ensuring that systems work properly, with minimal error rates, before introducing further radical changes. 32. In principle we can see the attraction of Real Time Information (RTI) to government as it would provide information that would enable HMRC to monitor on an ongoing basis whether the correct PAYE/NIC has been paid on time, whether the national minimum wage has been paid and any changes in hours worked by tax credit claimants. There are also potentially positive implications for reducing fraud and error across the tax and benefit systems. 33. We can also see some potential advantages in the administration of the tax credits and benefits systems of RTI, but only if these currently-separate IT systems are linked. That of course poses the question of cost and would also require the integration of these systems, a process that would require considerable care and resource. We hope that HMRC has fully taken on board the lessons from the recent migration of data from the old PAYE and NIC databases to the new NPS system. 34. We think that the costs of implementing RTI would be high for both employers and HMRC, as would be the ongoing costs to employers of making, and to HMRC of processing, up to 53 returns per year for 60 million employees (employee in this response covers anyone paid via a payroll, eg employees, company officers, pensioners and annuitants) and, we assume, reconciling them each time new information is received. 35. It needs to be remembered that RTI is a means to an end not an end in itself: it is a means of getting information from employers to HMRC; it is then up to HMRC’s NIC and PAYE Service (“NPS”) to process and store that information. 36. If RTI is to proceed, it should not be introduced until: — NPS works properly and HMRC has cleansed and reconciled all the data it holds; — it can consistently produce accurate code numbers and timely year-end reconciliations; and — online filing of forms can be done easily by all employers and all data on forms submitted by employers, eg forms P45, P46, P14/P35 and P11D, is processed quickly and accurately by HMRC. and then only on the basis of RTI complying with the recommendations in Lord Carter’s reports published in November 2001 “Review of payroll services” and March 2006 “Review of HMRC online services”, in particular having been successfully tested at least a year before implementation. 37. In respect of the first bullet point above, HMRC is currently working through the reconciliations but we understand that this process is unlikely to be complete until 2012. On this basis, any move to RTI should not start until this work has been done and the NPS system has bedded down—in practical terms 2013 would look to be the earliest possible date to consider such a move. 38. HMRC should consult extensively and proceed at a cautious pace if RTI is to have any chance of being delivered effectively. Ev 80 Treasury Committee: Evidence
What HMRC’s priorities should be for the future? 39. Our members need to be able to communicate with HMRC quickly and efficiently. Their relationship with HMRC is a business one and should be capable of being conducted using the usual channels open to business. E-mail is a critical part of this. This is not surprising given that in the past ten years it has become the standard way that businesses communicate with each other. In addition to speed and ease of use, it provides an audit trail and the ability for automatic acknowledgement by the recipient. 40. There have been discussions between HMRC and the professional bodies to explore using e-mail but there are still significant problems to overcome. We urge HMRC to speed up this project and make a start in e-mail communication. HMRC needs to make available e-mail tools such as structured email and to accept inbound e-mail as an alternative to post. This has the potential to increase efficiency and save costs for agents, their clients and HMRC. 41. We are pleased to report that in relation to nominated staff having ownership of problems, HMRC has developed the new role of Agent Account Manager (AAM) to deal with problem cases. It is in the process of allocating all agents an AAM. Their role is largely around communication, but agents will be able to take problem cases, where they are having trouble getting something done through normal channels, to their AAM. We welcome this initiative. 42. More generally, HMRC needs to make better use of technology. Improving HMRC’s services to agents through further expansion of e-services was a key recommendation of National Audit Office Report “Engaging with tax agents” which was published on 13 October 2010. We appreciate that this comes at a cost. HMRC has invested heavily in new IT in recent years and needs to continue to do so. HMRC is a revenue collecting Government Department and needs resources to develop modern means to do this efficiently. Well targeted investment in improved IT systems could produce substantial savings in the medium to longer term to support the ambitious budget reduction targets that HMRC has been set. 43. Experience in other tax administrations suggests that there is considerable scope for further enhancement of e-services. HMRC faces a daunting task in migrating more than 200 “legacy” IT systems to a more integrated IT infrastructure. This is well illustrated by the recent move from twelve regional PAYE databases and the NIC database to the new NPS system. 44. The problems with the move to NPS were, in our view, more to do with processes than with the IT and it is essential that lessons are learned from this experience. HMRC has made considerable progress in the move to e-filing of Income Tax Self Assessment, PAYE end of year returns and VAT returns and the Carter infrastructure has delivered a significantly more reliable platform—for which credit is due—over the past two years. HMRC has established a good model in the Carter Programme, which has had as one of its main features an exceptional degree of engagement with stakeholders; we believe that such engagement is critical to the future success of HMRC’s e-services programme. We believe that NPS has not worked as well as it should have because there was insufficient engagement, both externally and internally, at the planning and pre- programming stage. 45. Further electronic services should include an electronic R40 repayment claim and pre-population of tax returns. November 2010
Written evidence submitted by the Public and Commercial Services Union (PCS) Introduction 1. The Public and Commercial Services Union (PCS) is the largest civil service trade union, with a total membership of over 300,000 members. We represent 60,000 staff in Her Majesty’s Revenue and Customs (HMRC). 2. PCS welcomes this timely inquiry into the effectiveness of HMRC. We are happy to supplement this submission with any further written evidence and welcome the opportunity to provide oral evidence to the committee.
Job Cuts and Office Closures 3. PCS has always accepted the need to work with the employer on ways to improve efficiency in the civil service. However, cuts in HMRC budgets have already had a detrimental effect on its ability to deliver. 4. At the time of its creation, HMRC employed just over 104,000 staff. Over the last five years the department has reduced its staffing complement to just over 75,000. In addition, HMRC has closed more than 200 local tax offices, and is in the process of closing or radically reducing the opening hours of 200 walk-in tax enquiry centres. Treasury Committee: Evidence Ev 81
5. We always accepted that a degree of rationalisation was necessary to streamline the two previous departments and reduce costs, PCS is concerned about the clear correlation that exists between the job cuts and office closure programme and the ability of HMRC to collect and administer tax effectively. 6. We welcome the announcement that £917m will be diverted into extra jobs in enforcement and compliance. However, this re-investment comes after efficiencies equivalent to 25% of HMRC’s budget. The cuts over the course of the Spending Review period will total a further £3bn so the £917m investment has to be seen in this context. 7. Whilst any re-investment in HMRC to tackle tax evasion and avoidance is welcomed, the amount of monies involved are inadequate and will not be sufficient to close the tax gap. 8. Job cuts are counterproductive and as we stated in our evidence to the committee in March 2009, will do nothing to ease a worsening national economic situation. When the average tax yield of a member of staff working in tax compliance is £640,000 each year after staff costs it would be more economical to devote significant resources to this area than to have to cut these staff. 9. Instead, the loss of 25,000 staff and the closure of over 200 offices since its formation has left HMRC severely denuded of resources in areas where experienced staff based in local communities are needed to collect revenue, enforce and encourage tax compliance and foster public confidence in tax collection and administration. 10. Cutting a further 11,500 (FTE) staff by the end of this Spending Review period will exacerbate an already unsustainable staffing and resourcing problem.Income to the Treasury can only be put further at risk in the vent of further job cuts. 11. Any further cuts will be made at the expense of basic services in “admin” functions. Already cuts to the Estates and Support Services (ESS) budget has led ESS to consider reductions to the requirements for the cleaning of offices, which will have a knock-on effect to the health and safety of staff. Cuts in the commercial budget have led to the withdrawal of pool cars necessary for staff to visit customers, and to cover the work of remote offices which have already been closed. A recruitment ban has meant shortfalls in the security guarding teams at larger sites, leading to problems in security cover. 12. PCS believe that the delivery of high quality public services go hand-in-hand with good working conditions to produce a highly motivated workforce, increased productivity, lower absence rates and a greater emphasis on innovation and development but staff morale in HMRC, and the confidence that staff have in the department’s senior leadership, has significantly worsened with each successive year of its existence. Low morale is a direct product of job insecurity, chronic underfunding across the organisation, increasing workloads. 13. HMRC’s reductions effort has felt haphazard and ill-conceived. The department’s drive to close offices, and to manage its estate, has often resulted in the arbitrary selection of staff for early departures, or left staff so demoralised that they have chosen to leave. It has subsequently released staff with the skills, knowledge and experience that it now needs to replace in order to re-engage in tax compliance and enforcement work. HMRC has not yet finished closing offices with the consequential impact on jobs and communities. For example Wick in the far north of Scotland is under threat of closure despite there being no other HMRC presence north of Inverness. PCS believes a good case can be made for retaining the Wick office to police all enforcement and compliance functions in a huge area. 14. PCS call for an honest appraisal of the work that needs to be done to ensure that taxes and duties are properly assessed throughout the UK. PCS contend that a risk assessment would show that it is big business and multi-national corporations that should be targeted by HMRC, and that this is one area where sufficient staff, trained in this work need to be deployed. 15. We understand that HMRC will look to expand its IT capability across its compliance centres, which deal with single issue, non complex cases and high volume interventions. We caution against swapping people for computers. Increasing the reliance on technology without supplementing this with appropriately trained staff to take on the work of the cases it produces follows the pattern of the last five years and is in part responsible for the service crisis in many areas of HMRC.
Compliance 16. HMRC is looking to extend and develop wider coverage of its compliance operation whilst further shrinking its geographical footprint. We are concerned that HMRC plan to make all staff desk based, conducting compliance operations only over the phone and by letter rather than through face to face work with businesses and tax payers. 17. The deterrent factor could soon be lost as people quickly recognise which areas of the UK are not policed. It is an easy task for a company to change its principal place of business to an area such as the south west, where there is much less chance of a visit from a tax officer than the urban centres. The company does not necessarily have to be based there to avoid a books and records examination. 18. Hundreds of highly experienced compliance staff have left HMRC, with many staff currently involved in compliance work approaching retirement age. Ev 82 Treasury Committee: Evidence
19. HMRC’s small and medium enterprise (SME) team has conceded that it will have to temporarily promote 50 VAT officers to Higher Officer grade in order to attempt to deliver this year’s target, leaving outstanding work in some areas that cannot be dealt with. 20. Vital skills cannot be instantly replaced. It takes a minimum of four years to train staff to Grade 7 standard and two to HO, so potentially HMRC will not be producing trained compliance officers until the end of the spending review period. Having trained officers in place by year four of the CSR will be central to HMRC’s ability to deliver the £7 billion increased tax yield per year. Our experience has been that the tension created by having to deliver against more stretching targets with less people means training slips down the agenda. 21. There is a growing imbalance between HMRC’s resources to tackle tax avoidance and the growing resources in the form of lawyers and accountants being deployed by large companies and rich individuals to avoid paying tax. PCS are concerned that the lower end, low yield value casework, will be left untouched while the department aims its strategy at evasion and avoidance, particularly at the higher end. This is partly because of the limited capability of the “caseflow” IT technology, but also because the department do not currently have sufficient personnel.
High Net Worth Unit 22. PCS is concerned that since the disbandment of the Complex Personal Return Team in March 2009 many thousands of the top UK tax payers no longer have the services of a dedicated case owner and customer relationship manager. 35,000 taxpayers whose tax affairs were handled by this dedicated and highly trained team are now dealt with by the wider HMRC tax network which is so fragmented, and staffed in some areas by people with insufficient training, that HMRC are not adequately able to assess the risks or generally guarantee that the tax affairs of these individuals are being dealt with appropriately. 23. The new High Net Worth Unit (HNWU) now only deals with the super rich, who themselves have an army of professional advisers behind them. The HNWU are relatively few in number and do not have the same level of support. A recent skills and preference exercise has seen 80 of the 400 or so staff in this unit declared surplus and sidelined into research work.
Debt Management 24. During 2010–11 HMRC’s Debt Management and Banking business area (DMB) was allowed to maintain its staff headcount at the level it was at the end of 2009/10. It was allowed to recycle any savings achieved through natural wastage by recruiting additional staff into its Debt Management Telephone Centre (DMTC). However in the first 6 months of 2010–11 staffing in DMB fell from 8,113 to 7,738. 25. As of September 2010 the HMRC debt balance shown on its debt management systems was £20.668 billion. There are differences between the method used to calculate this amount and the debt balance shown of the departmental accounts. These are explained in paragraph 1 of the NAO Report on the Management of Tax Debt published in November 2008. 26. In September 2010 the number of outstanding debt cases was 18.2 million. In September 2007 the number was 11.02 million. In the second quarter of 2010/11 the amount of written off or remitted tax debt was £1.149 million. 27. DMB has moved to a campaigns approach of managing tax debt cases meaning local DMB offices undertaking cases on basis on the type of the debt rather than by geographical area. This approach has led to some major difficulties in recent months. 28. Earlier this year HMRC staff within Field Force, who undertake face to face debt recovery work, found that cases were not being referred through to them as quickly as they should because they are being held in the campaign offices. 29. PCS is unhappy that in many instances Debt Collection Agencies and HMRC staff are pursuing the same taxpayer for tax debts on different heads of duty. It seems wrong that a DCA could be pursuing a taxpayer for example for VAT and obtaining a commission and HMRC staff could be pursuing the same taxpayer PAYE. 30. PCS has raised its concerns with HMRC and they provided the following reply: “The DMB campaign strategy is that debts are not linked. It is only once a case goes to the Enforcement and Insolvency Service (EIS) [or referred for County Court Judgment] that debts are linked. The customer can be pursued separately by different parts of the DMB business for different HOD [heads of duty] debts simultaneously and this is in keeping with the strategy. This was the practice in the pilot and currently maintained for the 2010–11 programme ie that certain debts may go to DCA’s while other debts belonging to the same debtor may be handled differently e.g. may go for distraint action”. 31. PCS believes that this practice is contrary to assurances given by the Government in late 2009. HMRC have now stated they will not meet the commitment the government made in their response to a report by the Public Accounts Committee (PAC 26th Report of 2008–09—Management of Tax Debt) to incorporate VAT Treasury Committee: Evidence Ev 83
debts into the debt management computer system (IDMS) by the end of 2010. They plan to implement a partial solution during 2011. 32. HMRC has undertaken during 2010–11 to protect tax revenues by reducing the proportion of tax debts remaining: (a) By 8% at 30 days compared with 2008–09. (b) By 13% at 90 days compared with 2008–09. [HMRC Departmental Strategic Objective 1.3] 33. To date HMRC has produced no statistics indicating what progress has been made towards this objective. 34. PCS remain concerned that HMRC intends to continue using automated voicemail and SMS text messages to collect debts. HMRC do include a reference to their website which can be used to check the veracity of the message. However PCS believes that this will not prevent potential fraudsters as it assumes that all taxpayers have access to the internet. 35. HMRC has given assurances that in dealing with debtors they comply with both the Credit Services Association Code of Practice and the Office of Fair Trading Debt Collection Guidance. These provide that debtors should not be pressured to sell property or to raise funds by further borrowing. PCS are aware that in many instances staff are encouraged to obtain debt repayments by credit card. We do note that Parliament did enact legislation to allow HMRC to collect debt repayments by this method. 36. HMRC staff handle debt collection in a professional manner. We believe that the debt collection function should remain in-house and that more staff would ensure that debts were collected.
PAYE 37. HMRC’s backlog of open PAYE cases has risen to 17.2 million. This is due to problems with the NPS computer system (and its predecessor), and to the lack of adequate resources invested due to the cuts. Approximately 350 HMRC staff from elsewhere have been deployed to deal with the backlog. 38. HMRC has stated that NPS, the new computer system, will have cleared up to 85% of the backlog by April 2012, but the system is very complex and has already demonstrated problems. NPS has failed to deliver the efficiencies and benefits that were predicted it would achieve this year and HMRC now contends that it will take a further eighteen months to sort out the backlog. 39. PCS has been informed that staff numbers in Processing will remain stable in 2010, but there are still 400 “O” grade staff under threat and the staff who have been deployed to deal with the open case backlog face an uncertain future. PCS is aware that under current efficiency proposals, staff cuts will increase by a further 5–10%. 40. Any change to PAYE which involves the outsourcing or offshoring of work causes great concern regarding confidentiality and data protection.
Contact Centres 41. There is likely to be significant problems for contact centres in dealing with the demand generated by the clearing of “open” and extra statutory concession (ESC) cases. 42. When HMRC ran the end of year reconciliation work for 2009/10 and 2008/09 they initially estimated that 35% of underpayments and 5% of overpayments would generate calls to the contact centres. The initial tests indicated that demand would be much lower than that but the estimates proved unreliable and Contact Centre Directorate (CCD) have now had to move an additional contact centre (Manchester) onto the ESC work. 43. ESC A19 is an extra statutory concession that allows tax payers to request to have their underpayment written off if they can demonstrate 3 things: (i) They provided HMRC with the correct information at the appropriate time. (ii) HMRC failed to act on that information in a reasonable time (within 12 months of the end of the relevant tax year). (iii) They had a reasonable belief that their tax affairs were in order. 44. In a large number of cases for the 2008–09 and 2009–10 tax years, the extra statutory concession did not apply as 12 months had not passed since the end of the relevant tax year. When HMRC starts issuing notices relating to the open cases from previous years (purported to be as far back as 2004–05) it is likely to receive a deluge of calls about the ESC, particularly given how much press attention this issue has generated and how many websites and news outlets are actively advertising the extra statutory concession. Even if people aren’t aware of the ESC they are still likely to call when they receive notification that they have under or over paid tax as far back as six years ago. 45. Demand is likely to escalate far beyond the already seriously understaffed contact centres. It has recently been announced that Litherland House, Bootle and Saxon House, Leicester would be moving from CustOps Ev 84 Treasury Committee: Evidence
work to CCD to help deal with the expected demand in January—March resulting from the usual SA deadline peak and the annual coding cycle which begins in February. By adding demand at a time when contact centres on the taxes line of business are already in peak, HMRC is pushing CCD to breaking point. 46. CCD has had an external staff recruitment ban in place for the last two years. In total, approximately 2,700 people left or will leave CCD over two years (2009–10 and 2010–11). None of these will be replaced. This equates to approximately 25–30% of the staff within the directorate. 47. This has already impacted heavily on performance as reported in by the PAC and TSC. Data shows: — Callers up 20% from 2009–10 to 2010–11. — Call attempts up 100% from 2009–10 to 2010–11. — Engaged and busy tones played up from 7 million to 39 million in 2010–11. 48. The current CCD performance prediction for 2010–11 is for 40–50% of call attempts answered.
