THURSDAY 8 FEBRUARY 2001
_________
Members present:
Sir Michael Spicer, in the Chair
Mr Nigel Beard
Mr Jim Cousins
Judy Mallaber
_________
DAWN PRIMAROLO, a Member of the House, (Paymaster General), MR MIKE
HANSON, Director, Finance and Strategy, HM Customs and Excise, MR
TERRY BYRNE, Director, Enforcement, HM Customs and Excise, MS SUE
PITHER, Personal Assistant to Stephen Banyard, Director, Business
Operations, Inland Revenue, and MR DAVE HARTNETT, Director General,
Inland Revenue, examined.
Chairman
1. Minister, I apologise for being late. We will certainly not
protract the proceedings beyond a quarter to twelve.
(Dawn Primarolo) Sir Michael, before you start, could I also apologise
for the problems over the original date for this meeting. I know my office
spoke to you. There was confusion. I was actually on my way to Brussels, I
had to go to Brussels for a meeting. I do apologise for any inconvenience
this may have caused the Committee and to you. It will not happen again. I
will be much more thorough in making sure that provisional dates stay in and
we do not allow anything else.
2. Thank you very much. We were certainly told by your office that
you love coming here too much to try to avoid us.
(Dawn Primarolo) I do not think I would go that far but we will give
it a whirl, shall we?
3. Can we start straight away with the issue we have been in
correspondence about, the Rocques report. Could you say what deadlines have
been set for the final version of the Rocques report to be reported publicly?
(Dawn Primarolo) I have not set a specific deadline in terms of date.
What I do have is an urgency to ensure that the outstanding questions - how
much was lost between 1994-98, how it was lost, why it was lost, what has been
done to ensure that never happens again - and any other lessons that need to
be addressed are done as speedily as possible. That information at all times,
of course, has to be shared with the National Audit Office. I want to be in
a position to inform Parliament and yourselves as quickly as I can on the
outcomes and if there is any further action necessary for Customs, what that
will be.
4. Minister, the trouble with that response is that in your letter
to me you said, if I can just read out the appropriate piece of it: "Customs
tell me that although the basic facts", which is what you have been just
talking about "have been established there is more work to be done before firm
conclusions can be reached. Customs will therefore be asking John Rocques to
carry out further analysis to complete his work as soon as possible". The
facts seem to be clear, what seem to be now in question and possibly needing
further doctoring are the conclusions. That does not quite match up with the
answer that you gave me first of all.
(Dawn Primarolo) I think we have discussed before, explaining to the
Committee, this is about diversion fraud from our warehouses. It happened,
as I tried to explain before, Customs knew it was happening and it was in the
pursuit of evidence for prosecutions. This is a very complex area. The
discussions with Mr Rocques, as I understand it between Customs and himself,
are specifically in relation to some of the issues in that. I think it would
be inappropriate to gradually release information. I think that what
Parliament will want to see is a full statement and a reassurance that it has
been stopped, it will not happen again, and what measures are in place to
ensure that. That is what we are settling on. Of course, as I have said, all
of the information is available, and has to continue to be available, to the
NAO on the basis that they need to be kept informed because of the amount of
revenue.
5. Do you think it is right that Customs should have the apparent
right to reject the initial findings of an independent investigation such as
this one?
(Dawn Primarolo) Sir Michael, this is not about rejecting findings,
this is about ascertaining the facts and the necessary steps thereafter. I
would like to assure the Committee that this is not about saying that the
report has not looked at some very complex areas and needs to, as I said
before to the Committee, covering areas like the role of the National
Investigation Service, the cases that were subsequently developed. Sir
Michael, I really can assure you personally that I am not trying to conceal
anything from the Committee or do anything that would not be proper. I am in
some difficulty without having the full conclusions and in a sensitive area
it is unwise for me to speculate. I am absolutely of the view that I am happy
to keep you informed, and the Committee informed, and I will be available for
questioning as soon as there is more information in the public domain for
that.
6. I am not trying to be clever about this but your letter
specifically says that the facts have already been ascertained and it is the
conclusions that need further work on.
(Dawn Primarolo) The facts are with regard to the revenue lost and the
fact, again as I tried to explain when I had the opportunity to speak to you,
that it happened with Customs watching it. This is quite difficult to get
across, why exactly that happened and how it happened. It is not as if they
did not know that it was going on. Those are the issues that I certainly want
to bottom out. As you know, the reason I appointed Mr Rocques and established
the independent inquiry was notwithstanding the fact that Customs had already
undertaken an internal inquiry. My view is that we must leave no stone
unturned, and I am still of that view. At the end of this we need to be able
to draw a line and move forward.