Conclusion 49. PCS submitted evidence to the Treasury Committee in 2004 as part of its scrutiny of the proposal to merge the Inland Revenue and Customs & Excise. Our view at that time was that it presented an opportunity to establish: (a) a “model” government department delivering high quality services with communities; (b) additional government revenue; (c) a safer society; and (d) and good quality job opportunities. 50. PCS believe that the current government still has the opportunity to meet these objectives. The £917 million re-investment package could present an opportunity to employ more staff on work that would generate billions of pounds from uncollected tax rather than continuing to seek millions of pounds from job cuts. 51. Sufficient resources are needed if the government are serious about meeting the terms of HMRC’s recently published vision—“to close the tax gap; to make our customers feel that the tax system for them and even-handed; and to be seen as a highly professional and efficient organisation.” HMRC cannot deliver these aims when they are given £917 million on the one hand and have £3 billion taken away on the other. 52. This government could address the budget deficit by investing the necessary resources in HMRC to collect taxes due. This would minimise the impact on vital public services. Unrealistic budget constraints on HMRC will only result in arbitrary job cuts and inadequate means with which to achieve efficient tax collection and address the closure of the tax gap. 53. We believe it is time for cuts in HMRC to be halted before the problems that have built up become irreversible. 54. The continued failure of HMRC to secure the support of its staff will continue to pose a threat to quality public service and the ability of HMRC to deliver key targets. Our aspirations for decent working conditions for our members go hand-in-hand with the delivery of high quality public services and a properly resourced public sector. November 2010
Written evidence submitted by ACCA
About ACCA ACCA is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people around the world who seek a rewarding career in accountancy, finance and management. ACCA has 140,000 members and 404,000 students in 170 countries, and works to help them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,000 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence. The expertise of our senior members and in-house technical experts allows ACCA to provide informed opinion on a range of financial, regulatory, public sector and business areas, including: taxation (business and personal); small business; pensions; education; and corporate governance and corporate social responsibility. Treasury Committee: Evidence Ev 85
Executive Summary 1. HMRC is at a crossroads. The attractions of technological automation of much of the tax system beckon, along with the promise of a simpler legislative and policy framework. However, the Department has been restructured and downsized at such a rate that its ability to perform the key function of making sure that the money is available to fund the UK’s public services is being compromised. 2. HMRC urgently needs an injection of funding and support to enable it to stabilise its condition. Morale in the department is low. The available resources will struggle to implement the major changes envisaged for the next four years. 3. The move to greater online operations and automated operations is irresistible, but for systems as crucial to the economy and our worldwide reputation as PAYE failure is not acceptable. The department must have the resources and support to both maintain its existing operations and implement the desired improvements. 4. Taxpayers and their agents need to be confident that HMRC is targeting all the factors which contribute to the tax gap. There is a growing perception that enforcement activity tend to focus greatly on the taxpayers HMRC can easily target, alienating the section of the tax paying community who might otherwise most readily be their allies. 5. HMRC’s performance as an organisation and whether it is delivering its key aims; 6. ACCA has concerns about HMRC’s performance as an organisation, whether it is delivering its aims, and whether its approach to delivering those aims is best aligned with the long term needs of the tax system. 7. HMRC’s Departmental Strategic Objectives under the 2007 Comprehensive Spending Review were to: — Improve the extent to which individuals and businesses pay the tax due and receive the credits and benefits to which they are entitled; and — Improve customers’ experience of HMRC and contribute to improving the UK business environment. 8. HMRC’s Vision Statement of 2008 states that their vision is that the department will “close the tax gap”, our customers will feel that the tax system is simple for them and even-handed, and we will be seen as a highly professional and efficient organisation. It goes on to describe HMRC’s “Way” is to “make it easy for our customers to get things right [and] drive continuous improvement in everything we do”. 9. The points above may be a statement of HMRC’s vision, but that is sadly not a view shared by many. 10. Since 2007, customers’ experience of HMRC has become worse. Research by the Institute of Chartered Accountants of Scotland, carried out in 2007, 2009 and 2010, shows a consistent decline in customer satisfaction levels, with the most recent report revealing that communications have “deteriorated drastically during the past year” and that PAYE “matters have become worse over the past year”. 11. Since 2007–08, the tax gap (as calculated by HMRC) has risen in both absolute and percentage terms (from £38 billion to £42 billion, 7.8% to 8.6%). By far the largest single component, and the fastest growing is VAT at £15.2 billion in 2008–09. 12. Losses due to fraud and error in the benefit system administered by HMRC are estimated at £2.1 billion or 8.9% of the expenditure under their control for 2008–09, an absolute increase from the 2007–08 value of £1.8 billion but a proportional fall of 0.1%. from 9%. Error and fraud in relation to tax credits remains at a level such that the NAO has qualified its audit report in the accounts of HMRC every year since the introduction of tax credits. 13. What the implications are of HMRC’s spending review settlement. 14. Every year there is more tax legislation to interpret, more taxpayers’ affairs to administer and more revenue to collect. Every year, HMRC is allocated less funds and has to reduce the number of people available to invest those funds. It is hard to imagine any commercial environment where a department would be expected to increase output of an ever more complicated product while being forced to cut staff numbers, operate on reduced funds and implement relentless restructuring of its business model. There may be individuals in the world of business who could manage such a challenge successfully. We should not be in the least bit surprised that those in charge at HMRC have not been able to deliver. 15. Regardless of the high profile allocation of an extra £900 million to tackle tax evasion, fraud, debt and avoidance over the next four years, HMRC’s overall budget has been cut by 15% in absolute terms. 16. The Department is expected to deliver efficiency savings of 25% through “enhanced use of new technology”. It is not clear whether the technology is new to HMRC, or simply current. Enhanced use suggests doing more with the same resource. 17. Rationalising the HMC estate means a reduction in the number of HMRC offices. Quite apart from the job losses that this will entail, if these are local offices which taxpayers can visit to speak to HMRC staff then service will suffer. If they are “back office” functions then the work performed will need to be relocated, and Ev 86 Treasury Committee: Evidence
with it the staff. At best this will involve relocation expenses, and at worst the loss (from among those whose jobs would not otherwise be lost) of experienced staff who are unable or unwilling to relocate. 18. ACCA simply cannot see how HMRC can hope to even maintain current service levels, with reduced staff and budget. The aim of reducing the tax gap is worthy, but if reduced funding leaves HMRC unable to address the basics of maintaining a service for compliant taxpayers the potential damage to the economy and reputation of the United Kingdom is immense. 19. Whether HMRC is able to deliver the Government’s aims on tax compliance? 20. The Government’s aims on tax compliance according to the Spending Review are to raise an extra £7 billion of tax annually by 2014–15, based on an investment of £900 millio in new staff and processes, including technology. 21. Estimates of the tax gap vary considerably, but are generally reckoned to be in the range of £25–40 billion per annum. A reduction of £7 billion per annum simply cannot be maintained. It is not clear which areas of shortfall are expected to make up the target, but most mainstream commentators do not believe it to be realistically attainable. 22. The types of enquiry work needed to catch evaders and frustrate avoiders need trained and experienced Inspectors who are at a premium right now. Experience cannot be bought off the shelf (although it can be hired if the salary is right—that is, higher than in the private sector) so HMRC must ensure that it retains its best staff and uses them effectively. 23. Whether PAYE reform is necessary? 24. The question is not so much whether to reform PAYE as how. In 2008–09 the system handled over £250 billion in receipts (ref PAYE reform paper 27 July 2010). The proposed revisions to implement Real Time Information apparently have a budget of £100 million, just 0.04% of the annual turnover in the system. Given the track record of public IT procurement we have to query whether these figures are realistic. If, as seems likely, £100 million is simply the starting point of costs on this project, what plans does HMRC have for managing the spend, which in any commercial organisation would be considered a significant investment. 25. The proposals for Real Time Information received a cautious welcome from commentators in the recent consultation document. HMRC must now build on that cautious welcome to inspire enthusiasm where possible and at the very least calm the fears of doubters. The payroll industry in particular will need to be kept “on side” to ensure successful roll out of the changes. 26. What HMRC’s priorities should be for the future? 27. In the light of the interim Memorandum provided by the NAO during preparation of the October 2010 report “Engaging with Tax Agents” HMRC has started to investigate a new agent strategy. ACCA is closely involved with HMRC’s discussions on the strategy and many of the related developments in technology, such as the OneClick project initiated in the March 2010 budget. 28. HMRC’s reference in the Business Plan 2011–15 to “our customer-centric approach” is sadly likely to ring hollow for all too many of ACCA’s members in practice. The sense of frustration engendered by the errors and delays which seem endemic to the system can too easily be tipped into disbelief when HMRC discuss plans to monitor tax agents behaviour and discipline them for failures. 29. Proposals to introduce new powers to deal with tax agents who deliberately seek to pervert the system have been widely interpreted as a direct attack on agents’ freedom to advise their clients. This perception was reinforced by the release of poorly worded draft legislation. HMRC’s desire to create effective and proportionate legislation incorporating effective safeguards and workable information powers has been lost along with much of the agents’ trust in HMRC’s desire and ability to work as a partner with the profession. 30. HMRC needs to communicate clearly to agents and taxpayers its twin aims of efficiently collecting the correct amount of tax from the compliant while tackling effectively those who seek to pay less than the amount due under the law. Moreover it needs to reignite in agents and taxpayers a belief that it is capable of carrying out these aims in the manner declaimed in its Vision statement. 31. HMRC’s new agent strategy contains many good ideas. We are however concerned that the execution of them may prove difficult in the current economic circumstances, and would rather they had been implemented some years ago, when first mooted. 32. HMRC’s performance levels lead to it currently being viewed by many as an impediment to good tax compliance. This must change if the UK tax system is to operate efficiently and effectively. 33. Like any large organisation, HMRC has its share of dedicated and talented individuals, and those less so. HMRC must do its best to retain those who are willing and able to make a positive difference in HMRC’s public image. 34. The government must be prepared to invest in HMRC if it is to see returns. A project of the magnitude of RealTime PAYE information cannot be allowed to fail. Funds must be allocated to provide the necessary support to the HMRC staff responsible for the project. Managers with a proven track record of delivering Treasury Committee: Evidence Ev 87
successful systems implementations in industry should be sought out and engaged to assist with the project. The cost of appointing them will be less than the cost of failure. 35. The Hasseldine report (“Best Practice” in Tax Administration, NAO 2007) identified seven characteristics which tend to be associated with good tax administration, and HMRC have put plans in place to implement them. 36. HMRC have made progress in most of these areas, and we are encouraged by the efforts of senior management towards embedding these ideals in the Department. However, progress in all areas has been slow at best. In particular, while cost efficiency has been forced upon HMRC, their effectiveness and engagement with shareholders seem to have gone into reverse. 37. The answer lies perhaps not in HMRC’s administrative skills, but in the underlying system that they have to administer. Hasseldine quotes a 2003 paper by Owens and Hamilton, part of Aaron and Slemrod’s collection “The Crisis in Tax Administration”: 38. “In looking at the root causes of problems in tax administration, what needs to be considered is what is being administered: the tax law and how it is interpreted”. 39. As noted above, the UK tax system has grown ever more complex over the last 13 years and this has undoubtedly had an impact on both the public’s perception of tax and HMRC’ ability to effectively and fairly enforce the rules. This needs to be reversed. It is largely out of the hands of HMRC, but will nevertheless be fundamental to their success. 40. The recent focus in HMRC compliance work has tended to be on “unacceptable tax avoidance” activity. This poses three risks. 41. Firstly, resources are directed away from dealing with evasion of taxes, which is arguably a more pernicious evil. The belief that their behaviour is not being scrutinised will serve simply to encourage evaders (and prospective evaders).
42. Secondly, tax avoidance is by definition undertaken by taxpayers who engage with the system. Notwithstanding HMRC’s own statements that some level of planning tax liabilities is acceptable, a continued high profile focus on those whose understanding of what is “acceptable” fails to accord with HMRC runs the risk of alienating all tax payers who believe that they are entitled to undertake some degree of tax planning.
43. Thirdly, resources are diverted away from providing a reliable and efficient service to the vast majority of compliant tax payers. This has been exacerbated by recent problems with for example the introduction of the NPS (the new PAYE computer system).
44. We understand that HMRC will want to target the “low hanging fruit”, and tax avoiders by definition are easily targeted, as the essence of avoidance is to present in a complete tax return information which supports their view of the law. Tax avoiders are by definition within the system. However, “unacceptable avoidance” is not clearly defined. Moreover, by raising an awareness within its own staff that any tax return may be “fair game”, the approach can lead to distrust and an adversarial relationship.
45. This adversarial relationship is made worse by a perception that HMRC is failing to challenge criminal tax evaders or fraudsters. While numbers can be no more than estimates, excluding large businesses the amount of money lost to ghosts and moonlighters (evaders) is greater than that lost to avoiders. Individuals and businesses subject to enquiry by HMRC may well feel aggrieved that more flagrant, and potentially criminal, abusers of the system are ignored while they, the compliant taxpayer, are forced to spend time and money defending a position which may in many cases be upheld either by the facts, or by reference to the courts.
46. Anecdotal experience suggests that HMRC have moved away from their historic position of pursuing every technical understatement of tax, however tiny. Unfortunately, an apparent reduction in business awareness and empathy on the part of Inspectors has offset the benefit. Instead of opening a technically valid but uneconomic enquiry, Inspectors are now seen as opening enquiries or pursuing issues, on the basis of a misunderstanding of the taxpayers’ activities.
47. For years, HMRC have been promising high profile prosecutions of tax evaders, yet the only examples yet brought to court are in the specific field of MTIC VAT fraud. HMRC needs to be seen to carry through on its promises if it is to maintain public trust in them.
48. HMRC’s priority for the future must be to change its public image. It needs to be seen by taxpayers as a partner in operating the essential machinery of funding Government’s operations, rather than an underfunded and inefficient collections body focused too closely on recovering underpaid tax from a small sector of tax payers while struggling with its responsibility to provide an effective service to most and failing to tackle squarely the most serious evaders. November 2010 Ev 88 Treasury Committee: Evidence
Written evidence submitted by the Association of Revenue and Customs (ARC) Executive Summary ARC is pleased to submit evidence to the Treasury Sub-Committee inquiry. Recent events around PAYE reconciliations, combined with recent and proposed cuts in numbers and spending, give us significant concerns about HMRC’s ability to reduce the tax gap and administer the tax and benefit system. ARC believes that HMRC has failed to recognise the key contribution of staff in delivering the department’s strategic objectives. The latest estimate of the gross tax gap for 2008–09 shows that it has increased by £4 billion as compared with the previous year and stands at approximately £52 billion. ARC believes it is no coincidence that total revenues are falling at a time when HMRC has suffered significant staffing reductions, cut from 99,179 in 2004–05 to 68,037 by June 2010. The impact of the Spending Review settlement will further erode staff capacity. The Spending Review contained two main outcomes for HMRC: cutting expenditure by 25% and investing £900 million in compliance (leading to an extra £7 billion yield per annum by 2015). ARC believes cuts of this magnitude will inevitably reduce HMRC’s effectiveness in closing the tax gap. ARC welcomes the £900mn investment but regrets that it is not additional money but recycled from savings made elsewhere in HMRC. Compliance activity will therefore remain under severe pressure, eg: — Insufficient legal resources to pursue cases to litigation. This creates bottlenecks and some cases are settled for less than might have been expected; — Increasing prioritisation of larger cases, so other large, small and medium cases are ignored, each of which could generate significant income; and — Severe reductions in coverage of some customer segments, with the result that the deterrent effect of compliance work is being lost. ARC sets out a number of priorities for HMRC in order to help the committee consider its report and recommendations. These include: investing in world class tax professionals; maintaining an effective deterrent against non-compliance; substantially reducing the tax gap; providing an effective service to all HMRC customers; and a step-change improvement in staff engagement and HMRC capability.
1. Introduction ARC is both an independent trade union and the HMRC section of the FDA, the trade union for senior managers and professionals in public service. ARC represents around 2,600 members in HMRC, at Grade 7 and above, and also trainees in Grade 7 entry schemes.
2. HMRC’s Performance as an Organisation and Whether it is Delivering its Key Aims 2.1 HMRC, and ARC members, have achieved much since HMRC was formed. We welcome work around tax professionalism, unifying powers and responsibilities, targeting responses on the basis of risks, and engaging with customers. HMRC, and ARC members, has done remarkably well to sustain performance, bringing in £12 billion of extra yield, while losing nearly a third of the staff. But ARC doubts this can be repeated time and again with fewer staff. 2.2 Having engaged, motivated, and trained staff is a key enabler for HMRC delivery. In our view this requires trust, empowerment and an inclusive approach to management and leadership. Lack of engagement risks poorer performance and so less money for the Exchequer. HMRC recently published its core strategy: — Maximising revenue flows. — Increasing customer satisfaction. — Sustainable cost reductions. ARC believes HMRC is missing an opportunity by not explicitly recognising the key contribution of staff as part of this strategy.
Maximise revenue flows 2.3 Every developed economy has a tax gap. It is the difference between the amount of duty and tax due under the law and the amount taxpayers pay voluntarily (there are always grey areas between “planning” and “avoidance”; tax at risk can be much higher than headline tax gap estimates). HMRC’s initial estimate of the tax gap for 2007–08 judged1: 1 Measuring Tax Gaps 2009, March 2010, and Protecting Tax Revenues 2009, 9 December 2009. Treasury Committee: Evidence Ev 89
Amount collected through Amount not Tax due Tax paid Gross tax compliance interventions collected (net (£bn) voluntarily (£bn) gap (£bn) (£bn) tax gap, £bn) 476 424 52 12 40
2.4 The latest estimate of the tax gap for 2008–09 shows that it has increased by £4 billion compared with the previous year.2 Total tax collected shows a worrying trend: 2007–08 (£bn) 2008–09 (£bn) 2009–10 (£bn) 462 441 436
Improving service to customers 2.5 HMRC has a mixed approach to customer service, with positive elements often outweighed by an inconsistent approach to improvement. For example, large businesses like the focus that designated Customer Relationship Managers (CRMs) bring to account handling. Yet only the largest 1,800 businesses have a CRM, whereas over 11,000 businesses are included within the HMRC “Large Business Strategy.” Against this are well publicised problems with PAYE, both for employers and employees. 2.6 The department’s telephone response performance in 2008–09 was less than one call in two answered. This has improved but HMRC is still some way from the industry standard of 90%. There are also substantial delays in handling post. 2.7 Staff cannot deal on a one-to-one basis with advisers and give the quick professional decisions that would make life simpler for many SMEs and individuals.
Sustainable cost reductions 2.8 ARC believes it is no coincidence that total revenues are falling at a time when HMRC has suffered significant staffing reductions. All cuts can impact on reducing the tax gap—“restrictions on a department’s total headcount figures are a potential constraint on how the department responds to issues across all of its operations, not just those directly affected by headcount reductions”3 Numbers 2014–15 (FTEs) 2000–05 2006–07 2007–08 2009–10 June 2010 (est.) 99,179 91,373 85,769 73,695 68,037 56,000
2.9 One key objective (DSO1) is to improve the extent to which individuals and businesses pay the tax due and receive the credits and payments to which they are entitled. Another (DSO2) is to improve customers’ experience of HMRC and contribute to improving the UK business environment. On this basis the costs of compliance activity have fallen almost 50% from 2006–07 to 2010–11. 2008–09 2009–10 2010–11 Plans Budget Budget Budget Budget (£mn) 2004–05 2005–06 2006–07 2007–08 (£mn) FTE (£mn) FTE (£mn) FTE DSO 1 3,471 2,761 3,660 3,038 2,283 42,187 2,091 37,033 1,919 ?? DSO 2 486 1,318 569 996 1,813 33,504 1,983 35,113 1,819 ??
2.10 A key part of delivery must be value for money (ie the relationship between economy, efficiency and effectiveness). In ARC’s view, the planned cuts in HMRC do not deliver real value for money: there is too much emphasis on economy and efficiency, and too little on effectiveness. 2.11 HMRC’s Chief Executive recently stated the department would deliver within the spending envelope.4 But too big a focus on the left hand side of the profit and loss account ignores what HMRC wants to achieve. ARC believes HMRC should maximise the impact of its tax professionals, doing even more with more, not a little more with less.
3. Impact of HMRC Spending Review Settlement 3.1 The Spending Review settlement had two main outcomes: cutting expenditure by 25% and investing £900 million in compliance (leading to an extra £7 billion yield per annum by 2015). ARC believes cuts of this magnitude will inevitably reduce HMRC’s effectiveness in closing the tax gap. We judge the settlement was not bold enough, a missed opportunity to significantly close the tax gap. 2 MEASURING TAX GAPS 2010, Official Statistics Release, 16 September 2010. 3 TSC, The efficiency programme in the Chancellor’s departments, 17 July 2007, para 104. 4 Oral evidence, TSC, HMRC’s operation of PAYE system, 15 September 2010, Q 71, Q72 Ev 90 Treasury Committee: Evidence
3.2 HMRC is going into a massive restructuring exercise with a relatively poor capability and a demoralised workforce that does not trust senior managers to deliver change. 3.3 Capability Reviews were established to assess departments’ organisational capabilities. In the first (2007), HMRC scored 1.8, third from the bottom. In the follow-up (2009), the score was 2.3 but, as others had also improved, HMRC was still near the bottom. 3.4 Last year’s staff survey showed HMRC near the bottom of the poll of 96 different organisations—61% of staff have no confidence in the decisions made by HMRC’s senior managers. The figures suggest a likely frailty in staff willingness to support changes without significant improvements in the way they are involved in the change process. I feel that change is managed well in this department Strongly agree Agree Neither Disagree Strongly disagree May 2005 1 15 29 37 19 Nov 2005 - 13 27 60 - May 2006 1 17 24 40 18 Nov 2006 1 11 23 35 30 May 2007 1 11 27 36 25 Nov 2007 1 9 20 38 33 Positive Neither Negative May 2009 11 20 70 Strongly agree Agree Neither Disagree Strongly disagree Nov 2009 - 11 21 37 30
3.5 We believe HMRC has been hindered by poor organisational design. Kieran Poynter agreed: “such a business is… not suited to the so-called “constructive friction” matrix type organisation in place at the time of the data loss”.5 3.6 HMRC has introduced a more coherent structure—Lines of Business. Yet, even before bedding that in, HMRC is already looking to introduce a redesign, but still based in essence of the original McKinsey model. 3.7 These problems of structure and managing change are compounded by frequent and disruptive changes at the most senior levels. HMRC is now on Chair/CEO number 4, Chief Information Officer number 3, Chief Financial Officer number 3, and Chief People Officer (CPO) number 6 (including a year when HMRC employed two interim CPOs). Not all of these changes were managed well.6 We believe there is more chance of instability with SCS costs to be cut by 20%. This process has started, using a selection process that, in some cases, effectively involves staff having to re-apply for their own job.
4. Delivery of Government Aims on Compliance 4.1 Danny Alexander said in September: “Tax avoidance and evasion are unacceptable in the best of times but in today's circumstances it is morally indefensible”. Lesley Strathie recently told the PAC “all our planning for the spending review has been predicated on that very business case of how much more we could narrow the tax gap”.7 4.2 ARC shares these views. The government has clearly accepted the proposition that investment in HMRC can produce significant returns. In 2009–10, HMRC generated additional revenues of £12 billion through its compliance activity; over three times the total cost of administering the tax system. Compliance staff earning £50k can generate yield of £1.5 million and stop Exchequer leakage of a further £1.5 million.8 Such work has a proven deterrence effect, and helps bring about long-term changes in customers’ behaviour, making them more compliant. 4.3 The stated aims of the £900 million announced by the Chief Secretary are: — a fivefold increase in the number of criminal prosecutions against tax evasion; — a new focus on offshore evasion, with more specialist investigators; — a harder line on evasion and avoidance by those liable for the 50% tax band; — an improvement in HMRC’s internal debt collection rates; — more registration checks to stop people wrongly claiming tax repayments; and — an additional £7 billion each year by 2015 through closure of the tax gap. 5 Review of information security, Kieran Poynter, June 2008, p 49. “Director Generals, more than one of whom commented they felt themselves to have no accountabilities under the organisation put in place following the merger”. 6 Administration and expenditure of the Chancellor's departments, 2007–08, 23 January 2009, para 80, “We are disappointed that HRMC took 12 months to replace its Chief Executive, thereby deepening the uncertainty felt by staff members already part way through a far reaching review of HMRC's operations.” para 88, “It is our view that HMRC's explanation of the basis for the payment to Stuart Cruickshank is wholly inadequate. We are further unconvinced that the £88,125 received by Stuart Cruickshank represents good value for the taxpayer”. 7 Oral Evidence PAC, HMRC 2009–10 Accounts, 12 October 2010, Q66. 8 See Annexe. Treasury Committee: Evidence Ev 91
4.4 ARC welcomes the additional investment but regrets that it is not additional money, but recycled from savings made elsewhere in HMRC. It will help in some areas, such as people who send in high-risk Income Tax returns, as will improvements to registration and improving HMRC’s debt collection, where resource shortages have led to increasing problems. But simply re-arranging declining resources means that increased efforts in one area produce a reduction in effort elsewhere. 4.5 The number of successful prosecutions by HMRC has declined by 41% since 2007, to just 157 in 2008–09. Even a fivefold increase would mean that HMRC prosecutions would be less than 10% of the 9,000 prosecutions by DWP each year. Yet benefit fraud is estimated at c. £1.5 billion each year, compared to the gross tax gap of £60 billion. 4.6 We are also concerned that no investment is pledged for other high-risk areas where investment could yield billions, such as: — A few thousand large businesses cost the UK £3.1 billion in lost tax, other companies cost £3.8 billion. — Clamping down on “ghosts” (£1.3 billion) and “moonlighters” (£1.8 billion). And HMRC’s own evidence suggests that nearly half the tax returns for SA customers may be wrong, even as many as 20% wrong by over £1,000 tax.9 4.7 HMRC already faces severe pressure on its services. These pressures will be accentuated by the Spending Review and impact directly on reducing the tax gap. ARC members see these effects, eg: — Increasing prioritisation of some larger cases, so other large, small and medium cases are ignored, each of which could generate significant income; — Insufficient legal resources to pursue cases to litigation. This creates bottlenecks and some cases are settled for less than might have been expected; and — Severe reductions in coverage of some customer segments, resulting in reduced deterrence. 4.8 ARC believes that investment in senior tax professionals would reverse this trend and prove hugely cost effective.
5. Future Priorities for HMRC 5.1 HMRC must be clear about its future priorities in order to provide a first-rate service to all its customers and reduce the tax gap. From our experience, and our members’, we believe the following priorities will assist the committee in considering its conclusions: 5.2 Invest in world class tax professionals: HMRC’s precursor departments were renowned for determination and professionalism. Under-investment, failure to plan for knowledge transfer, and reduced technical development has eroded this position. ARC agrees with HMRC plans to continue recruiting graduates, but the numbers being recruited now are too few to replace the experienced tax professionals who will soon be retiring. HMRC should publish detailed plans for maintaining and enhancing its cadre of senior tax professionals, taking account of projected need, current demographics and the time required before new entrants become fully effective tax professionals. 5.3 Maintain an effective deterrent against non-compliance: An over-riding objective of any tax system must be that honest taxpayers see it as fair. There is a direct correlation between voluntary compliance and the perceived chance of being caught evading taxes. ARC believes that coverage is already dangerously low in some sectors such as SME business taxpayers. The growth in the tax gap suggests HMRC is currently losing this battle. 5.4 Substantially reduce the tax gap: The gross tax gap before HMRC compliance activity is close to £60 billion per annum and growing. We have demonstrated that work to close the tax gap is very cost effective, particularly in areas where our members work. ARC believes HMRC should demonstrate how it could close the tax gap even more than is already planned, along with the additional investment needed to do this. 5.5 Provide an effective service to all HMRC customers: HMRC should provide a service tailored to the needs of all its customers. It needs to avoid a rush to on-line channels which may alienate large numbers of customers who are unable to use on-line services, particularly pensioners and tax credit claimants (those on the wrong side of the digital divide). It should consider extending the CRM model of customer engagement to every business falling within the HMRC large customer strategy. We believe it is vitally important to work with agents and intermediaries, especially improving the service provided to all small and medium accountancy firms. 5.6 Step-change improvement in staff engagement and HMRC capability: ARC believes this should be a key responsibility for the HMRC Executive Committee and all senior managers. The aim should be to take staff survey scores to the top quartile within two years. This will only be achieved through a concerted effort across the Department, involving greater trust by managers and willingness to consider staff views. The huge challenges presented by the Spending Review settlement can only be delivered if the remaining 56,000 staff 9 See Annexe. Ev 92 Treasury Committee: Evidence
are fully engaged and motivated, with HMRC providing them with the resources and capacity necessary to reduce the tax gap.
Annex 1. Self Employed Taxpayers and Partnerships 1: Incorrect SA Returns with Under-declared Tax Liability (per cent) 1999–2000 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 48% 52% 54% 56% 55% 53% 50% 45% of which, under-declared liability per annum £1 to £500 23% 23% 25% 25% 22% 22% 21% 18% £501 to £1,000 11% 14% 13% 12% 13% 12% 10% 7% over £1,000 14% 15% 16% 19% 20% 19% 19% 20% MEASURING TAX GAPS 2010, 16th September 2010, Table 8.3:
2. Cost: Yield Ratios by HMRC Business Type 2005–06 2006–07 2007–08 2008–09 Local Compliance 7:1 8:1 10:1 Business International 128:1 179:1 218:1 181:1 Excise, Customs, Stamps and Money 13:1 19:1 6:1 7:1 Charity Assets and Residency 24:1 36:1 39:1 Specialist Investigations 23:1 Large Business Service 48:1 44:1 60:1 62:1 Total compliance yield (£m) £7,351 £8,779 £11,148 £12,083 HMRC Annual Reports November 2010
Written evidence submitted by the Low Incomes Tax Reform Group Executive Summary HMRC’s performance 1.1 From the perspective of unrepresented taxpayers on low and modest incomes (probably the majority), HMRC is now too often seen as an organisation that is unable to collect the right amount of tax, increasingly difficult to contact by phone, letter or in person, yet unforgiving of customer error and relentless in its pursuit of small debts. This image may have been exaggerated by parts of the press, but failings occur too frequently to be dismissed as “isolated instances”. 1.2 HMRC has had constant demands placed upon it in recent years through changes in the tax and tax credits systems while having to deliver year on year cuts in headcount. As a result, there is a clear need for the sort of transformation that is envisaged in the Spending Review and Departmental business plan. We have seen transformation plans year after year that promise better “customer service”. HMRC now needs commitment and leadership to carry through those plans.
HMRC’s spending review settlement 1.3 The plan to reinvest £900 million in combating evasion and avoidance is welcome if it achieves its goal of bringing in £7 billion additional annual revenue by 2014/15. We note, however, that part of that strategy is a joint initiative by HMRC and the DWP to target “fraud and error” in tax credits and benefits. Our reservations about this are twofold: — Conflating the two very different concepts of fraud and error is prejudicial to the unrepresented taxpayer who will inevitably make mistakes in dealing with such complex systems, however careful they are. — The contribution made by HMRC official error to the alleged £5.2 billion lost annually in benefits and tax credits fraud and error is materially underestimated. 1.4 The 15% net reduction in HMRC’s resource budget will undoubtedly cause front line services to deteriorate even more sharply than they have done in recent years—at least in the short term. Accordingly, the reinvestment of £900 million in combating evasion and avoidance should be partly matched by adequate and long-term grant-in-aid to charities and other voluntary sector bodies to help carry out the front line functions that HMRC can no longer afford. Treasury Committee: Evidence Ev 93
1.5 If unrepresented taxpayers were enabled to get their tax affairs right first time, that would lead to a material decline in the fraud and error figures, rendering much compliance activity redundant.
Tax compliance 1.6 To a significant but unquantified extent, where unrepresented taxpayers are concerned, compliance activity is a consequence of the failure to educate. If information coming from HMRC to unrepresented taxpayers (who rely on it) is inaccurate, misleading, incomplete, incomprehensible or inaccessible, the taxpayers will make mistakes in discharging their obligations. This leads to higher error levels, and more compliance activity, than is necessary. 1.7 If (as sometimes happens) HMRC’s compliance interventions are based on misunderstandings by the Department, individuals who are wrongly charged to tax or denied tax credits may thereby lose money which they can ill afford, and may never recover. This can only be countered by investment in training of compliance staff.
PAYE reform 1.8 PAYE is a means of collecting as close as possible to a taxpayer’s actual tax liability during the course of a tax year. But it can only be approximate, and is as good as the design of the system and the source of the data used within it. 1.9 Yet most PAYE taxpayers genuinely believe that what comes to them from the Government in a brown envelope must be right, and will sometimes trust it against their own better judgment. For those people in particular, any reform that can deliver greater accuracy in a more timely way is beneficial, even necessary. So we look forward with hope to the next generation of PAYE systems, but from very first principles what is to be delivered must aim to be 100% accurate or 100% comprehensible to the customer, preferably both.
HMRC’s priorities for the future 1.10 HMRC’s priorities are simple. They should collect the tax (or pay out the benefits) due in accordance with the law in the most efficient and effective way whilst generating respect from their “customers” in the way that they behave in completing this task. 1.11 We list ways in which HMRC can achieve that.
Introduction 2.1 The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. The CIOT is a charity and the leading professional body in the United Kingdom concerned solely with taxation. 2.2 The focus of this submission is the administration and effectiveness of HMRC in its dealings with low- income, unrepresented taxpayers and tax credit claimants. In the remainder of this paper we use the term “taxpayers” to represent all HMRC’s customers, whether taxpayers or tax credit claimants.
HMRC’s Performance as an Organisation and Whether it is Delivering its Key Aims 3.1 HMRC’s key aims as expressed in its recently published business plan10—to “deliver a more focused and effective tax administration”, and to use its “customer-centric approach” to “transform the way we deliver services, manage contact and conduct interventions”—are largely aspirational at present. 3.2 From the perspective of unrepresented taxpayers on low and modest incomes (probably the majority), HMRC now is too often seen as an organisation that is unable to collect the right amount of tax (witness the recent PAYE reconciliation). It is increasingly difficult to contact by phone (it is not uncommon to have to phone several times just to make any contact), letter (replies to letters often take weeks or months) or in person (closures result in increasing numbers having no access), yet unforgiving of customer error and relentless in its pursuit of small debts. 3.3 HMRC demands placed upon vulnerable customers to contact HMRC or reply within x days (or suffer awful consequences) are in stark contrast to the standards HMRC sets itself. 3.4 HMRC has had constant demands placed upon it in recent years through changes in the tax and tax credits systems while having to deliver year on year cuts in headcount. Consequently, there is now a clear need for the sort of transformation that is envisaged in the Spending Review and Departmental business plan. Yet we have seen transformation plans year after year promising better “customer service”. In February 2009 we published a telling analysis comparing the Inland Revenue plans of 1994 with the current strategy11. In 1994, the Inland Revenue was able to say: 10 http://www.number10.gov.uk/wp-content/uploads/HMRC-FINAL-Business-Plan.pdf 11 See http://www.litrg.org.uk/News/2009/hmrcs-new-vision Ev 94 Treasury Committee: Evidence
— “The department again achieved very satisfactory results. All key operational targets for the throughput of work were met. — Collection offices similarly met all their key operational targets despite the continuing difficult economic conditions for all organisations involved in debt collection. — We want to focus on all aspects of the quality of work: not just speed, also the accuracy and effectiveness, of work being done. — Taxpayer surgeries and mobile enquiry centres will not only maintain face to face customer service in towns in which an office has been closed, but also bring an Inland Revenue presence to areas formerly without such a service.” 3.5 What is needed in 2010 is the commitment and leadership to carry through the plans now being announced.
What are the implications of HMRC’s spending review settlement? 4.1 The plan to reinvest £900 million in combating evasion and avoidance is welcome if it achieves its goal of bringing in £7 billion additional annual revenue by 2014–15. We note, however, that part of that strategy is a joint initiative by HMRC and the DWP to target “fraud and error” in tax credits and benefits. About this we have two major reservations, on which we expand in our evidence to the Treasury Committee’s Inquiry on the Spending Review: — Conflating the two very different concepts of fraud and error is prejudicial to the unrepresented taxpayer who will inevitably make mistakes in dealing with such complex systems, however careful they are. — The contribution made by HMRC official error to the alleged £5.2 billion lost annually in benefits and tax credits fraud and error is materially underestimated.12 4.2 The 15% net reduction in HMRC’s resource budget will undoubtedly cause front line services to deteriorate even more sharply than they have done in recent years—at least in the short term. This is evidenced by the gradual closure of some enquiry centres, reductions in the opening hours of others, and similar reductions in opening hours of contact centres despite a steady decline in the volume of calls being handled.13 4.3 The reinvestment of £900 million in combating evasion and avoidance should be partly matched by adequate and long-term grant-in-aid to charities and other voluntary sector bodies to help carry out the front line functions that HMRC can no longer afford. Then, unrepresented taxpayers would be enabled to do what the vast majority wish to do anyway—get their affairs right first time. This in turn would lead to a material decline in the fraud and error figures, rendering much compliance activity redundant.
Is HMRC able to deliver the Government’s aims on tax compliance? 5.1 To a significant but unquantified extent, where unrepresented taxpayers are concerned, compliance activity is a consequence of the failure to educate. 5.2 Unrepresented taxpayers rely on HMRC to give them accurate and comprehensive information in a way they can understand and in a format accessible to them. If the information coming from HMRC is inaccurate or misleading, or incomplete, or is incomprehensible (for example, written in technical language or simply using too much jargon) or inaccessible (for instance, information held only on HMRC’s website is inaccessible to people who lack access to the internet or the skills to use it), the taxpayers will make mistakes in discharging their obligations. 5.3 This leads to expensive compliance activity later on. In addition, where the taxpayer’s mistake gives rise to an overpayment of tax credits or an underpayment of tax, higher levels of error and fraud, or an increase in the tax gap, ensue. Targeting cutbacks on information to taxpayers is therefore counter-productive. 5.4 Finally, where HMRC’s compliance interventions are based on a misunderstanding by HMRC, two things happen: — Individuals are overcharged to tax, or denied their entitlement to tax credits, by wrong executive action; they thereby lose money which they can ill afford, and may never recover. — Consequently, the figures for the tax gap, or fraud and error in tax credits, are increased inappropriately. Example A lone parent separated from her abusive husband and began a single claim for tax credits. She consulted a solicitor but did not actually take the step of starting divorce proceedings. Despite the involvement of the police and various other agencies, and the physical evidence of separation, HMRC decided that the separation was insufficiently permanent to constitute “separation” within the meaning of the Tax Credits 12 Incredibly, HMRC official error in tax credits overpayments is estimated at nil. See “Tackling fraud and error in the benefit and tax credits systems”, HMRC & DWP, October 2010, page 12. 13 Hansard, 11 October 2010, col 240W: the total volume of calls either answered by advisers or handled by interactive voice response declined from 92.6% in December 2009 to 41.6% in June 2010. Treasury Committee: Evidence Ev 95
Act 2002. They cancelled her single claim and demanded repayment of an alleged overpayment in excess of £50,000. When we intervened we drew HMRC’s attention to evidence which in our view they should have investigated from the outset. The result was the reinstatement of her single claim and cancellation of the £50,000 plus overpayment.
5.5 More reinvestment in training is essential to minimise the incidence of official error of this nature.
Is PAYE reform necessary?
6.1 PAYE is a means of collecting as close as possible to a taxpayer’s actual tax liability during the course of a tax year. But it can only be approximate, and is as good as the design of the system and the source of the data used within it. The new PAYE service (NPS) is fundamentally a good idea spoiled in its implementation by the lack of a deep understanding of employer and customer behaviour.
6.2 The failings of the previous system have created a vast backlog of unmatched data (largely for the unrepresented population) which would tie up HMRC resources to no good effect if attempts were made to deal with it case by case. Many unrepresented taxpayers would have good arguments for writing off their underpayments, and those who did not would most likely have difficulty in paying them. The repayments due should be made as soon as possible.
6.3 NPS needs some urgent fixes to make it stable and understandable by the unrepresented taxpayer. Then every effort should be made to avoid all past mistakes in the design of the proposed Real Time PAYE system where, as with past systems, the potential for success or failure will lie in the detail.
6.4 Most PAYE taxpayers genuinely believe that what comes to them from the Government in a brown envelope must be right, and will sometimes trust it against their own better judgment. For those people in particular, any reform that can deliver greater accuracy in a more timely way is beneficial, even necessary. So we look forward with hope to the next generation of PAYE systems, but from very first principles what is to be delivered must aim to be 100% accurate or 100% comprehensible to the customer, preferably both.
6.5 But it should not be assumed that real-time information will suffice for tax credits, let alone benefits, unless the very different measurements of income in PAYE and tax credits/benefits are aligned, and—even more importantly—the units of assessment (couple or individual) are harmonised. Without those major changes, using real-time PAYE income information to compute tax credit income will inevitably result in inaccurate awards.
What should HMRC’s priorities be for the future?
7.1 HMRC’s priorities are simple. They should collect the tax (or pay out the benefits) due in accordance with the law in the most efficient and effective way whilst generating respect from their “customers” in the way that they behave in completing this task.
7.2 A radical culture shift driven from the top is needed to “go back to basics”. This would mean: — Designing processes that are as simple as possible for the customer, whilst minimizing the potential for error and fraud. Too often the customer perspective has been an afterthought. — When dealing with unrepresented customers making a sensible choice between educating them in ways that they can understand so that they can be empowered to do things for themselves, or hiding the complexity and aiming for 100% accuracy so that it will not matter whether the customer understands or not. Too often HMRC accept complexity together with processes which aim for (or achieve) 70–80% accuracy. — Such customer education should make use of the different media which customers feel comfortable using. There is no point, for instance, in insisting on the use of the HMRC website and contact centres if there are people who, for good reason, are able to use neither. — Understanding why things happen by analysing customer behaviour and instead of treating the symptoms going back to the root causes. Enormous waste is generated by misunderstanding the nature of the problems. — Investing in the training and motivation of staff. It is a false economy to produce staff who directly interact with customers, but who can only read from computer scripts and cannot analyse the needs of the customers with whom they deal and how the tax system impacts upon them. It is important also that staff in customer contact roles liaise efficiently and seamlessly with those in customer operations (indeed for the pensioner population we would like to see a merger between the two). November 2010 Ev 96 Treasury Committee: Evidence
Written evidence submitted by HM Revenue & Customs Executive Summary 1.1 From the formation of HMRC in April 2005 until March 2010, we have collected £2,188.3 billion of tax and paid out £157.6 billion in benefits and tax credits. Annex 1 has the breakdown by year. 1.2 We have six key objectives. They help us strike the necessary balance between delivering services to the public at maximum value to the Exchequer while building a professional and sustainable organisation: — maximising revenue flows; — improving customer experience; — improving our professionalism; — reducing the cost base in a sustainable way; — creating a working environment that motivates our people; and — transforming the performance of the Department through exploitation of information and technology services. 1.3 Although we have faced a number of delivery challenges since formation in 2005, we are able to demonstrate significant achievements against each of these objectives. 1.4 We have had an important impact in maximising revenue flows, improving our overall compliance intervention yield from £7.4 billion in 2005–06 to £12.6 billion in 2009–10.14 Ministers have recognised this level of achievement and have allowed HMRC to reinvest £917 million of savings to tackle avoidance, evasion and fraud in the 2010 Spending Review (SR) settlement. 1.5 Our aim is to improve the customer experience. This goes beyond customer service to ensure that our products and processes are efficient and effective for our customers. We have made it easier for our customers to transact with us and continue to do so by widening and improving our online services and finding ways that we can deal with our customers through agents and intermediaries. 1.6 An example is Self Assessment (SA) Online. Customers and their agents are making online the channel of choice as it offers an easier and more cost effective service than ever before. More than two thirds of SA returns are filed online and numbers are increasing year on year; the online service has received external recognition by winning a number of prestigious awards for excellence and take-up. And our customer service has been recognised through a number of call centre awards, including recognition of Peterlee as winner of the best outbound campaign award in 2009 and winner of team manager of the year award in our St Austell contact centre in 2010. Nonetheless, more recently performance levels in contact centres have dropped and we have put in place a programme of work to address this and are confident that our performance will improve. 1.7 HMRC is committed to improving professionalism within the organisation. We have a programme in place to improve the skills of our staff across our core professions of tax, policy and operational delivery. That includes a programme to upskill our 18,000 tax professionals and recent introduction of a new qualification that will be recognised across government for staff in our debt management and banking function. 1.8 We have demonstrated a good track record in delivering efficiency savings. Between 2005 and 2010, HMRC achieved over £1.1 billion value for money savings without overall negative impact on performance. Our Commercial Directorate has been ranked as the top procurement organisation in the latest Office of Government Commerce (OGC) capability review and the pricing benchmark exercise undertaken by Sir Philip Green placed our contracted rates as generally being at the lowest end of the price range. 1.9 Although, we know we have challenges in creating a working environment that motivates our people, we have done a great deal of work with groups across the Department to really look into the underlying issues. We will use this to engage with our people and develop our leadership capability. 1.10 Finally, we are transforming our IT capability. We have renegotiated our IT contract with our suppliers three times since 2006 and this, combined with decommissioning old computer systems, will save £161 million a year from 2011–12, while continuing to invest in new technologies and cutting carbon emissions. We are also replacing 25,000 old PCs with new, eco-friendly PCs at no extra cost to the Department. The work we have done to raise the performance and reliability of the Department’s IT, while cutting costs and carbon emissions, has been recognised when we won the National Outsourcing End User of the year 2010. 1.11 HMRC recognises the need for continuing this transformation and our future priorities demonstrate the scale of change we believe we need to deliver against our current and future challenges. However, these challenges should be seen within the context of the externally validated success we have had to date in meeting our key objectives.