7. Were you concerned that Mr Rocques said in the Financial Times
last Monday that he felt the report should be published immediately?
(Dawn Primarolo) I have not spoken to Mr Rocques and I do not know the
source of the story that was in the Financial Times, although naturally I took
note of it. I think it is probably best that I deal with the facts of it.
As I have said before, and Members of the Committee may have some sympathy for
this, what I will need to make sure is all the questions are answered, and
answered clearly, on the outstanding items, and that is what I am doing now,
or Customs are doing now.
8. Minister, you must have some idea in your own mind when it would
be appropriate for this to be published? Are you saying, at least internally,
"I want it by such and such a date and no longer"? Is there pressure coming
from your office on this?
(Dawn Primarolo) Yes, I would like it sorted. I think that I, on
behalf of Parliament, owe an explanation and that must be properly presented.
If it was over a period of time when I was a Minister it may be a little
easier but Mr Rocques is actually scrutinising a period from 1994 to early
1998, of which I have only been the Minister for six months. There is a great
deal that needs to be sorted in that period.
9. Can you give us some indication when you think that it really
ought to be out by?
(Dawn Primarolo) I cannot give you an indication. I would not want to
set a date. As I have said, I think that we need to have these answers on the
public record as soon as possible.
Chairman: Thank you. Jim Cousins.
Mr Cousins
10. I find that exchange extremely helpful and I do understand the
difficulties of the position that you have here today. Do you feel now that
the question of the revenue loss involved in this has now finally been
bottomed out?
(Dawn Primarolo) Mr Cousins, this is a matter for the NAO as well. I
am not in a position to be able to speak for the National Audit Office or
comment on their views at this time, but naturally there has been wild
speculation about the actual loss. From my point of view it is important that
we make sure it is all agreed and made public, the actual loss, how it
occurred, why it occurred, whether it has been stopped - Mr Rocques would have
come back to me during the course of his inquiry if it had not - but also what
we need to do to make sure this type of failure does not happen again.
Forgive me, but there are some issues around the National Audit Office which
I am not able to address to you but hopefully that situation will be
clarified.
11. I think I am following you.
(Dawn Primarolo) I am sorry, I am just not able to be more specific.
12. I do not intend to press you unduly for the actual figure, that
clearly would be wrong, but just so we are clear about this, your last remarks
do not in any way imply that there is a disagreement between the NAO and
yourselves about the actual extent of the loss?
(Dawn Primarolo) No, we do not have disagreements with the NAO. The
NAO's role is absolutely clear and independent here, it is not negotiable.
It is a matter for them because, again as I have explained before, this is a
loss that occurred over a number of years that has not been accounted for
properly to Parliament and, therefore, the procedure needs to be gone through
with the NAO to make sure that is now properly accounted for and that is their
responsibility.
13. The press release you issued when the inquiry was first set up
made it clear that it came after an internal Customs and Excise assessment
which was asked for by the new Chair of Customs and Excise, Mr Richard
Broadbent. The press release does refer to "significant revenue losses" which
Customs had presumably identified at that stage before the inquiry. I think
it is appropriate to ask you are the figures that were under discussion then
and the figures that are under discussion now of a piece or are they
significantly different?
(Dawn Primarolo) I am just taking advice that we are not compromising
NAO's position. The figure is approximately the same, if a little lower. I
am sorry, I cannot be more specific than that.
14. That is fine.
(Dawn Primarolo) It is still a very, very significant sum.
15. A very, very significant sum?
(Dawn Primarolo) Yes, and now you are going to ask me what a
significant sum is and I would wish I had not said that. I think the adage
is when in a hole stop digging, and I think I should. This is a matter for
the NAO. The internal report in terms of the possible scale of the loss is
of the same order as that which has now been established is my understanding
and that is a matter that the NAO will account for.
16. Chairman, when the Paymaster General looks at me like that and
says it is a very, very significant sum, I worry about the two bottles of
Galliano I bought in Rome Airport.
(Dawn Primarolo) Two. Not litres?
17. Not litres.
(Dawn Primarolo) That will take you some time to drink.
18. Clearly this inquiry was to some degree triggered by Mr
Broadbent's own enquiries into these issues. It was something that was
generated from within Customs and Excise by an examination that the new Chair
of Customs and Excise carried out. That, of course, is very important, but
can you tell the Committee what other specific changes and improvements Mr
Broadbent has brought about?