HMRC’S Performance as an Organisation and whether it is Delivering its Key Aims 2.1 HMRC’s Vision is to close the tax gap, to make our customers feel that the tax system is simple and even-handed for them and to be seen as a highly professional and efficient organisation. 14 This figure excludes £3.8 billion yield from Fleming repayment claims in 2009–10. Treasury Committee: Evidence Ev 97
2.2 Although we recognise that the coming years present challenges for HMRC, we have a strong track record in making big cost savings, and increasing revenue. We have invested in the tools and skills that will enable us to cut costs and raise revenues even further. 2.3 Between 2005 and 2010, HMRC achieved over £1.1 billion value for money savings, and we are on track to deliver about another £300 million in 2010–11. From April 2004 to April 2010, we reduced staff numbers by almost 26%, some 24,000 Full Time Equivalents (FTEs) to around 69,000. We also transferred a further 4,641 FTEs to the UK Border Agency during 2009. Annex 1 has the breakdown by year. 2.4 As a result of HMRC’s activity, the percentage tax gap decreased from 9% of expected receipts in 2004–05 to 7.8% in 2007–08. It rose to 8.6% in 2008–09, due largely to an increase in the VAT debt as a consequence of the recession when taxpayers experienced reduced cash flows. Latest published figures show that the increase in the VAT gap (and VAT debt) has reversed in 2009–10. 2.5 We have not been as successful as we would like to have been in all areas of our business and HMRC’s reputation has suffered. As set out in paragraph 3.5, there have been a series of well publicised issues around the introduction of our new National Insurance and PAYE system (NPS). We have taken action to ensure that, in future, codes will not be affected by the data quality problems we experienced early in 2010. This has involved additional clerical and computer checks on outputs which ought to be processed automatically, and we have plans for changes to our software to minimise the need for this exceptional processing in future. We will also work with employers to improve the quality of the data they supply. We have committed to clearing the backlog of “open” PAYE cases from past years by the end of 2012. 2.6 The introduction of NPS was one of the factors that had an impact on recent contact centre performance. For a variety of reasons, such as the peaky nature of tax and claim deadlines, we have not met the industry standard of 90% of calls answered. In 2009–10, we improved the percentage of call attempts answered from 57% to 76%. However, we have experienced a significant rise in demand in 2010–11, with caller numbers rising by 16% in the first seven months of the year. Consequently, the number of call attempts rose by 85% as customers redialled to get through. Call attempts answered therefore slipped back to 40% in 2010 but we are correcting this and developing plans to improve service levels towards the industry standard of 90% call attempts answered. Over the last four years, both overall customer satisfaction with the service and the quality and accuracy of the service have matched or exceeded industry standards and have been recognised through a range of industry awards. 2.7 The recent dip in contact centre performance has contributed to a fall in our previously improving customer satisfaction scores. The last six months have seen falls for all customers, primarily as a result of scores in the “Ease of Getting in Touch” score. 2.8 These issues have had an impact on staff morale within the Department, which was already showing that our people are disengaged with HMRC (although not with their work).The 2010 Civil Service People Survey results give HMRC an Employee Engagement Index score of 34% which has reduced from the 36% achieved in the 2009 autumn survey. HMRC still has the lowest engagement across the Civil Service. Although the reasons for low staff engagement include uncertainty about job security, reduced development and promotion opportunities, as well as lack of confidence in senior management, we also recognise that challenges related to NPS and HMRC’s damaged reputation make it more difficult for us to improve the staff engagement within HMRC; particularly when seen against the backdrop of future job losses over the SR period. We are currently considering these new results and how best we communicate our change programme (see paragraph 6.3 for further details) to our people. 2.9 To help us deliver our Vision, we have developed a customer-centric business strategy using our understanding of customer attitudes and behaviours to focus our efforts where they will have the biggest effect, tailoring our services—and the way we work—to the needs, abilities and motivations of our customers. We aim to shift the behaviour of customers where we can in order to keep our and our customers’ costs to a minimum, maximise revenues, and provide good customer service. 2.10 We are using our customer-centric strategy to re-model and re-design our services, tailored according to our customers’ needs and behaviours. This means we will migrate “willing and able” customers to online channels; releasing more of our contact centre resource to dealing with tax credits customers, where telephone contact is the most effective channel. Services that we have put online have had a high take-up rate. Current rates for online filing are 75% in Self Assessment, 37% in Corporation Tax, 98% in PAYE for employers End of Year returns and 71% in VAT compared to rates of 23%, 2%, 65% and 5% respectively in 2005–06; Annex 1 gives details for years from 2005–06. 2.11 Understanding our customers means we can also reduce their costs. For example, we have committed to reducing the overall costs to business from 2005 levels by 10% by March 2011. This includes offsetting new burdens, equivalent to savings of £510 million. We have exceeded this, delivering £564 million of admin burden savings for business since 2006, and have significantly reduced information requirements for Self Assessment returns from 2009 and online filing between 2008–11; Annex 1 has year on year figures of reductions. 2.12 We have stabilised and significantly improved the services for tax credit customers over the last few years by improving our understanding of their needs and listening carefully to their concerns. We have cut work Ev 98 Treasury Committee: Evidence
backlogs and processing times, reducing complaints and increasing customer satisfaction. We have worked with HM Treasury to introduce a series of policy changes to significantly cut the level of overpayments, which were a big area of customer concern. We have made good progress in recovering HMRC’s reputation as an effective administrator of the tax credits system from what was a very poor position four years ago. We have done all this in close co-operation with the relevant elements of the voluntary sector who acknowledge the progress that has been made.
2.13 We also have a target to reduce the combined levels of tax credit error and fraud to no more than 5% of finalised entitlement by the end of March 2011. Our approach to tax credit error and fraud has significantly changed over the last 18 months. We have used our customer segmentation to get a better understanding of those interacting with the system and have developed data analytics to better understand where tax credit losses are greatest. From this analysis, we developed a series of pilots embedding the principle of “Check First, Then Pay”, and leveraging data-matching of both public sector and third party data. This approach is wide-ranging and includes pre-payment checks on new claims, sophisticated risk-based tools, data-matching and mining to identify inconsistencies in customer claims, campaign-style interventions and customer education and support to prevent errors arising. As a result of this we have increased intervention coverage from 123,000 interventions to one million last year, and increased yield from £253 million to £770 million. We have plans to deliver a further £8 billion of intervention yield over the next four years. The National Audit Office’s (NAO) recent report on HMRC’s Accounts noted that our new approaches are beginning to deliver positive results.15 In October 2010, the Department for Work and Pensions (DWP) and HMRC announced a new approach to reduce error and fraud in the benefits and tax credits system.16 The approach has been created jointly by the DWP and HMRC and includes additional measures to reduce error and fraud.
2.14 We have developed our focus on tackling the highest tax risks and changing the way we work in our compliance functions. This has improved compliance intervention yield (the additional money that customers should have paid, identified through enquiries, visits and other checks) from £7.4 billion in 2005–06 to approximately £12.6 billion17 in 2009–10; Annex 1 gives a breakdown by year.
2.15 We collect almost all tax debt (overdue payments) coming into our debt management processes each year and write offs are relatively low. Historically, write offs, which are the real loss to the Exchequer, run at £5 billion–£6 billion a year. Our latest Accounts show that in 2009–10, HMRC wrote off around 1% (£6.3 billion) of total revenue and around 90% of that was due to insolvency where further debt pursuit is barred by statute. The remaining 10% is lost either because debt cannot be collected cost effectively or debtors cannot be traced. We achieve this high rate through a number of actions including making it easier for willing and able customers to pay on time by accepting debit/credit card payment or setting up direct debits online, and enhancing access to “time to pay” arrangements for those in genuine, but temporary financial difficulty through our Business Payment Support Service (BPSS). Between its launch in November 2008 and the end of September 2010, some 371,200 “time to pay” arrangements were granted involving £6.38 billion of tax. £5.41 billion has already been paid over to HMRC from mature arrangements and over 90% of tax is being paid in line with agreements. The launch of the BPSS has been almost universally welcomed both as a lifeline for business and as a pragmatic and cost effective way of collecting tax debt. We have brought an increasing number of customers into compliance through BPSS by encouraging people who need help to contact us before their payment becomes overdue and agreeing with them how to pay their tax bill.
2.16 We have delivered these improvements against a backdrop of tight financial settlements. In SR04, HMRC delivered within a flat rate cash settlement, while absorbing the very significant upfront costs of merging the Inland Revenue and HM Customs and Excise to form HMRC. In SR07 HMRC reduced costs year on year by 5% in real terms whilst maintaining performance and delivering departmental objectives. We accessed £300 million from a Modernisation Fund over the three years from 2007–08 to 2009–10 to meet specific costs directly related to transformation and achieving ongoing efficiency savings.
2.17 We have done this by making significant efficiency savings by modernising and improving processing operations, using PaceSetter18 continuous improvement techniques and transformation programmes. Savings have also been made through efficiencies in IT, other central and corporate services, and ensuring best value procurement. However, these savings have not been at the expense of investment in building and sustaining our business. They have been made in a sustainable way. Between 2007 and 2010 we invested £1,750 million in tools and skills that will allow us to further cut costs and raise revenues, and delivering cross Government services, for example: — investing in online filing for PAYE, Self Assessment, VAT and Corporation Tax and moving further services online, such as creating the cross-Government Businesslink website which HMRC runs for all of government; 15 HC 299: HM Revenue & Customs 2009–10 Accounts. 16 Tackling fraud and error in the benefits and tax credits systems, published by the DWP, 18 October 2010. 17 This figure excludes £3.8 billion yield from Fleming repayment claims in 2009–10. 18 HMRC’s home-grown programme to keep improving the way we work which grew from the ideas of “Lean working” pioneered by Japanese car makers. It is a set of principles underpinned by tools and techniques, which are being developed to apply to all of HMRC’s activities. Treasury Committee: Evidence Ev 99
— improving our compliance capability through a programme of improvements. This includes new risk tools and changing the way we work with Large Business to improve revenues, customer experience and efficiency; — creating the Government Banking Service; — delivering policy changes such as the HMRC Powers Review which aligned tax penalties, compliance checks and our investigative powers across taxes; — improving our productivity by expanding Lean19 ways of working across HMRC through PaceSetter; — investing in the National Insurance and PAYE Service (NPS) to replace old systems, thus giving a single view of taxpayers, rather than having their information stored on different regional databases; and — working with the Department for Business, Innovation and Skills and Companies House to create a “one-click” online registration process for new businesses.
Whether PAYE Reform is Necessary
3.1 The PAYE system was introduced in 1944. Until the introduction of the new National Insurance and PAYE service (NPS) its processes had largely remained unchanged, with the management of individual records based on the location of employers. However, working patterns have changed. The job market is now much more flexible and it is relatively common to have more than one job or pension and to change employer frequently. This has led to difficulty in keeping track of all the records relating to one person.
3.2 PAYE aims to collect the right amount of tax during the year but there are circumstances where this is not possible, for example when taxpayers or employers do not tell us about changes in circumstances, when a person with two jobs gets an income increase moving them to a higher tax band or when a person receives a new benefit in kind, such as a company car.
3.3 PAYE has always included a process to reconcile the taxpayer’s account, after the end of the year, and make any adjustment needed. Each year most accounts are reconciled, with the right amount of tax being deducted over the year. Under and overpayments are more likely to happen when people have more than one employment or pension, or change employer frequently, or are in receipt of benefits in kind and expenses. And as the job market is increasingly flexible and unpredictable, this has become relatively common.
3.4 As the previous PAYE IT system was organised around employers and recorded data on 12 regional databases, this meant that some individuals had more than one record often on different databases. This made the process of reconciling records at the end of the year more and more difficult. NPS creates a single record of each individual’s pay, tax and national insurance details on one database. As a consequence, HMRC can look at the whole of an individual’s liability in one place. The new system will deal with most over and underpayment cases automatically, issuing a repayment or a request for payment, whereas in the past underpayments and overpayments had to be dealt with clerically which was resource intensive.
3.5 When we conducted the annual issue of tax codes for the first time using the new NPS system, incorrect codes were sent to a number of customers. This was a result of the interaction of NPS with wrong, or out of date, data that had been migrated from the old PAYE computer system. We took action to resolve this by diverting resources to check over nine million customer records that were at risk of incorrect tax codes. As a result all codes that were affected by the data issues were checked and, where necessary, reissued before they were used by employers or pension payers. We are therefore taking a number of concerted actions to resolve these issues related to NPS as modernisation of the PAYE system will be dependent on the effective functioning of the system.
3.6 The transition to NPS also led to a delay in processing over and underpayments in respect of the 2008–09 tax year, so that they were issued at the same time as those for 2009–10. To help manage the volume of cases and provide a satisfactory customer service, HMRC agreed to write off all underpayments of less than £300, and set up a process to ensure that those who had larger amounts to pay did not incur interest charges.
3.7 Looking to the future we will use more frequent or Real Time Information (RTI) to improve the tax system.
3.8 Collecting information from employers when the employee is paid, rather than waiting for it to be submitted in end of year returns, will, in time, allow us to automatically update and correct tax codes throughout the year on a targeted basis, leading to a more accurate service for many individuals. RTI should also reduce the burdens on employers by reducing the requirement for them to submit separate returns. For example, we will be able to update records automatically when a taxpayer changes employer, potentially removing the need for the separate P45 process, and making sure that the individual pays the right tax sooner. 19 An approach for improving efficiency and effectiveness pioneered in the Japanese car industry and since applied successfully to other kinds of business processes. Ev 100 Treasury Committee: Evidence
3.9 Real Time Information will also help improve the accuracy of tax credit awards and income related benefits, cutting error and fraud. It is also a critical enabler for Universal Credit and we are working closely with DWP on its development. 3.10 We plan to have the infrastructure in place in 2012. We will then progressively migrate employers to the new system. 3.11 The investments in NPS and RTI will substantially improve PAYE operation and attune it to 21st century work patterns. We will be working with employers, businesses and representative bodies to ensure that these modernisations work as effectively as possible for both them and HMRC. We can then evaluate the need for further enhancement in the light of changing employment patterns and technology.
What the Implications are of HMRC’s Spending Review Settlement 4.1 The scale of the deficit means there has never been a more important time for us to be an administration that is at once more efficient, more flexible in dealing with customers and more effective in bringing in revenues. Our settlement reflects the vital dual role that HMRC plays in reducing the deficit. We will make significant savings—reducing costs by 25%, including a 33% reduction in administrative costs. We will reduce our capital spend by 44%. But we will also reinvest £917 million of these savings to tackle avoidance, evasion and fraud and bring in an additional £7 billion of revenues a year by 2015. Additionally, we are committed to delivering £2 billion per year in yield from tackling tax credit error and fraud. 4.2 Making these changes means focusing on our core functions and transforming our organisation. 4.3 We will become smaller. We expect to have around 56,000 FTEs by April 2015, about 10,000 less than in April 2011. We have developed a customer-centric business strategy and this will reduce the costs of collecting tax for HMRC and taxpayers, whilst enabling us to reinvest in efforts against tax avoidance, evasion and fraud. We know that our products and communications drive contact, and, that in some areas, our processes create re-work and delay. By simplifying products, processes and our letters to taxpayers we can reduce confusion and error, and the need for many customers to contact us. We will also continue to improve and expand the use of our online services and the degree of automation in key processes. These steps will enable us to re-design our internal organisation, removing waste and costs by streamlining our organisation. 4.4 In common with other departments, our capital expenditure has been reduced in this Spending Review compared to SR07. While RTI for PAYE is a significant new IT project, in the main our plans are based on reusing and leveraging the insight and capabilities we have already created, such as our customer-centric strategy, online services and risk targeting tools, to better effect.
Whether HMRC is able to Deliver the Government’s Aims on Tax Compliance 5.1 HMRC’s ability to deliver the government’s aims on tax compliance are key to our successful delivery of the Spending Review commitments. While we do not underestimate the challenge ahead, HMRC has a proven track record of delivering increased productivity alongside efficiency savings. Since 2005 HMRC compliance resource20 has reduced by approximately 5,000 to just over 20,000 while delivering an overall increase in compliance yield performance from £7.4 billion in 2005–06 to £12.6 billion21 in 2009–10 (see Annex 1 for yearly figures), for example: — increased Large Business Service yield from £3.6 billion in 2005–06 to £6.3 billion22 in 2009–10. In addition, between April 2007 and April 2010, the number of LBS enquiries which were over 18 months old has declined by 58% from 2,612 to 1,092; — average productivity improvements of 10% per annum in Local Compliance from better targeting resource to risk. In some areas we have been able to double the average yield per case, for example Income Tax full enquiries average yield has moved from £9,646 in 2005 to £24,153 in 2009–10; — Specialist Investigations delivered yield of £1.8 billion and protected revenue loss of over £0.68 billion in 2009–10, exceeding annual performance targets by over 16% and yielding total future revenue benefits of £0.54 billion, bringing the total revenue protected to £1.22 billion; and — achieving substantial reductions in carousel fraud on VAT repayments through an extended verification programme and reduced the losses by £1 billion in alcohol, tobacco and oils sectors. 5.2 All this has been achieved through an increased focus on tackling the highest risks and changing the way we work. We have increasingly made use of intelligent technologies to profile for risks and assist in the selection of cases for investigation. We have far greater capability to link our own and third party information. We have also used PaceSetter techniques to help us take a fresh look at all our business processes from a customer point of view. 5.3 We plan to build on our successes, whilst focusing on activities that change customer behaviour and improve the underlying levels of voluntary compliance. For example, we are developing a comprehensive 20 Large Business Service; Local Compliance; Criminal Investigations; Risk and Intelligence Service; and Specialist Investigations but excluding Debt Management and Banking. 21 This figure excludes £3.8 billion yield from Fleming repayment claims in 2009–10. 22 This figure includes Fleming repayment claims in 2009–10. Treasury Committee: Evidence Ev 101
offering of online support, including a range of interactive tools, to help small and medium enterprises (SMEs) understand their obligations at key points in their lifecycle, particularly when they are starting up in business. We have targeted our approach in order to positively influence customers’ attitudes to compliance by ensuring we tackle not only criminal attacks but also difficult areas such as evasion and avoidance, ensuring we maximize the impact of each intervention. 5.4 For large businesses, the relationship management approach has delivered successes to date both in terms of tax revenues and customer experience, so we will extend and develop this. We will increasingly work in real time with these customers, and improve the speed of dispute resolution by rolling out best practice (tight project management and collaborative engagement) from specific initiatives such as HMRC’s High Risk Corporate Programme. A new management information system will be introduced for the whole large business population, allowing us to identify and tackle the biggest risks wherever they are. We will continue to tackle avoidance vigorously: minimising opportunities through policy and legislative design; detecting it quickly where it still arises; and challenging it robustly, using litigation where appropriate. 5.5 We will tackle avoidance in wealthy individuals through extending our coverage of the 150,000 individuals within the scope of the 50% tax band where there is evidence of avoidance. We will work jointly with other fiscal authorities, using innovative approaches to limit the opportunities for individuals to conceal untaxed assets offshore. 5.6 Outside these specific groups, we will deploy more compliance staff to tackle those areas where there is the highest risk of non-compliance. Alongside this we will reduce the number of customers who unintentionally get things wrong by redesigning our processes to reduce the potential for errors and by giving better support to those who are trying to get it right. This will allow us to concentrate our most skilled resource on deliberate tax evaders. This approach will include: — using our better knowledge of customers’ needs and behaviours to tailor our compliance interventions to get the best results; — using a light-touch approach to correct non-deliberate errors at low cost to HMRC and to customers, through a quick exchange of letters or telephone calls; — targeting high-risk groups such as labour providers through specialist teams and compliance taskforces; — using a campaign approach to bring large numbers of customers back into full compliance with their tax obligations; and — increasing the number of criminal investigations and “Civil Investigation of Fraud” cases that we carry out; relentlessly pursuing those who break the rules. 5.7 To counter criminal attacks we will improve our methods for preventing, deterring, disrupting and dismantling criminal operations by: — strengthening our authentication and validation processes; — deploying risk teams to ensure better protection of repayments against criminal attack; and — developing cyber crime teams to tackle attacks on our electronic systems and strengthen our criminal investigation response. 5.8 Our strategy includes the use of more robust and innovative sanctions such as naming deliberate defaulters alongside new behavioural based penalties. These are all designed to bolster our deterrent leverage and create an optimal environment for tackling evasion and should result in considerable tax gap closure.
What HMRC’s Priorities should be in the Future 6.1 Looking to the future, we have a number of key priorities. Firstly, we will stabilise and improve the service we provide. Secondly, we will maximise revenues by transforming our compliance capability. Thirdly, we will implement the evolving policy agenda. 6.2 We are acutely aware that we are not always meeting the needs of our customers now; particularly our PAYE customers. We recognise the need for a major and concerted programme of work to stabilise the PAYE system by protecting resources in PAYE until 2012 and clearing “open” cases. Together with the improved access to payroll data from the Real Time Information programme, this will allow us to improve levels of customer service and give taxpayers confidence that their affairs are in order. The implementation of RTI and the improvements for taxpayers are dependent on improving PAYE data quality and the successful migration of employers to the new system. Both aspects are being taken forward as projects within HMRC’s RTI programme. 6.3 To support this, we will focus on improving our service. We are changing the way we are organised to ensure HMRC delivers the scale of change we are committed to. We will reduce management layers, ensure clear accountabilities and build our leadership capability. There will be fewer staff and fewer offices and we will continue to improve our overall productivity, focus on the areas where we can have deliver greatest value, improve sick absence and embed PaceSetter across the whole of HMRC. We have put in place a single change programme with the Chief Executive as Senior Responsible Officer and led by a Director General. We will Ev 102 Treasury Committee: Evidence
plan and allocate resources across the organisation corporately, but deliver locally using front line expertise and knowledge. We consulted extensively with external stakeholders in the period following the Spending Review announcement and a series of events were hosted by our Chief Executive, non-executive Chairman, senior managers and our Minister, the Exchequer Secretary to the Treasury.
6.4 Our second priority will be to deliver a step change in our ability to tackle avoidance, evasion and criminal attacks. To target our efforts on these risks we will shift our focus as an organisation to design out error and stop opportunities for avoidance before it can happen. Where individuals and businesses continue to avoid and evade tax, our approach will be robust as we ensure that everyone pays their fair share of tax. We will accelerate efforts on avoidance and offshore evasion; use more dedicated tax experts to tackle high risk areas for large businesses; undertake targeted campaigns to address risks cost-effectively and strengthen deterrence; significantly increase coverage against tax evasion, with more investigations and prosecutions; and strengthen debt collection techniques. We will also tackle organised criminal attacks, in particular repayment and excise frauds. We will increase customer understanding to identify the customers that pose the highest risks, and the interventions that will yield the biggest returns and will support us to deliver £7 billion per year in additional revenues by 2015.
6.5 Finally, our business does not stand still. We stand ready to implement the funded commitments for tax administration related to the policy agenda. These include changes to Child Benefit, Universal Credit, and implementing the tax proposals in the Scotland Bill. We will support the Office of Tax Simplification and introduce further changes that the Government agree as part of their review. We will work with HM Treasury, through the policy partnership, to ensure that tax policy takes account of our customer understanding and ensure operational feasibility to deliver Ministers’ policy objectives.
Annex 1
TABLE OF KEY PERFORMANCE INFORMATION (2005–06 TO 2009–10) 2005–06 2006–07 2007–08 2008–09 2009–10 Receipts (£bn) 409.3 441.3 461.6 441.0 435.1 Tax Credits (£bn) 16.0 17.9 19.5 23.7 26.8 Child Benefit (£bn) 9.8 10.1 10.6 11.2 11.9 RDEL (£m) 4,059 4,228 4,026 4,092 4,002 CDEL (£m) 354 299 244 278 229 VfM savings (£m) 131 254 278 182 298 FTEs Staff Numbers as at 92,888 (1.4.06) 88,936 (1.4.07) 83,828 (1.4.08) 81,160 (1.4.09) 69,300 (1.4.10) 1 April Annual staff 2,835 3,952 5,108 2,668 7,2191 reductions Online take up rates : percentage of returns received filed online Self Assessment 23% 33% 43% 66% 74% PAYE employer 65% 73% 83% 81% 84% annual return P35s VAT 5% 9% 12% 14% 20% Corporation Tax 2% 7% 10% 17% 27% Admin burden N/A 307 392 541 564 reductions (£m per annum): cumulative totals Intervention yield 7.4 8.8 11.3 11.5 12.62 (£bn) Customer contact— 37.0 68.1 70.9 57.5 75.8 percentage of calls answered
Table Notes
1 This figure excludes the transfer of 4,641 FTEs to the UKBA.
2 This figure excludes £3.8 billion yield from Fleming repayment claims in 2009–10. December 2010 Treasury Committee: Evidence Ev 103 10.443.3 0.6 0.4 11.0 43.7 809.5 36.6 846.1 Supplementary written evidence submitted by HM Revenue & Customs STAFF NUMBERS (AVERAGE STAFF YEAR USAGE)—2006–07 & 2007–08 YearDirectorate/Business AreaAnti-Avoidance GroupCentral ComplianceCentral PolicyChange & Capability Commercial DirectorateCommunications & MarketingDepartmental Transformation Programme Estates & Support ServicesFinanceFinance & Internal Audit HR & LearningInformation Management SolutionsKnowledge, Analysis and IntelligenceLegal & Corporate GovernanceOrganisational DevelopmentSecurity & Business Continuity PermanentStrategy UnitCorporate Functions Total NonBusiness Permanent Customer UnitFrontiersIndividuals 103.6Customer Units TotalCentralised ProcessingCriminal Total Investigations 172.7 39.1 2006–07Customer Contact 141.2Debt Management & Banking 162.9Detection 2,824.8 Permanent 1,781.6Distributed 3.4 Processing 2007–07 607.5Intelligence Non PermanentLarge Business Services 8.7 1.0Local Compliance 3.1National 423.9 Compliance 2006–07 102.7National 107.0 Processing 6.2 18.2National 1,790.2 52.5 Teams and 69.7 Total 43.2 SCI 943.9 181.4 40.1 9,121.2 144.3 2,927.4 2007–08 1,799.8 169.0 109.1 4.5 650.8 66.4 99.6 0.0 74.7 0.0 214.5 2007–08 233.7 2,427.9 332.1 139.2 7.7 1,550.0 343.7 7,995.5 428.5 148.2 1,677.8 8,409.8 1,856.6 1.8 2007–08 568.6 1,018.6 210.6 52.5 9,453.3 33.5 69.7 0.7 11,702.8 11.7 30.3 1.1 1,776.5 4,623.4 2.4 0.0 10.5 527.4 1,718.3 2.4 622.9 110.9 1,788.0 3.2 4.8 8,524.6 27.8 100.3 2,458.2 4,413.8 226.2 1.7 9,772.0 24.5 15,928.1 62.2 0.0 2,991.1 234.8 1,560.6 141.6 665.5 9,032.6 274.7 1,504.1 3,737.6 346.1 7.7 1,682.6 19.4 151.4 3.0 15.7 596.4 11,764.9 148.7 206.1 212.3 13.9 4,898.1 33.5 73.7 8,185.0 0.0 25.2 1,737.8 1,843.9 14.0 969.8 265.9 1,803.6 530.4 8.8 8,673.3 11,835.8 4,427.8 16,001.9 3,016.3 1.0 4,707.4 59.8 24.5 679.5 41.8 1,512.9 1,705.8 0.8 3.6 14,806.2 28.7 4,482.1 207.1 8,226.9 7,796.6 3,313.5 1,844.7 11,864.5 2.6 269.5 7.7 19.3 7.7 995.0 1,713.4 62.4 6.9 14,825.5 4,489.9 8,791.6 3,320.5 Ev 104 Treasury Committee: Evidence trategy & Business 292.8 0.4 293.1 YearDirectorate/Business AreaPAYE & SA ProcessingRisk and IntelligenceSerious Civil InvestigationsOperations TotalBenefits and CreditsCharity, Assets & ResidenceCTSA and VATCustoms International Excise & Stamp TaxesFrontiers & InternationalPAYE SA & NICProduct and Process GroupsAdjudicator’s Total OfficeGrouping Not FoundOther Offices TotalHMRC Total Permanent Non Permanent 6,517.5 195.4 1,890.7 Total 2006–07 1,831.4 74,041.0 674.0 84.7 Permanent 2,886.6 0.8 2007–07 14.7 Non Permanent 4,551.6 261.9 315.5 31.1 66.8 7,191.4 2006–07 1,905.4 196.2 50.3 0.1 78,592.6 326.3 1,862.5 Total 41.3 13,423.8 17.5 3.5 1.1 2007–08 0.4 44.8 2,937.0 3,769.1 71,161.8 86,437.3 84.8 1,778.7 1,397.1 0.1 279.4 2007–08 0.1 316.6 67.3 3,085.3 0.2 2,521.0 14,820.9 4,936.8 15.9 0.2 2007–08 99.5 326.3 10.0 263.7 41.4 73,682.8 318.4 91,374.0 3,785.0 15.0 3.6 45.0 1,788.7 332.3 0.2 83,079.2 41.1 3,100.4 3.8 0.6 0.5 41.6 99.7 2,688.5 0.1 267.4 319.0 0.0 85,767.7 0.1 0.1 332.4 41.1 41.7 0.6 Notes: 1 September 2007:Continuity was Strategy incorporated Unit into Estates was1 & January renamed Support 2008: Services Change Security and and and Excise Business & Capability, Continuity Stamp Organisation staff Taxes in was Development Estates renamed and was Excise, Support Stamps renamed Services & moved Departmental Money to Business. Transformation Legal Programme, and Governance. S Treasury Committee: Evidence Ev 105 3 1 2 47 0 47 6,427 4 6,431 4 STAFF NUMBERS (AVERAGE STAFF YEAR USAGE)—2008–09 & 2009–10 YearDirectorate/Business AreaBenefits & Credits—DeliveryBenefits & Credits—Product &Benefits Process & Credits Benefits & Credits TotalAnti-Avoidance GroupBusiness Customer UnitBusiness InternationalCorporation Tax & VATCustoms & InternationalExcise, Stamps & MoneyLarge Businesses Business ServiceBusiness Tax TotalCommercialEstates & Support ServicesFinanceGovernance & SecurityGovernment Banking ServicesInternal Permanent Audit 104.7Chief Finance Officer TotalInformation 6,222.3 Management ServicesChief Information Officer TotalCorporate Responsibility & Non DiversityCorporate Permanent Shared ServicesOrganisational Development & 6,327.0 LearningPeople Function 2008–09Chief People Officer TotalDepartmental 114.7 Transformation Programme Total 316.2 215.7 0.0Strategy Development 330.5DTPO Total 15.4 317.6Central Compliance Permanent 427.2Compliance & Enforcement Programme NonCriminal 6,552.8 Permanent 104.7 Investigations 1,590.2 2008–09Debt 330.5 Management & BankingDetection 1,800.6 2,997.0 Total 2008–09 1.6 6,657.5 7.8 0.9 56.0 1,361.0 219.4 2,822.4 258.2 0.0 1,361.0 0.3 1.1 2009–10 6.9 60.8 116.3 324.0 216.6 3.0 6,427 344.4 67.7 26.9 14.6 143.8 317.9 1,533.9 15.4 2009–10 428.4 2009–10 1,593.1 1,875.8 0.5 6.8 92 1,827.5 969 201 3,011.6 0.2 37.4 5.3 6.8 6.9 4 336 0.3 274.1 0.0 83 604 1,367.8 1,489 6,431 56.6 2,859.8 4.0 4.6 219.5 1,653 1,367.8 3,775 13.5 0.5 263.5 7,628.4 0.0 320.0 4 1,921.5 2 0 60.8 7.2 17.5 71.7 1,302 0 1,547.4 348.9 2,465 971 2 6 202 1,302 96 143.8 2 68.1 94 101 0.0 38 113 16 1,893.3 3.7 336 610 1,491 85 4,438.0 1,691 0.0 3,791 53 10.7 7 436 371 6 46 0.0 0.0 133 6.9 41 277.8 6 1,669 1 1 0.5 1,308 3 2,511 7,639.1 4.0 1,308 1,921.5 320.0 102 0 96 117 0 1 1,173 2 295 72.1 0 2.7 0 7,057 6 53 437 2,013 373 8 133 9 267 1,675 4,440.7 41 5 1 50 1 1,178 0 296 7,059 0 0 2,013 0 267 9 50 Local ComplianceRisk & Intelligence Services 3,105.6 14,008.9 6.8 9.5 3,112.4 14,018.4 2,706 13,366 2 33 2,708 13,400 Ev 106 Treasury Committee: Evidence ction. 72,953 742 73,695 5 On 1 April 2009, 940On FTEs 30 moved September from 2009, Customer CustomsOn Operations & 1 to International August Customs merged 2009, & with Corporate International. Excise,This Responsibility This Stamps figure & figure and includes Diversity, is Money staff Corporate part-year that Service SharedThis usage transferred Businesses Services figure to to to and includes 30 the form Organisational 4,841 September UK Excise, Development staff 2009. Border Customs, & that Agency Stamps Learning transferred on & merged to 5 Money. with the August People UK 2009. Fun Border Agency on 5 August 2009. YearDirectorate/Business AreaSpecial InvestigationsEnforcement & Compliance TotalAdjudicator’s OfficeCentral PolicyChairman, CEO & HeadCommunications Of & Tax MarketingKnowledge, Analysis & IntelligenceHMRC Board TotalSolicitor’s OfficeLegal TotalCharity, Assets & ResidenceCustomer ContactCustomer OperationsIndividualsPSN (PAYE, SA & NIC)Personal Tax TotalCapability ImprovementPacesetter Business Permanent Performance 33,473.1Other Offices TotalUnknown—Grouping Not FoundUnknown—Grouping Not Found TotalHMRC Total Non 2,043.8 Permanent 454.2 24.1 218.8 2008–09 46.6 33.5 Total 148.3 33,506.6 Permanent 1,788.9 891.9 Non 3.8 Permanent 2008–09 354.6 31.5 0.5 16,251.4 6.8 11,906.9 Total 27,324 0.0 2,047.6 354.6 2008–09 338.4 27.3 0.0 485.7 30,369.4 2.0 24.5 225.6 1.8 0.0 40.8 3.7 2009–10 46.6 83.7 1,572 38 1.6 29.1 150.3 932.9 27,362 448 1,792.7 2009–10 6.7 932.6 217 1.6 2009–10 36 17,184.3 0.0 80,572.8 0.9 945.9 52 356.2 0.0 11,913.6 0 143 0.0 0.0 2,292 356.2 30 31,315.3 895 1,572 2.6 338.4 14,506 28.2 1 11,361 0.9 1 0.0 362 477 0 1,430.1 1.8 0.0 28,614 218 86.4 1 362 1 37 32 369 586 30.0 82,002.9 52 66 2,293 143 2 15,092 0 927 3 590 11,363 3 0 86 3 29,204 365 70 0 0 365 0 369 0 0 1 67 0 0 87 3 0 70 Notes 1 2 3 4 5 January 2011 Treasury Committee: Evidence Ev 107
Supplementary written evidence submitted by HM Revenue & Customs 1. Customer Satisfaction Data Customer satisfaction is measured through a nationally representative quarterly survey which samples 1,300 individuals, 1,625 SMEs and 1,150 agents in September. We report satisfaction as an index of: ease of getting in touch; ease of understanding; ease of completion and; service designed with my needs in mind. These elements of satisfaction are known to be the most important for customers. The results from the survey are regularly published on the HMRC internet pages, www.hmrc.gov.uk. The most recent publication was on 10th December. Baseline March Current Performance Performance June 2010 % Sept v baseline v March 2010 2008 % 2010 % All Customers 72.8 76.0 72.5 -0.3 −3.5 Individuals (of which) 73.0 75.3 73.1 +0.1 −2.2 —Personal Taxes 70.2 73.3 70.5 +0.3 −2.8 —Benefits & Credits 76.7 78.1 76.1 −0.6 −2.0 SME Business 78.3 83.0 79.5 +1.2 −3.5 Agents 67.0 69.7 64.7 −2.3 −5.0
The current customer survey shows a 0.3 point reduction from our baseline in 2008 and a 3.5 point reduction from the March 2010 position. The 2009–10 Departmental Report said HMRC had made strong progress to March 2010 having made a 3.2 point improvement against a (historic) target of 3 points to June 2011. We predicted a temporary dip in performance resulting from data issues arising in the implementation of NPS (National Insurance and PAYE Service). At the same time we have been managing extra contact from the movement of VAT filing to online, and the summer tax credits peak. All of these have increased call volumes. The fact that they have come together has prevented us from sharing resource to manage peaks. As a result call waiting and handling deteriorated, although performance has since improved.
2. Responding to Written Correspondence HMRC measures the correctness of advice and information given in respect of postal contact from our customers. To measure our achievement we: — sample post on receipt in HMRC; and — check the items sampled to test how well we performed. We review the sampled items on two occasions, after 15 days and 40 days and this is our monthly performance data which is monitored by the Performance Committee. Post Accuracy - 15 Days 100%
95%
90%
85%
80% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2007/08 2008/09 Ev 108 Treasury Committee: Evidence
Post Turnaround - 15 days 100%
80%
60%
40%
20% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2007/08 2008/09
Post Accuracy - 15 Days 100%
95%
90%
85%
80% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2009/10 2010/11
Post Turnaround - 15 days 100%
80%
60%
40%
20% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2009/10 2010/11 Treasury Committee: Evidence Ev 109
Post Accuracy - 40 Days 100%
95%
90%
85%
80% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2007/08 2008/09
Post Turnaround - 40 days 100%
80%
60%
40%
20% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2007/08 2008/09
Post Accuracy - 40 Days 100%
95%
90%
85%
80% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2009/10 2010/11 Ev 110 Treasury Committee: Evidence
Post Turnaround - 40 days 100%
80%
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20% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2009/10 2010/11
3. Avoidable Contact and Demand Management Overview HMRC is actively managing customer demand to reduce avoidable contact. We are developing challenging targets for demand reduction in 2011–12, 2012–13 and throughout the remainder of the Spending Review period. The Demand Management programme includes numerous projects to eliminate avoidable contact and migrate demand to online and other self-serve channels. These projects include: — redesigning our forms, processes and guidance to make them easier to use and understand so people can self serve without the need to call us; — improved signposting; and — more and better automated messaging.
Amount of avoidable demand HMRC now has industry standard call classification data which shows that around 40% of calls are potentially avoidable or could be migrated to a more cost effective channel. The table below shows call volumes classified in terms of underlying reason. Call Numbers Top level sub categorisation 13.4m 3.37m Affects payment but not progress chasing 10.03m Change of circumstances/complex personal query 12.5m 7.61m Value to customer but not affecting payment 2.49m Questions about procedures 2.42m Subjective/hypothetical questions 1.3m 1.13m Inform HMRC of errors 0.12m Reporting 3rd party fraud 0.04m Complaints and feedback 17.8m 7.34m Progress chasing 6.17m Poor quality contact generating calls 2.74m Nil impact calls 1.54m Misdirected calls
Data above covers Tax Credits, PAYE, Self Assessment, Child Benefit, National Insurance and VAT calls and is taken from annualised figures.
Demand Management Successes The Department set up a demand management team in late 2008. In 2009–10, this team led initiatives resulting in: — the elimination of 4.2 million (approx 7% of demand) avoidable calls; — creation of a Contact Gateway to assess all new Departmental activity that could create new phone demand, reducing potential new demand by 1.4 million calls; and — the migration of 4.5 million avoidable calls to self serve through automated messaging (IVRs). Treasury Committee: Evidence Ev 111
In total Demand Management interventions resulted in 10.1 million fewer calls needing to be handled by Contact Centre advisors allowing them to deal with the calls where the customer gains most benefit. In 2010–11, Demand Management are on track to eliminate more than 6 million avoidable calls (approx 10% of 2009–10 demand) and handle more than 7 million calls by automated messages (IVRs).
Demand Management Next Steps HMRC is targeting a further reduction calls in 2011–12 through the following measures: — an expanded programme of demand reduction projects; — the reorganisation of our governance and accountability structures to create better ownership of demand and demand reduction targets among teams who design our processes; — investment in telephony self-service to continue to drive self-serve migration; and — changes to forms and guidance which make them easier to understand and so eliminate demand.
4. Number of Complaints by Type No. of No of No of Case Category Complaints Percentage Complaints Percentage Complaints Percentage 2007–08 2008–09 2009–10 Communication 10,886 15.05% 13,391 15.84% 10,039 13.64% Compensation/Costs 2,231 3.08% 1507 1.78% 844 1.15% Claim Delay 16,210 22.41% 16,877 19.96% 21,669 29.45% Discrimination 115 0.16% 117 0.14% 128 0.17% Loss/Damage 864 1.19% 904 1.07% 967 1.31% Misleading Advice 3,297 4.56% 3,679 4.35% 3,105 4.22% Mistake/Error 20,923 28.93% 21,086 24.93% 14,328 19.47% Policy/Legislation 3,291 4.55% 4,353 5.15% 3,622 4.92% Process/System 11,809 16.33% 19,524 23.09% 16,005 21.75% Staff Conduct 2,704 3.74% 3,126 3.70% 2,884 3.92% Totals 72,330 100.00% 84,564 100.00% 73,59123 100.00%
The number of complaints reported above differs from those reported in the Departmental report. This is due to a complaint being allocated to a business area on receipt but the type of complaint not being categorised until the complaint has been finalised.
5. Staff and Other Resource Costs: by Resource Departmental Expenditure Limit (DEL) Category and Area of Work £000s Budget FY 2007–08 FY 2008–09 FY 2009–10 2010–11 Paybill 2,457,885 2,411,294 2,306,920 2,205,682 IT 582,895 594,093 561,796 520,109 Accommodation 414,464 445,265 417,552 374,726 Other admin expenses 778,377 790,912 808,220 698,114 Admin expenses subtotal 1,775,737 1,830,270 1,787,568 1,592,949 Admin income −125,919 −155,044 −154,676 −84,384 Net admin subtotal 4,107,702 4,086,520 3,939,813 3,714,246 Programme expenses 112,021 141,776 133,308 131,418 Programme income total −378,791 −407,569 −399,324 −444,156 Net programme subtotal −266,770 −265,793 −266,016 −312,738 Total Resource DEL 3,840,932 3,820,726 3,673,797 3,401,508
£000s Budget FY 2007–08 FY 2008–09 FY 2009–10 2010–11 Business Tax 177,522 216,112 222,311 247,042 Personal Tax 729,385 823,372 762,787 647,184 Benefits and Credits 217,286 164,917 168,631 164,457 Enforcement and Compliance 1,172,817 1,093,630 1,031,557 1,012,904 Chief Finance Officer Group 781,034 804,891 735,420 606,094 Chief Information Officer Group 856,332 899,278 832,241 808,396 23 During 2009–10 there has been a 13% reduction in the total number of complaints Ev 112 Treasury Committee: Evidence
£000s Budget FY 2007–08 FY 2008–09 FY 2009–10 2010–11 Chief People Officer Group 151,629 116,115 119,825 124,851 Legal 54,185 49,254 50,838 63,480 Other −299,259 −346,843 −249,814 −272,900 Total Resource DEL 3,840,932 3,820,726 3,673,797 3,401,508 Notes: 1) Figures are based on HMRC’s internal budgetary controls and therefore will differ from those published, due to a number of items including: National Insurance Fund costs, differing treatments of PFI assets under International Financial Reporting Standards, utilisation of provisions and changes made to the public expenditure framework arising from Treasury’s Clear Line of Sight project. 2) Figures exclude UK Border Agency costs in all years, but include Department Transformation Programme. 3) Figures for years 2007–08 to 2009–10 are based on final outturn. The numbers for 2010–11 are based on current budget allocations. No comparative analysis is available for earlier years due to a different departmental organisational structure being in place. 4) In the financial year 2008–09 the IT costs increased due to development costs for departmental transformation programmes and accommodation costs increased due to dilapidation expenditure, vacation notices and other expenses for rationalising the estate. 5) Admin income is reduced in 2010–11 compared to prior years mainly due to less work being carried out on behalf of other government departments 6) The composition of some business areas has changed over the four year period as work load transfers have been made eg the Taxpayer Education function moving from Enforcement and Compliance to Business Tax.
6. Sickness Absences 2010–11 Year 2005–06 2006–07 2007–08 2008–09 2009–10 to date Average 11.75 10.04 10.38 10.37 10.49 10.11 working days lost Treasury Committee: Evidence Ev 113
7. Cost of Collection by Tax Type Table 1 COST OF COLLECTION (Pence Per £ Collected) 2005–06 2006–07 2007–08 2008–098 2009–10 Income Tax 1.271 1.252 1.163 1.224 1.125 Corporation Tax 0.71 0.79 0.73 0.76 0.98 Petroleum Revenue Tax 0.13 0.12 0.10 0.11 0.27 Capital Gains Tax 0.92 0.85 0.85 0.56 2.7 Inheritance Tax 1.01 0.85 0.64 0.99 1.07 Stamp Taxes 0.20 0.13 0.12 0.21 0.16 National Insurance Contributions 0.42 0.35 0.37 0.37 0.35 (NICs) VAT 0.55 0.60 0.56 0.8410 0.79 Insurance Premium Tax 0.14 0.26 0.35 0.09 0.13 Hydrocarbon Oils 0.16 0.19 0.16 0.13 0.1212 Alcohol 0.54 0.67 0.69 0.58 0.47 Tobacco 1.83 2.26 2.16 2.14 0.7112 Gambling Taxes 0.29 0.34 0.23 0.29 0.32 Environmental Taxes 0.26 0.34 0.31 0.21 0.20 Air Passenger Duty 0.05 0.09 0.06 0.04 0.02 International Trade 6.07 5.88 6.15 0.6710 0.5412 Overall Cost (pence per £ 1.11 1.13 1.05 1.10 1.04 collected)
Tax Credits (pence per £ paid) 2.78 3.42 2.89 2.46 2.10 Child Benefit and Child Trust 1.176 1.07 0.887 0.699 0.8411 Fund Notes: 1 Includes the combined ratios for Income Tax PAYE & Income Tax SA—separately the ratios are IT PAYE 0.79 & IT SA 3.43 also: The 2005–06 IT SA and PAYE ratios have been restated to take account of a refinement in methodology from that used last year. 2 Includes the combined ratios for Income Tax PAYE & Income Tax SA—separately the ratios are IT PAYE 0.74 & IT SA 4.57. 3 Includes the combined ratios for Income Tax PAYE & Income Tax SA—separately the ratios are IT PAYE 0.74 & IT SA 3.59. 4 Includes the combined ratios for Income Tax PAYE & Income Tax SA—separately the ratios are IT PAYE 0.73 & IT SA 4.37. 5 Includes the combined ratios for Income Tax PAYE & Income Tax SA—separately the ratios are IT PAYE 0.66 & IT SA 3.83. 6 The 2005–06 ratio was affected by the one off additional cost of processing the backlog of Child Trust Fund applications for children born between Sep’ 2002 and March 2005. 7 Includes the combined ratios for Child Benefit & Child Trust Fund—separately the ratios are Child Benefit 0.87 & Child Trust Fund 1.33. 8 Figures restated. It was identified that NI costs were being recorded under IT SA. Originally Income Tax was 1.24 & NI was 0.35. IT SA separately was 0.44. 9 Includes the combined ratios for Child Benefit & Child Trust Fund—separately the ratios are Child Benefit 0.66 & Child Trust Fund 2.47. 10 Figures Restated. Originally International Trade 6.61 & VAT 0.62. Import VAT is collected by International Trade but has previously been included in the total VAT receipts not International Trade. 11 Includes the combined ratios for Child Benefit & Child Trust Fund—separately the ratios are Child Benefit 0.86 & Child Trust Fund 1.37. 12 The cost of collection for these regimes has been reduced in 2009–10 due to the separation of the UK Border Agency. Ev 114 Treasury Committee: Evidence
8. Average Revenue Generated Per Tax Officer The figures use the “total net administration cost” rather than just “staff costs”. Regime (Head of Duty) Receipt (net of administration expenditure) / staff member 2005–06 £m 2006–07 £m 2007–08 £m 2008–09 £m 2009–10 £m Air Passenger Duty 86.0 108.9 153.3 160.9 425.7 Alcohol 11.0 11.5 11.0 12.6 12.4 Capital Gains Tax 28.0 35.7 9.0 11.0 4.4 Child Benefits −5.8 −6.2 −7.1 −9.1 −8.1 Corporation Tax 8.5 9.2 10.7 9.1 8.2 Environmental Taxes 23.7 21.2 26.4 32.0 31.2 Gaming Taxes 18.4 19.1 30.4 23.1 22.5 Hydrocarbon Oils 38.9 40.4 45.8 57.5 69.7 Income Tax 3.8 4.4 5.0 4.9 5.2 Inherit Tax, ED, CTT 6.2 7.3 10.2 6.5 6.9 International Trade 0.9 0.9 1.0 1.1 1.3 IPT 30.6 31.7 17.6 121.4 91.6 National Insurance 16.2 16.9 17.1 16.7 21.2 Petroleum Tax Revenue 90.3 81.9 109.5 77.5 41.6 Stamp Duty 49.0 63.2 61.9 41.1 51.7 Tax Credits −1.4 −1.7 −2.2 −2.3 −2.6 Tobacco 3.6 3.4 3.8 3.7 4.5 VAT 9.6 11.5 12.1 10.1 11.7 Total 5.2 5.8 6.5 6.0 6.2
9. Proportion of Tax Debts Remaining at 30 days and 90 days year on year This data was not kept until 2008–09. Data maintained since 2008–09 is not yet available. Treasury Committee: Evidence Ev 115 £ millions Write- Write- Write- Write- Write- Remissn offs Total Remissn offs Total Remissn offs Total Remissn offs Total Remissn offs Total 2009–10 2009–102009–102008–09 2008–092008–092007–08 2007–082007–082006–07 2006–072006–072005–06 2005–062005–06 IncomeTax VATCorporation 91Tax Alcohol 5 892Duties 32Capital 725 983Gains 3,117 Tax 24Tobacco 3,149 730Duties 54National 28 2 23Insurance 646 19 3Contributns 2,246 52 27Tax 700 2,269 596 50Credits 2Other 29 599 870 − 59 38Remissions 21and 3,516 920 Write- 677 71 407offs 3,554 4 3Total 736 17 − 36Revenue 71 30 374 56Losses 75 480 29 437 14 2,881 377 52 60 647 1 2,956 516 600 46 264 5,720 14 230 3 6,367 652 − 19 41 23 231 214 1,469 2 4 386 544 48 287 1,496 53 4,171 217 39 54 − 4,557 585 509 48 240 41 58 3 562 395 35 10 7 5,462 − 236 436 35 5,857 14 9 247 239 23 446 470 27 12 315 1 4,285 23 13 4,755 41 21 54 42 445 − 448 369 10 43 2,869 458 1 75 3,317 349 17 15 75 48 27 16 397 1 30 31 Remissions This information is produced annually in the HMRC Accounts. 10. Ev 116 Treasury Committee: Evidence
11. Number of Prosecutions Initiated by HMRC by Tax Type The criminal investigation casework taken on by HM Revenue and Customs varies considerably from relatively straightforward single defendant evasion cases, through complex direct tax cases, to organised crime groups committing multiple frauds against the tax or tax credits systems. The table below shows the number of prosecutions initiated from 2006–0724 to 2009–10. NUMBER OF PROSECUTION CASES INITIATED BY HMRC 2006–07 2007–08 2008–09 2009–10 Excise 251 242 192 167 VAT 71877147 Direct Taxes 60 77 49 22 Tax Credits 120 109 96 65 Money Laundering 18 28 14 21 Customs 8 10 3 3 Other 4 17 7 13 Total (non-drugs) 532 570 432 338 Drugs25 804 764 763 581
The movement in prosecution case volumes over the period reflects a conscious re-prioritisation of resource away from offences by individuals to tackling serious organised attacks on our tax regimes. These cases include some of the most complex fraud work being undertaken by UK law enforcement involving multiple defendants, some based overseas; large volumes of evidence and disclosable documentation and inter-connected trials. They therefore take longer to investigate and consume more resource per case. Despite the increased complexity of casework, conviction rates have remained high at over 80%. Whilst the prioritisation of serious organised criminals for prosecution has contributed to HMRC successfully reducing losses to fraud for both Tobacco Smuggling and VAT MTIC fraud, it has been at the expense of other criminal investigation activity and this diversion is only sustainable for a short term. A long term reduction in investigation and prosecution of other forms of fraud would have detrimental consequences on levels of general tax compliance. This is why, as part of HMRC’s Spending Review settlement, Ministers have announced additional investment to tackle fraud and evasion and specifically to increase the volume of prosecutions. We are developing plans to enable us by 2015 to deal with an additional 1000 cases per year; these increases will be mainstream evasion cases and will be aimed at both tackling cases of fraud and maximising HMRC’s deterrent effect. November 2010
Supplementary written evidence submitted by HM Revenue & Customs 1. The Spring Supplementary Estimate includes an increase of £12.5 million Resource DEL to fund the use of debt collection agencies in tackling £500 million of tax debt (a) Why is this debt collection work not being undertaken by HMRC staff? HMRC successfully piloted using DCAs in 2009–10. The pilot demonstrated that DCAs can be used cost effectively and securely to collect debt on HMRC’s behalf and without compromise to HMRC’s high quality standards. We have published our Evaluation report on the pilot—available at: http://www.hmrc.gov. uk/about/ cap-cap-i)ilot.odf Following the pilot, the Chancellor announced in the June emergency budget that HMRC would be using DCAs in 2010–11 to provide additional debt recovery capacity. This will accelerate the collection of lower value tax debts and generating up to an additional £140 million from debts that might otherwise be written off. Using DCAs allows our own staff to focus on higher risk and more complex debts.
(b) What type of debts will debt collection agencies be used for? A wide range of debts will be passed to DCAs. This will involve a range of types, sizes and ages of debt, and include both individual and business debtors.
(c) Are the debt collection agencies buying the debt from HMRC, or just collecting it on behalf of HMRC? As a matter of course HMRC continues to develop and improve its understanding of the debt market; but for the current exercise we are not selling debt—at all stages of the process the debts involved remain HMRC’s. 24 This is the earliest year for which records are available. 25 During the period HMRC also completed prosecution work on legacy and frontier referral drugs casework; this has now been completely transferred to SOCA (2006) and UKBA (2009) together with the resources. Treasury Committee: Evidence Ev 117
(d) How will HMRC ensure that appropriate methods are used by the debt collection agencies when undertaking this work? We require the DCAs to comply with strict codes of conduct and the contracts we have with them require that they maintain HMRC standards in relation to customer service, security and professionalism. A robust audit and assurance process is in place.
(e) What rate of recovery do you expect these debt collection agencies to achieve, how does this compare to the rate achieved previously when this work was undertaken by HMRC staff, and what is the cost comparison between doing the work in-house and contracting it out to debt collection agencies? Earlier pilot did not provide reliable evidence of relative cost effectiveness of HMRC in-house versus outsourced debt collection. This year we want to see what additional receipts HMRC receives as a result of using DCAs and what more we can learn from their best practice. We want to establish how we can optimise the use of DCAs, for example, in handling particular types and values of debt, so that HMRC specialist debt staff are focused and used in the most cost effective way. And we want to understand more about how HMRC benchmarks against other debt collection operations in terms of cost and performance.
2. The Supplementary Estimate also includes a reclassification of £35 million DEL funding from Capital to Resource, to correct alignment of the HMRC’s share of the austerity savings recorded at the Main Estimate (a) What Capital projects are no longer going ahead to enable this switch of funding from Capital to Resource? (b) What effect will this reduction in Capital expenditure have on HMRC’s operations? No Capital projects have been stopped to enable the switch from Capital to Resource. Our investment appraisal process is ongoing throughout all our Capital projects and has identified areas where savings can be made with no material impact on planned performance.
(c) The reclassification increases HMRC’s administration budget. Why is this being increased, and how will this impact on the Spending Review target of delivering a real term reduction in HMRC’s administration budget of 33% by 2014–15? In the early summer of 2010 we were asked to make a cut of £125 million as part of the Coalition Government’s Austerity initiative. While we made an initial assessment of how that cut might fall across Capital and Resource funds, it was agreed that we could revisit that split during the year. As a result of the capital reduction referred to in the first part of question 2, we revised the split and the increase in the admin budget is the adjustment made to reflect the correct apportionment of the austerity cut. As part of the SR process, there was a reclassification of how spending should be classified between admin and programme. The amounts in admin spending in 2010–11 therefore have no direct link with future classification of spending and this adjustment will have no impact on the 33% admin savings HMRC is committed to over the SR10 period.
3. Resource AME is to increase by £35m to cover the impairment of assets following the cessation of the Child Trust Fund, Health in Pregnancy Grant and Saving Gateway schemes (a) Which assets are being impaired, what is their current net book value and is this a one-off impairment? The assets impaired are the systems, software and servers that supported the Child Trust Fund; Health in Pregnancy Grant; and Saving Gateway functions. The pre-impairment net book value as at 31 December was £44.7 million with the residual value after impairment of £3.3 million. The residual value in HMRC’s accounts reflects the fact that existing funds will remain in place until the child reaches 18 and that payments can still be made. The system will be used to track the value of payments into the funds until there are no more live records, at which point it can be finally written down to a zero value on HMRC’s balance sheet.
(b) Are the costs of impairment taken into account in the costings for the cessation of these schemes given in the last budget? The costings for the cessation for the Child Trust Fund, Health in Pregnancy Grant and Saving Gateway schemes included in the last budget were based on savings from reduced payments. Impairments of assets are non-cash movements and were not included in these costings as they do not affect public borrowing.
4. In May 2010 the Coalition Government announced a scaling back of payments due to Child Trust Funds from 1 August 2010, with all payments stopping from 1 January 2011. Why does the Spring Supplementary Estimate require an additional £105 million to fund Child Trust Fund endowments? In the Main Estimate, we included the baselined amounts for Child Trust Fund. The additional £105 million in the Spring Supplementary Estimate has been calculated using the latest forecasts for demand. Ev 118 Treasury Committee: Evidence
We will continue to manage Child Trust Fund endowments for some time, and the additional £105 million in the Spring Supplementary Estimate is required to enable us meet our commitments for 2010–11. The Coalition Government announced a scaling back of payments from 1 August 2010 and that no new entitlements to payments would arise from 3 January 2011. However, for vouchers already issued, payments will still be made on the receipt of a Child Benefit Claim and the vouchers have a 12 month expiry date on them and can be deposited at any time during that period. Furthermore, additional government payments made to children in low-income families will be made when the family’s tax credit award for that year is finalised.
5. The increase in net cash requirement includes an additional £307 million because of a decrease In creditors. Why has this change occurred, and does it indicate a deliberate change in HMRC’s policy regarding the payment of creditors? The decrease in creditors arose mainly from a reduction in accrued or trade creditors; policy changes in Child Trust Fund; and payment of accrued expenditure in relation to early departure costs for staff. There has been no change in HMRC’s policy regarding the payment of creditors. It remains to pay within 10 days of the invoice, unless contractual obligations establish a shorter period. In 2009–10, we achieved this in 94% of cases.
6. The net cash requirement has also increased by £129.6 million because of the use of provisions, compared to a previous cash requirement for this of £34 million. Which provisions are being used, and why has this use risen so markedly? The expected use of provisions is in respect of: Child Trust Fund provisions made to provide for future obligations that arise from entitlement at birth but yet to be claimed £118.8 million; Health in Pregnancy Grant provision at point of entitlement but no claim yet submitted £10.6 million; and the balance of £34.3 million is primarily in respect of staff departures in earlier financial years, which occurred prior to the normal retirement age. The original amount of £34.1 million was established at the Spending Review 2007 and this is the figure that has been included in the main Estimate. It has been the practice to adjust and amend the cash funding in the Spring Supplementary Estimate to meet this obligation when the expected outcome was more clearly defined. January 2011
Supplementary written evidence submitted by HM Revenue & Customs Additional Questions from TSC on 9 February 2011 1. The Spending Review document says that HMRC will raise £7 billion by investing £900 million in targeting tax avoidance and evasion. The Sub-Committee would like to see the computations on which the £7 billion figure is based. HMRC will invest in compliance skills and resources with more specialist compliance staff deployed to tackle the “harder” end of the spectrum of customer behaviour—avoidance, evasion and criminal attacks on the tax system. Looking ahead our plans are, wherever possible, to address error and failure to take reasonable care by redesigning processes to reduce the opportunity and likelihood of error, rather than through compliance work. However, enquiries seeking evidence of evasion will often identify losses from failure to take reasonable care and error. The tax gap is the gap between the amount of tax collected and the amount we estimate is theoretically due. We analyse the tax gap by head of duty, customer segment and behaviour. The biggest share of tax gap, around 50% of the total, is in the Small and Medium Enterprise Sector (turnover of up to £30 million); 25% is from large businesses (companies with a turnover in excess of £30 million); and 12.5% each from individuals and losses from criminal attack on the tax system, eg through large scale excise smuggling or repayment frauds. By comparison, of the total tax receipts in 2009–10, around 60% was paid by large businesses (including PAYE and NICs paid as employers), 35% by Small and Medium Enterprises (including PAYE and NICs paid as employers) and 2% by individuals. We are using our knowledge of the tax gap and our understanding of the customer behaviours which drive it to design and target the right interventions over the SR period to manage and change behaviour and secure the largest amount of additional revenue taking into account HMRC capabilities and capacity, longer term effects on behaviour, and immediate return on investment. Around 65% of the £917 million investment funding will be focussed on the mass market and tax evasion. This reflects the need to significantly increase coverage of the 4.8 million customers in this sector. We are looking for a return on investment of around £4 billion a year by 2014–15. Around 5% will be focussed on large businesses and wealthy individuals. This builds on the existing one- to-one client relationship model in this sector that has contributed over half of the estimated current year £13 billion intervention yield. The expected return is around £1 billion a year in additional revenue by 2014–15. Around 10% of the investment funding will be focused on tackling organised crime. The level of funding reflects the need to recruit and train highly skilled specialists and to develop our upstream capability in detecting Treasury Committee: Evidence Ev 119
and preventing fraud losses. We expect a return of around £1 billion a year by 2014–15 in revenue loss prevented and deterrent effect. The remaining funding will be spent on a range of interventions designed to collect more debt. Together, these measures will deliver the additional £7 billion by 2014–15. 2. At its last meeting the Sub-Committee also discussed the KPMG report on administrative burdens arising out of the tax system. We would be interested to see any updated figures that have been produced by HMRC on the administration burden since then. The total administrative burden of tax legislation on UK business, calculated in 2005 by KPMG was approximately £5.1 billion a year. Since 2006, HMRC has reduced the administrative burden for business by over half a billion pounds (£564 million at 31 March 2010 against a target of £510 million). The existing KPMG model for administrative burdens maps the UK tax legislation to the activities that business need to do to meet their tax obligations. The model does not measure costs where there are errors or queries, referred to as “operational grit” nor does it capture consequential costs to business in relation to HMRC compliance activity. The KPMG research involved close working and consultation with business at all stages, enlisting the help of an Advisory Board comprising key members of business organisations as well as people with hands-on experience of running businesses in the UK to bring a business perspective to the project. This substantial piece of work was groundbreaking across Government and provides very detailed information used to target particular drivers of administrative cost. Additionally the Administrative Burdens Advisory Board (ABAB) has supported this work by bringing a sharp external focus and providing a challenge function and ensuring that HMRC concentrates on issues that make a noticeable difference to businesses. The KPMG model does not include any costs on non-business customers in meeting their tax obligations. However, HMRC is committed to improving its service for all customers and our aim for the next SR period is to improve customer experience and reduce costs for customers meeting their tax obligations. This will be achieved through simplification and streamlining of processes delivered via the HMRC customer centric strategy and business plan. HMRC is in the process of updating the KPMG research to reflect 2011 costs and up to date business populations.
Annex A Succession Planning 1. What plans do HMRC have in place to ensure smooth succession into board-level posts? A full organisation design review of HMRC was initiated in 2010. Consequently, in the summer of 2010, HMRC’s Executive Committee (ExCom) undertook a review of its succession cadre (predominately at SCS2 Director level) using the Cabinet office guidance on performance and potential. This revealed a number of succession gaps/issues. In addition, last autumn ExCom confirmed a new operating model to support the Department’s customer-centric business strategy, which is all about delivering services and interventions built from a deep understanding of our customers’ needs and behaviours. Through this we have established the future senior level roles that HMRC needs in order to meet the challenges of SR10. The initial phase of populating the top three tiers (Chief Executive, Director General and Director level) of our new operating model is now substantially complete and involved a rigorous leadership selection process. The data produced through this assessment process will form the foundation for individual development plans and will enable us to identify and grow talent from within. Through this same review, HMRC is also building a robust succession planning strategy to include systematic reviews at board level to identify critical roles and likely successors in each business area. This will enable us to build a stronger talent pipeline and identify those who are ready now, and those who will be ready in two and five years. We have also mapped the likely tenure of the existing Directors General. This will enable us to plan well in advance for future moves—this includes triggering a proactive individual succession strategy 12 months from the expiry of a fixed term contract or potential retirement. This overall approach will culminate in building a consolidated, comprehensive and cross-business validated picture of our Director cadre in order to identify people with potential and lines of succession to individual Director General posts. Succession planning for Director General positions is overseen by the Whitehall-wide Senior Leadership Committee, chaired by the Cabinet Secretary.
2. How has succession planning changed since the resignation of Paul Gray? There has been significant business and organisational change within the Department and we have heightened the sophistication and rigour of our succession planning at Senior Civil Service (SCS) level. HMRC has put Ev 120 Treasury Committee: Evidence
in place a number of initiatives to both strengthen the calibre and management of the Department’s talent pipelines, and at the same time boost the competency of our senior leaders. The most significant developments during this time have been HMRC’s early and full adoption of an industry tested succession planning methodology recommended by Cabinet Office, and the Department’s new Leadership Framework which re-defines the leadership skills and behaviours we need and expect in HMRC and provides the basis for assessing and benchmarking our leadership capability at SCS.
Debt Management 1. What HMRC’s policy is in relation to debts of less than £10,000 2. Whether HMRC is actively undertaking activity to work debts of less than £10,000 3. Whether HMRC’s strategy in relation to low-value debts has changed HMRC policy is to pursue all debts. Indeed we have faced some criticism about our “relentless pursuit” of small debts. As would be expected however we prioritise our resources and collection methods. It continues to be the position, as it always has been, that every day, across our whole organisation and across a range of different debt management activities, debts of all ages and sizes, including debts below £10,000 are being actively pursued. During 2009–10 the Department began to implement a revised debt management strategy based on the segmentation of debtors according to risk and previous behaviours rather than by value. We are now increasingly tailoring and targeting our collection activities to increase the likelihood of recovery, improving the speed of collection, and reducing costs through the use of specific debt management campaigns. These campaigns have included debts of all values. Our initial analysis shows that the campaigns approach has been cost effective, and we now apply this approach to around 90% of our debt portfolio. The move to risk based prioritisation follows recommendations by the Committee of Public Accounts and the Comptroller and Auditor General and is in line with best industry practice. In addition, HMRC is also currently using private sector debt collection agencies (DCAs) to provide additional capacity and capability and their work so far has been particularly focussed on lower value and less complex debts. In 2010–11 the DCA process is expected to generate an additional £140m that may otherwise have been written off.
4. Whether HMRC is able to identify individuals whose individual debts each comprise less than £10,000, but whose total debts exceed that amount 5. Whether that identification is dependent on the debt being worked There are IT constraints which limit the extent to which the Department can view all the debts of a taxpayer at the same time or automatically and routinely link debts across different tax regimes. In the absence of IT functionality for the automatic linking of debts, the Department has put in place processes enabling debts for the same taxpayer to be linked clerically at key stages of the debt pursuit process, such as when considering time to pay proposals from debtors or when considering action to enforce payment or institute insolvency proceedings. The Department expects it will have made the necessary IT system changes to import VAT debts into its main debt management computer system from April 2011 and this will further increase the scope for automatic linking of debt and, where appropriate, for the joint pursuit of linked debts for the same taxpayer. VAT is currently the only major tax type not already included in the debt management system. Additionally the Department plans to bring enhanced debt analytics capabilities on stream during 2011–12 as part of its debt segmentation and risk profiling work and to be able to use this capability to improve the design of specific debt pursuit campaigns.
6. If an identification is made, would those debts have a higher priority than an individual debt of less than £10,000 The value of a single debt or a series of linked debts for the same debtor may well be a consideration in determining the degree of risk and priority for pursuit but will not necessarily be the deciding factor.
7. Whether HMRC management is aware of incidents of zeros being entered into computer systems in order to clear tax credit and other debts; and 8. If so, what assessment has been made of how widespread the practice is The Department does not recognise the scenario put forward as a way of clearing tax and tax credit debts from its accounting systems. Such systems normally require specific contra entries in order to clear an established debt. We will gladly explore the situation further if the Committee are able to expand on the type of scenario it envisages. March 2011 Treasury Committee: Evidence Ev 121
Supplementary written evidence submitted by the Association of Revenue & Customs ARC (the Association of Revenue & Customs) represents over 2,600 staff employed by HMRC in Grade 7 upwards, and people on training courses leading to that Grade. Our membership extends throughout the SCS up to and including Board level. In response to the publication of the 2009 People Survey for HMRC, showing extremely low levels of staff engagement, ARC commissioned a programme of work in order to identify which issues were most significant for its members and what could be done to resolve problems. A working group of 22 people devised a set of 19 questions and a standardised meeting and data capture format in order to produce comparable data. 10 meetings of ARC members were held across the UK between July and September 2010, with one specifically targeted at SCS members, in order to canvas a broad range of views. A face to face format was chosen so that issues could be explored fully, examples given and solutions proffered. The output from all these was collated and condensed into a report, the findings from which are summarised here.
What our members find is wrong — Staff find that that they are subject to minute and petty scrutiny and at times deals are done on cases over their heads. They therefore do not feel trusted and the micromanagement means the business stagnates while decisions are awaited from higher up the management chain. — Senior staff are excluded from the decision-making process on changes to the organisation with policy being imposed from the top. A huge gulf exists between the confidence in the decisions made by immediate managers and those made by HMRC’s senior managers. Senior staff do not feel valued—their experience and knowledge counts for naught and they feel disempowered through not being involved in the implementation of change and the running of the organisation. — The way the organisation has been shrunk has led to management issues. Remote management means work and staff are not always well supported. The withdrawal of autonomy and the lack of HR support for managers, coupled with an increased appetite for statistics, means focus on delivery is being sacrificed to administration. — Whilst the Department says it wants constructive challenge, most if not all comments are viewed negatively. This view was felt to apply more strongly the higher up the Department the proposed change or decision is made. It was felt that there was often overreaction amounting to bullying. There is a presumption that projects sponsored at the highest levels will not fail, but it is difficult to see how success can be maximised without proper early consultation with affected parties. — Staff do not feel involved in developing HMRC objectives as priority is given to processes and systems rather than the core work and Workforce change has been badly handled—the silo structure has created artificial barriers leading to an “us and them” culture. The reasoning behind decisions has not been explained and it was felt that the impact of change was not understood before introduction. This has lead to unnecessary intervention instead of delegating responsibility for implementing change to the appropriate level so staff have been unable to make improvements as the process develops. — The purpose of changes made have not been well communicated and the assumption is that the changes are all aimed at cost-cutting and that the effect on work outcome (eg narrowing the tax gap) is not a factor. Without effective communication and concomitant levering up of skills and technology an engaged workforce on board to deliver will not be achieved. — Learning and development has been sacrificed to cost cutting. For tax professionals, there is a question mark over what career there is to Grade 6 and beyond based on that tax professionalism, with Excom members promoting a horizontal career path. Learning and development is critical at a time of change and a pre-requisite for a professional workforce whose technical ability is the engine which drives the department. — Members find that their professionalism in doing the job is increasingly undermined. — Members feel that they work with people who genuinely care about what they do but they don’t feel that they work for people who genuinely care. It is wrong that their ability and professionalism is not acknowledged nor is their work defended when criticised in the press. — Members have reported discrimination on the basis of sex, race, sexuality, age and disability. There is no procedure for reporting these outside of the normal management chain.
What we want to see done about this—ARC’s 9 point plan to improve staff engagement in HMRC
1. Trust us—staff have demonstrated for decades an ability and integrity in bringing in billions to the Exchequer; petty checking and bureaucracy are counterproductive. Ev 122 Treasury Committee: Evidence
2. Consult us—we understand the business and we have the knowledge and expertise to do the job. We can identify the advantages and pitfalls of any potential change. But we can’t help if we don’t know the purpose of any changes, or how they will be better for the business. 3. Treat us honestly—if initiatives founder in the absence of any input from senior staff, failure is not our responsibility. If there is no choice as cost is the sole driver, tell us. 4. Empower us—we’ve a well earned reputation for delivery because we have the ability, drive and vision to achieve results. Set us free to do it and don’t micromanage us. Managers need to be able to take immediate action locally, not pass problems up the chain and wait for someone else to make the decision. 5. Listen to us—we want to work for a successful organisation. Constructive analysis of problems and presenting solutions helps that. 6. Involve us—constant change when business plans are handed down as a fait accompli leads to crisis management. 7. Let us be influential—we have long experience of change and huge knowledge of how the business works and fits together. A process may be efficient on its own but not work with the rest of the organisation; in order to provide a seamless service for the customer the business needs to be looked at as a whole and from end to end. 8. Develop us—we have wide and varied expertise, but the legislation which governs us changes as does the environment we work in. We need regular training in areas such as technical issues, management and leadership development in order to provide the best service to the organisation. This needs to be properly resourced. 9. Value us—the performance of HMRC against other government departments in the last 2 People Surveys was dismal. We’re still really committed to public service, but because we’re not engaged we feel at times we’re doing the job despite the senior leadership, who do not seem to defend us when we’re under external attack. We want our professionalism and integrity to be recognised. March 2011
Supplementary written evidence submitted by HM Revenue & Customs 1. Q160: Jesse Norman: How many large business corporate tax avoidance cases have you litigated or taken to the Tax Tribunal in the last five years? Records for the top 770 corporate groups, dealt with by the Large Business Service (LBS), show that HMRC has started the process of litigation in 308 cases in the last five years, with 97 appeals actually heard by the independent appeal bodies.26 The remaining 211 cases have either been settled by agreement out of court or are still in progress. In a further 817 LBS cases, “follower” cases, HMRC and the customer agreed that the issue under dispute was dependent on a case already in litigation.
Notes 1. The numbers given are those recorded by the LBS since August 2006, when the current management information system was introduced, and extracted on 23 March 2011. They do not distinguish between avoidance disputes and other contentious issues. They include appeals in respect of Corporation Tax, VAT and other taxes and duties. 2. It has not been possible to extract the figures for “corporate avoidance” cases litigated (or withdrawn by the corporate well into the litigation process), but the figure is in the region of 73 for appeals of this nature.27 Decisions in some of these cases have led to the settlement of numerous other cases with similar points at issue, in LBS and beyond. 3. The total additional revenues in the last five years from LBS cases, where litigation had been completed or settled out of court and from “follower” cases, was £5.95 billion. 4. Additional revenues from LBS cases more generally, both those referred for litigation and others resolved by agreement, rose from £3.6 billion in 2005–06 to £4.6 billion in 2009–10. 5. HMRC aims to use both litigation and out of court settlement to the full in getting the right tax agreed in the most cost effective way. 26 Tax Tribunal (or its predecessors, the VAT & Duties Tribunal and Special Commissioners) or higher courts. 27 The Tribunal Service reports overall hearing figures for the following periods: 2007–08—862 (VAT, IT and CT appeals) 2008–09—1,230 (VAT, IT and CT appeals) 2009–10—1,897 (VAT, IT and CT appeals) 2010–11 (to Jan 2011)—2,786 (VAT, IT and CT appeals) Treasury Committee: Evidence Ev 123
6. Litigation is likely to be most appropriate for cases where there is a good chance of success and where the likely benefits in comparison with the costs are strong. It can be effective in protecting revenues through a “one-to-many” approach (where HMRC can litigate a lead case and have followers come in behind). The fact that a decision and its reasoning are publicly available can be valuable in establishing a precedent and clarifying the law. 7. However, reaching agreement out of court is also very effective in many cases, provided there is opportunity to test arguments and evidence thoroughly. It can reduce elapsed time and costs. Out of court agreement does not involve compromises with the law. Reaching out of court agreement is rooted in statute (s54 Taxes Management Act 1970/s85 Value Added Tax 1994). 8. In addition, rule 3 of the Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009 provides that the Tribunal should seek, where appropriate (a) to bring to the attention of the parties the availability of any appropriate alternative procedure for the resolution of the dispute; (b) if the parties wish, to facilitate the use of the procedure, provided that it is compatible with the overriding objective of dealing with cases fairly and justly.
2. Q204–205: Chair: Do you keep a careful record of all apparent leaks? Are they logged? Can you give us the figures over the period of time, for example, since you started? HMRC has kept a central record of all security incidents reported by staff or members of the public since 2007. This central record was formed in support of the Cabinet Office reporting requirements put in place following the Data Handling Review. HMRC was created in 2005 at which point security incidents were managed locally within the legacy departments. This approach continued until the central recording method began in 2007. This central record includes all security incidents involving the unauthorised disclosure of customer or protectively marked information. These records cover both unauthorised disclosures that were accidental and those that were deliberate. It is not always possible to ascertain if a reported “leak” was the result of a deliberate or accidental loss of information and as such it is not possible to provide an accurate estimation of the numbers of deliberate leaks of information to news media from these records Where staff are suspected of either accessing or deliberately disclosing information without authorisation, Internal Governance will investigate and oversee disciplinary proceedings that may lead to dismissal. The Department continues to refine its ability to identify these types of occurrences. Depending on the nature of the incident it is also possible for staff to be prosecuted if they have breached the Data Protection Act and/or the Commissioners for Revenue & Customs Act. Since 2007 HMRC has had 35 such cases where fraud has been investigated, ie staff suspected of deliberate unauthorised disclosure. 2007–08 4 investigations 2008–09 8 investigations 2009–10 14 investigations 2010–11 9 investigations (April to Sept) In addition, where the Department has reason to believe a specific information leak has occurred, a series of immediate actions would be taken to manage the risks and a preliminary leak enquiry would be commissioned from the Departmental Security Officer. This would include a fact-finding internal investigation in accordance with the Leaks Procedural Guide from the Cabinet Office. This is the recommended course of action before deciding if a further investigation is necessary, with proportionality being a key factor. In the last four years none of these preliminary leak enquiries has led to a full leak investigation. As with all serious potential leaks the Department will continue to actively monitor the areas of concern, until it is satisfied that the risks have been fully mitigated. HMRC requires that all security incidents are reported centrally and currently uses the number of customers impacted as one of the key measures. All incidents are taken seriously and use the data collected centrally to identify root causes and trends and to highlight reoccurring incidents. Work is ongoing with the lines of business to reduce these numbers. Table 2 SUMMARY OF OTHER PROTECTED PERSONAL DATA RELATED INCIDENTS Incidents deemed by the Data Controller not to fall within the criteria for report to the Information Commissioner’s Office but recorded centrally within the Department are set out in the table below. Small, localised incidents are not recorded centrally Category Nature of incident I Loss of inadequately protected electronic equipment, devices or paper documents from secured Government premises. Under here we would expect to include for example the loss of documents within a building after the consignment has been signed for as delivered. Ev 124 Treasury Committee: Evidence
Category Nature of incident II Loss of inadequately protected electronic equipment, devices or paper documents from outside secured Government premises. Under here we would expect to include for example the loss of documents between building A and building B, by a courier either as a consequence of them going to the wrong depot or being delivered to the wrong building. III Insecure disposal of inadequately protected electronic equipment, devices or paper documents. Under here we would expect to see information compromises as a result of poor disposal procedures such as the removal of protectively marked waste paper. IV Unauthorised disclosure. Under here we would expect to include a breach of confidentiality to a third party. V Other.
2010–11 2007–08 2008–09 2009–10 (to end Q3) ICO Reported 9610 Category I 52 42 18 2 Category II 106 122 40 15 Category III 1100 Category IV 52 6 29 29 Category V 0010 TOTAL 211 171 88 46
3. Q214: Andrea Leadsom: So you do have specific service standards. If those are written it would be very helpful to receive an outline of what your turnaround times are, and also an idea of how you perform against them HMRC has a range of measures in place for assessing service levels in Contact Centres including quality, customer satisfaction and ease of access to the service. Within HMRC Contact Centres, performance in respect of the quality of advice given is assessed by the analysis of a random sample of calls each month. This is supported by an independently commissioned customer satisfaction survey which obtains customers direct feedback on the quality of the service they have received. The percentage of call attempts answered and the percentage of callers answered on the day are used as indicators to measure ease of access to the service. These indicators feed into the departments reported objectives which are regularly published and can be found at: http://www.hmrc.gov.uk/about/reports.htm. The Department’s Contact Centre service was subject to a value for money review by the Comptroller and Auditor General in 2009–10 whose report “HM Revenue and Customs, Handling Telephone Enquiries (HC 211)” was published on 15 January 2010 and is available at: http://www.nao.org.uk/publications/0910/handling_telephone_enquiries.aspx The Committee of Public Accounts subsequently published their own report (HC 389) on 17 March 2010 and this is available at: http://www.publications.parliament.uk/pa/cm200910/cmselect/cmpubacc/389/389.pdf The Department is making good progress in implementing the agreed recommendations.
4. Q239: Chair: Are you going to reduce these 139 [telephone] numbers and when? Are going to move from the 0845 or whatever number to 03 numbers and when? 6. Q272: John Thurso: Following the discussion earlier about telephone numbers. The 0845 does not cost you anything; you do not get anything from it. But if you move the numbers to the other numbers that we discussed, there is a cost to HMRC. Have you made an estimate of what the cost to the business would be if you were to move completely away from 0845? The Department is currently actively reviewing its telephone numbering strategy. We originally anticipated that our review would conclude by 31 March 2011. However, following the launch of a Public Consultation by OfCom (“Simplifying Non-Geographic Numbers (Improving consumer confidence in 03, 08, 09, 118 and other non-geographic numbers)”), we now feel that it would be prudent to await the findings and recommendations of the consultation, expected later in the spring, so that these can be taken into account in reaching decisions on the best way forward. As well as looking at the numbering strategy, HMRC also continues to look at opportunities for rationalising the number of separate customer facing helplines wherever it makes sense to do so. Treasury Committee: Evidence Ev 125
The Department reduced 61 separate customer facing 0845 helplines dealing with PAYE tax queries to just a single number by June 2010 (a reduction of 60). This was made possible by the introduction of the new National PAYE Service (NPS) Computer System. The 60 old numbers will remain operational (though not be generally advertised), during a transitional period to minimise any potential disruption to customers. The scale of these reductions in separate telephone numbers represents a real improvement in customer service as the majority of PAYE customers and agents will now only need to locate and use a single number to contact HMRC. With regard to costs, it is not quite correct to say that 0845 numbers do not cost the Department anything. While the contractual details are commercially sensitive, the Department does incur specific telephony charges in respect of incoming calls to 0845 numbers and would similarly do so if it were to migrate to the 03 series. However HMRC fully recognises that the cost of calling the Department is an issue for some of its customers. The cost to customers will vary depending on the tariff arrangements they have with their service provider, the device they use and the location from which they call. As Dame Lesley Strathie indicted in oral evidence to the Committee on 16 March (Q233), our firm aspiration is that people should be able to access our services at the lowest cost possible. The Department is particularly conscious of this in respect of our most vulnerable customers. However it would be wrong to rush through changes that might fail to strike the right balance between costs to the caller and the cost to the public purse especially given the current pressures on the public finances. The complexity and fast moving nature of the commercial market in telephony services and its tariffs, alongside the scale of HMRC’s operations and its contractual position with suppliers, means that the issues are not straightforward. HMRC fully accepts that changing to 0345 numbers would benefit some, perhaps many, customers, primarily those telephoning from “pay as you go” mobile phones. However not all customers would benefit and some would, on the basis of current tariffs, incur additional costs when compared to 0845. There would also be significant additional costs for the Department associated with a change during the current HMRC telephony contract (which expires in June 2013). Initial “ball park” estimates suggest that these costs could be in the range £5 million–£15 million depending on the implementation timescale and contractual negotiations. This estimate includes transitional costs associated with the change such as revising forms and leaflets that currently include telephone contact details, the publication of the new numbers and the potential running of a dual numbering range to ease customers through the transitional period of change. There is potential for HMRC to reduce these costs by, for example, revising only the most frequently used HMRC forms and leaflets that include telephone contact details. This could reduce costs by several million pounds. However, HMRC would need to balance this approach with the potential impacts on the service provided to customers. Dame Lesley assured the Committee on 16 March (Q234) that she accepted the challenge of looking hard to see if the Department could make some early changes that would deliver some quick wins—wins for both our customers and for the Department. Following the hearing she has made very clear within the Department the importance of getting this right. The Department is committed to doing all it can over the next four years to reduce costs to customers whilst delivering our other commitments and living within our spending allocation.
5. Q 256: Mr Love: What I want you to do is just to tell us the basis of the calculation of how you reached the figure of £7 billion as an increased tax take? The Department has used a combination of predictive modelling and empirical evidence to understand the potential impact of its activity in terms of compliance yield and effects on the net tax gap. It has developed detailed plans which will ensure it focuses on the areas of highest risk and maximises the impact of its activities over the Spending Review (SR) period. As a result the Department expects to deliver: — £4 billion28 through tackling avoidance and evasion amongst Small and Medium Enterprise (SME) Sector. There are over 4.5 million SMEs in the UK and this sector is responsible for at least half of the tax gap. Through its improved risk capability the Department will increase its coverage of all high risk avoidance and evasion, using a variety of checks, campaigns, publicity and increased prosecutions to crack down on and deter those who might choose to evade their tax obligations. — £1 billion by clamping down on avoidance in the large business sector and amongst affluent individuals. Large Business accounts for less than one quarter of the tax gap and all individuals around a further tenth. For Large Business the Department will work in real-time with more companies, agreeing issues up-front and focusing resources on more high risk projects. For the affluent, a taskforce of skilled investigators will be created to extend coverage to the wealthiest 150,000 within the 50% tax band where there is evidence of avoidance. 28 The expected yield for each activity has been rounded to the nearest billion. Ev 126 Treasury Committee: Evidence
— £1 billion from tackling Organised Criminals which account for around one tenth of losses to the Exchequer. The Department will roll out a series of measures to tackle cyber crime, alcohol, tobacco and repayment fraud; improve checks to stop bogus claims for tax repayments; and continue to tackle and disrupt MTIC fraud. — £1 billion from improved debt collection. HMRC will use innovative approaches to tackle debt; using outbound contact centres, debt collection agencies and exploring the recovery of debt through PAYE coding in order to collect more money. This builds on the results of 2009–10 which saw the Department collect over £5 billion more debt compared to the previous year, and reduce the amount of debt outstanding by £1.6 billion (5.8%) at the end of March despite the recession making debts more difficult to recover.
The Department is confident that this approach will deliver additional revenues of £7 billion by 2014–15. (This is against a baseline of £13 billion and therefore we expect to deliver £20 billion in total in 2014–15). This will reinforce the message that those who cheat the system will be caught and penalised.
7. Q289: Chair: Can you do us a note about how you are implementing a policy that deals with those who, for one good reason or another, cannot use the methods [of contact] that Ministers in the brave new world think they ought to?
The Department fully recognises that some customers need help in accessing HMRC services and that some will always need such help at key points. It is committed to continuing to provide that help.
Over recent years those who can do so have increasingly been encouraged to use online services and the telephone. This has been done because there are clear savings for the public purse, but also because it reflects a shift in customer expectation and preference. Similarly the more recent changes to the Department’s face to face service model reflect its need to operate cost effectively against a background of reducing demand for face to face services currently delivered in the main through a network of local enquiry centres.
These changes however do not lessen the Department’s commitment to supporting those customers who do need extra help and support in order to meet their tax obligations and obtain their entitlements. Indeed new ways are currently being tested for vulnerable customers to access and use HMRC services through two of our voluntary sector partners (Tax Aid and Tax Help for Older People).
HMRC does not, and will not, adopt a “one-size fits all” approach and will continue to seek to meet the needs of the diverse population. HMRC already has a range of initiatives and tailored support in place across online, telephone, postal and face to face channels to enable customers with particular requirements to access services: — telephone-based translation services for any language through face to face enquiry and contact centres; — a full Welsh language service to meet our obligations under the Welsh Language Act; — lighted magnifiers for visually impaired customers and digital aids for those with moderate hearing loss or information in Braille, large print, audio tapes or CDs; — “type talk” and “minicom” telephone services for those with hearing impairment; — interpreters from the Royal National Institute for Deaf People are offered to anyone profoundly deaf; — one-to-one help with completing forms etc for customers whose disability or impairment makes this difficult; — highly accessible web services. The HMRC website was ranked 8th out of 379 sites for accessibility in the Sitemorse ranking of UK Central Government websites in 2010; and — the provision of personal appointments at home or other locations for those customers with mobility or other problems that mean they cannot access the advice and support they need in any other way. April 2011
Supplementary written evidence submitted by HM Revenue and Customs
Handling of Large Businesses by HMRC
At the hearing on 11 May, Members of the Committee raised a number of questions with the Exchequer Secretary and Stephen Banyard, about the settlement of Large Business enquiries by HMRC and about the High Risk Corporate Programme (HRCP) in particular. The following notes give some background information on the Programme and then deal with the specific queries raised. Treasury Committee: Evidence Ev 127
Working with Large Businesses With large businesses, which account for around 60% of tax receipts and up to a quarter of the overall tax gap, HMRC explicitly seeks relationships based on openness and transparency. For the 2,000 largest businesses, one-to-one Customer Relationship Managers (CRMs) ensure that HMRC has extensive understanding of tax and avoidance risks in the context of the commercial environment in which customers are operating. This supports a strong response to avoidance threats while also allowing high levels of customer service, for example through clearances. “Real time” working, where differences of view are settled even before the accounts are finalised, is now increasingly the norm. For customers, this provides greater certainty and reduces costs. For HMRC, it gives confidence that risks are being managed up-front, at the time when there are still opportunities to change the law if necessary. HMRC aims to prevent disputes from building up as far as possible. However, where necessary, HMRC does not hesitate to litigate, particularly on avoidance transactions which have a read-across to similar transactions by other users. In response to the recommendations of the National Audit Office and Public Accounts Committee in their reports on the management of Large Business Service (LBS) Corporation Tax in 2007 and 2008, HMRC has focused its efforts on the most serious tax risks whilst reducing the number of minor issues taken up and resolving older issues.29,30 For those customers who are low risk—judged by their internal systems and controls and attitude towards avoidance—fewer audits take place. This allows HMRC to devote most resource to cases where revenues at stake are the most significant. Between 2007 and 2011 the total number of open enquiries in the Large Business Service has fallen from 7,500 to 2,700, the number of minor issues has fallen by 97% and the number of issues over 18 months old by 58%. This has allowed us to focus our effort on the bigger issues. At the same time tax under consideration31 in LBS cases has reduced from £35 billion in 2007 to £25.5 billion in 2011 and yield from interventions in LBS has risen from £3.9 billion in 2006–07 to £5.7 billion in 2010–11.
High Risk Corporates Programme For the highest risk cases, which frequently involve multiple avoidance schemes, HMRC has for some years put in place dedicated project teams and sought engagement with the customer at Board level through its High Risk Corporate Programme (HRCP). The Programme was designed initially to tackle aggressive tax behaviours by some major corporates, such as: — Habitual artificial tax avoidance. — High levels of secrecy and lack of openness and transparency. — Little or no Boardroom accountability for tax. — Very large number of open enquiries going back years. — Multi million pounds of tax at risk. In addition to Board-to Board contact and active project planning, the HRCP process typically involves a period of investigation and of technical analysis and debate before decisions are taken on the resolution of issues by the High Risk Corporate Programme Board. HMRC has seen improvements in behaviours in a significant number of cases in the Programme, including: — Openness and transparency and improved relationship with HMRC. — Boardroom accountability and engagement. — Movement away from artificial structures. — Assurance on future tax strategies. Initially HRCP was focused on a small number of cases but the success of the approach has led HMRC to apply it more widely, and some 39 large businesses have now been brought within HRCP. If a case results in an agreed settlement with the customer (which may cover all or some of the issues in a HRCP project) the business is not removed from the Programme until the Programme Board is satisfied that the level of risk has significantly reduced. In particular, in this post-settlement phase, the Programme Board will monitor the approach to tax planning and avoidance and ensure that the Company is open and transparent in its disclosure of tax issues. 29 The National Audit Office report in 2007 found that 58% of issues amounted to less than 1% of the total potential intervention yield. 30 The Public Accounts Committee reported that in 2007 42% of enquiries were over two years old. 31 The tax under consideration in an enquiry is initially estimated before any consideration of the specific facts has taken place or before applying any reliefs or allowances. It is not tax owed or unpaid—it is a tool which helps LBS managers to better direct resources. The “tax under consideration” figures given are not annual figures. They are snapshots as at 31 March each year and include some enquiries which had been open for several years. The totals fluctuate from year to year as cases are settled, as new returns come in and as HMRC’s view changes on the possible outcome of enquiries, in the light of facts established and legal advice obtained. Ev 128 Treasury Committee: Evidence
Since it began, the Programme has resolved over 1,500 issues and brought in additional revenue of over £9 billion. The recently introduced Managing Complex Risks (MCR) programme provides a similar multi-tax approach for large businesses outside the LBS. The HRCP Board also governs decisions on litigation and settlement in other large business cases where tax involved is more than £100 million. HMRC regards the Programme as having been highly successful in helping to resolve many large and complex tax issues, whilst maintaining strong governance and oversight of the decision-making process. Where issues have been settled by agreement, the key consideration for HMRC has been the strength of its case in law and the likely outcome if the matter were tested through litigation.
Particular questions 1. Q400: Mr Ruffley: How much tax was estimated to be at risk, before an enquiry had been completed, involving CFC legislation in each of the last three years and in how many cases was the tax at risk more than £100 million? HMRC Large Business Service records show the following amounts of tax under consideration on CFC issues in each of the last three years: Date Tax under consideration— cumulative (£m)32 31 March 2009 3,791 31 July 2009 4,578 31 March 2011 3,749
Because of the risk of indentifying individual companies, HMRC is not able to provide the number of cases with more than £100 million under consideration, but the total number of CFC issues being considered by the Large Business Service was as follows: Date Number of open issues 31 March 2009 159 31 March 2010 128 31 March 2011 134
2. Q401: Mr Ruffley: How many are in the team at HMRC that deals with these high-risk corporates? There is not a single team apart from a small central programme office. Discrete, temporary project teams are created to handle the different cases and issues that are within the Programme. The number of staff deployed on those businesses varies depending upon the size and complexity of the case and the stage it has reached in the HRCP process. During the active phase of an HRCP process the number of staff deployed can vary between 25 and 75. There have been instances where over 100 staff or more have been involved at some stage in the working of a case. But it should be borne in mind that staff can be engaged in other HRCP cases or in non-HRCP work whilst they are part of a particular HRCP case team. We deliberately aim to retain as much flexibility as possible in the deployment of specialist resource. This means that over the last five years, many of LBS’ tax specialists have been involved in HRCP cases at one time or another, along with other technical experts and professionals (such as solicitors and accountants). This has enabled HMRC to expose them to good practice in the collaborative working of major risks, whilst maintaining careful control of confidential customer information.
3. Q402: Mr Ruffley: The person or persons who decide finally to settle, when to settle and at what quantum to settle: who are they, what grades of officials are they? All cases within the Programme are overseen by the High Risk Corporates Programme Board which is responsible for selecting suitable cases and for monitoring progress. It is the Programme Board which takes all the important decisions on individual tax issues and decides how cases are settled, unless the case is so large or sensitive that the matter has to be referred to the Commissioners for a final decision. In this case, the Programme Board will usually make a recommendation to the Commissioners. The Programme Board is a very senior body chaired by the Director of the Large Business Service. All of the business areas of HMRC that have an interest in the cases are represented at Director 32 The totals for 2008–09 and 2010–11 are taken at 31 March 2009 and 31 March 2011. For 2009–10, we have provided the figure at 31 July 2009. This is because, from August 2009, we introduced an amended definition of tax under consideration. The totals for the rest of the 2009–10 financial year are therefore unreliable as this was a transitional period where two measures were being run in parallel. See also footnote 33 for “tax under consideration”. Treasury Committee: Evidence Ev 129
or Deputy Director level. HMRC’s Solicitors Office is also represented on the Programme Board. Current membership comprises: Director, Large Business Service, SCS2 Director, Specialist Investigations, SCS2 Director, Corporation Tax, International, Anti-Avoidance, SCS2 Director, Solicitor’s Office, SCS2 HRCP Programme Team Leader, Large Business Service, SCS1 Deputy Director, Charities, Assets and Residence, SCS1 Deputy Director, Specialist Investigations, SCS1 Senior Tax Specialist, Corporation Tax, International, Anti-Avoidance, SCS1 Head of Anti-Avoidance Group, SCS1 HRCP Team Head, Solicitor’s Office, SCS1 Deputy Director, Local Compliance, Large and Complex, SCS1
The National Audit Office is currently carrying out a review of the settlement of HRCP and other large cases as part of its report on HMRC’s 2010–11 accounts. HMRC will respond fully to NAO’s findings and any recommendations that it makes.
4. Q405: Mr Ruffley: The question I think arises of the numbers of officials who resign or retire, leave HMRC and then go on to work either for tax consultancies or law firms or FTSE 250 companies. Do you have the data on the number of officials who at one time or another have worked on the high-risk corporates programme or its predecessor, those who have left in the last three years and how many have gone into any of those consultancies, law firms or companies?
HMRC does not collect data centrally on all requests for permission to take up outside appointments. Requests are decided by the applicant’s manager based on rules relating to outside employment set out in HMRC’s Code of Conduct. The manager keeps a record of the application and decision on the applicant’s personnel file.
Because of the large number of officers who have been engaged on cases within the High Risk Corporates Programme (HRCP) in various capacities, it is not possible to provide a definitive number for those who have left the Department. A number of officers are known to have left to join accountancy firms or the tax departments of commercial companies having worked on HRCP cases at some point. Tax experts recruited on fixed term appointments will naturally move to such posts on leaving HMRC as part of their professional careers.
5. Q407: Mr Umunna: Could you provide us with the aggregate value of claims brought in court in relation to the high-risk corporates programme and the aggregate value of the sums for which those relevant cases were settled for each of the last five years?
Since its inception, the High Risk Corporates Programme (HRCP) has generated in excess of £9 billion in additional tax which was not offered by the companies in their self assessments, whilst settling over 1,500 open tax issues.
Issues are always settled in accordance with the Litigation & Settlement Strategy (LSS). The bulk of this additional yield has resulted from the settlement of issues prior to litigation coming before the Tribunals or Courts. In some cases HMRC has agreed with the customer at the conclusion of the active HRCP process that litigation should commence or continue. Indeed, in recent months, the HRCP Board has decided that litigation should commence in relation to a number of corporates across a range of issues where the total tax under consideration is close to £1 billion.
Only a handful of the issues settled (fewer than 10) have been subject to litigation in the Tax Tribunal or the Special Commissioners before the case as a whole was settled. It is therefore not possible to make the sort of aggregate comparison that has been requested. In the few cases that have been litigated during the HRCP process, some have resulted in a successful appeal by the company; in others, HMRC’s arguments were accepted. In all such instances, HMRC believes that the final settlement reached was fully in line with the Tribunal’s or Special Commissioners’ determinations. Where HMRC has decided not to take an appeal further, this decision was made in accordance with the normal LSS process, that was, based on the judgement that a further appeal would be unlikely to succeed.
The only differences identified by HMRC, therefore, between amounts “claimed in court” and the amounts for which issues were settled in HRCP cases, have arisen directly from the decisions of the appeal bodies themselves. Ev 130 Treasury Committee: Evidence
6. Q413: Mr Umunna: Now, in relation to Goldmans, there are serious allegations which have been made in the media in relation to HMRC settling this case and also in relation to Mr Hartnett in particular. Would you consider as an organisation publishing or providing to us information about that case so that the public can be assured that the proper procedures have been followed? 7. Q415: Mr Umunna: Could you also tell us in relation to the particular case that I have raised whether the internal procedures were met in relation to the Goldman’s settlement? HMRC has carefully considered the extent to which they can answer the questions asked and have concluded that they cannot give any information, for reasons of taxpayer confidentiality. June 2011
Supplementary written evidence submitted by the Exchequer Secretary At the TSC hearing on 11 May, you had a number of questions about how we determined the amount of our reinvestment in HMRC during the spending review. I thought it might be helpful to write to reiterate and clarify the principal considerations for the Committee. Of course the Treasury could, in theory, seek to invest in HMRC until the marginal pound invested brought not less than a pound in return. In practice the Treasury considers each additional investment in HMRC on a case-by-case basis. They will scrutinise the certainty, and robustness of the outlined costs and benefits as projected by the Department and any wider impact on businesses and taxpayers. For this spending review HMRC came forward with a number of investment cases to further increase compliance and reduce the tax gap that the Treasury were satisfied with on that basis. As I explained to the Committee, I flagged to HMRC my interest in work to identify and develop such cases during the usual discussions that occur between officials and opposition spokesmen before the election. Detailed discussions to progress this work commenced in my first week in office and continued, with the involvement of the Treasury, throughout the summer and early autumn. The final £917m reinvestment proposals therefore met the test of standing up to intense Treasury scrutiny. Additionally, an Independent Challenge Panel advised the Chief Secretary to the Treasury on the case for reinvestment made by HMRC. The investments tackle: — Avoidance by large business and the wealthy; — Repayment, tobacco and alcohol fraud by organised criminals; — Tax debt; and — Evasion by SMEs. We looked at the totality of the proposals with a mind to the overall impact on the economy. In our view HMRC’s plan will support the environment for business by levelling the competitive playing field and offering more support to the honest majority who want to comply—making it more straightforward for them to get their taxes right simply and efficiently. For example, work is already underway on improvements to HMRC’s online channels and interactive guidance to provide taxpayers with greater reassurance that they have got their tax right. In addition HMRC is working with the Office of Tax Simplification on a project looking at how every aspect of its administration of the tax system impacts on SMEs. We also had one additional consideration which I would wish to bring out more clearly to the Committee. That is, we collectively also had to think about the constraints imposed by capacity and capability ie to make a judgement about how much change the organisation could execute over the spending review period. For example it takes a number of years of investment of time and energy before new tax specialists and investigators become fully effective. We were all conscious that HMRC’s management challenge over the Spending Review period would be significant. Like other departments it must deliver significant savings, mainly through reducing its paybill as it leverages its investments in technology to reduce costs in processing roles, rationalising its estate and maximising savings from IT contracts. It must deliver improvements in personal tax including the Real Time Information project to improve the operation of Pay As You Earn. And it must deliver its reinvestment programme to bring in the additional revenues we ask of it. HMRC were, and remain, confident that it could deliver the savings, reinvestment and overall level of change in their spending review proposition. And the Treasury is confident that this will deliver total additional revenues over the period of £18 billion. June 2011
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