(Dawn Primarolo) This moves us more into the discussions about the
restructuring of the department.
19. Yes.
(Dawn Primarolo) It ties in with other agendas to do with Closer
Working as well. I think it was on 17 January that Customs announced a major
restructuring. The restructuring of Customs now is to divide it into two main
business streams. The first is the business service and tax element, which
comprises of all business tax and the facilitation of information of Customs,
the international movements of trade services, etc, and that has a business
focus and accounts for approximately 13,000 of our staff and their focus is
on that. Naturally what we are seeking to do here is to deliver a service
that is an improvement for the taxpayer, for the customer, improve compliance
and make sure that the management through the organisation is properly focused
on delivering those objectives. It is in two divisions now. The second
division is the law enforcement and that comprises of all investigation,
intelligence and detection activities. That would be all the drugs,
smuggling, firearms, all the investigation service. That comprises of
approximately 8,000 of our staff. There is a very small, and I cannot give
you the number of staff because it is very small, logistics, finance, human
resources, legal section. What Mr Broadbent and his new management team have
done is considerably reduce what was the head office function. The head
office function is basically the support for the Chairman and his team. The
parliamentary unit and all other policy development is integrated into those
two divisions which then, obviously, facilitate Closer Working, whether it be
the enforcement side with other agencies, the police, Interpol, other
intelligence agencies, and on the business side the Closer Working Framework
that is being developed and focused on with Inland Revenue. Collections have
gone, it is much more a focused delivery of a business service.
20. Are you expecting any job losses as a result of this?
(Dawn Primarolo) No. There are no job losses. There is some
reallocation. Obviously all of this has been negotiated with the employees.
The unions and all the employees in the organisation have been fully
consulted. I am not saying there are not some people who will be asked to
consider the option to maybe move to another location from their present one,
but that is very, very small indeed. There are people whose jobs will change
as we shift our resources to more front line, that is the interface on the
business side between ourselves and the customer, the taxpayer.
21. Have you set new performance targets or performance objectives
for these new sections?
(Dawn Primarolo) Yes, we have. Obviously we have our PSA targets
which ---
22. I am here more talking about ones that may be generic within
Customs and Excise.
(Dawn Primarolo) What we are doing at the same time, and I think this
came from the Committee as well, it ties in with our Closer Working, is to set
specific objectives in terms of measuring improved customer service, improved
compliance and better facilitation. I think the Committee requested that
there was an annual report in looking, for instance, at the Closer Working,
in measuring that, and that it should be made annually to this Committee.
Yes, I am quite happy to do that. What we need to establish is how we measure
that. We have our standard measurements that our PSA requires of us - how
quickly we answer phones, how quickly we do visits, etc - but we really want
to focus much more on the improvement of the quality of the service. This
also fits into the joint work that Customs and Revenue are doing on the
question of compliance costs, in measuring those and trying to find ways of
reducing compliance costs for our taxpayers.
23. The regional units, as we understand it, are to be abolished.
Does that mean that the co-ordination, if you like, both of intelligence and
deployment between these two sections will all be done at headquarters?
(Dawn Primarolo) No. Somebody correct me if I get this wrong. The
operations of the offices are intended to ensure that those offices can
respond quickly, not only following what is required by the department as our
overall objectives but to have more responsibility for delivery of those
objectives and to be able to fine tune them for particular need. There is
always cross-reference. What Mr Broadbent and his team have tried to ensure
in this reorganisation, and obviously it is early days yet, are clear lines
of accountability and who will be able to be in contact with whom, rather than
nobody having responsibility until it gets to head office. That is being
reversed now.
24. This may not be policy but do you accept that the organisation
of Customs and Excise in this way lends itself to a future split in which the
business services side of Customs and Excise would effectively become part of
the Inland Revenue and the intelligence and investigation aspects of Customs
and Excise would become part of the Home Office services, the development of
the National Criminal Investigation Service and so on? It does lend itself
to that.
(Dawn Primarolo) That is not the motivation for the reorganisation.
We have been through this discussion before about merger between Customs and
Inland Revenue and my attitude to that, which is I am not convinced that is
the way forward. What it does do is clearly, clearly identify the two main
functions, the protection of society role, if I can call it that, which is
within the enforcement, and the business taxation which is in the other unit
and makes it much easier, I hope, for those two units to co-operate with all
the other organisations that they have to. One of the things about Customs
is that it is not just the Inland Revenue, important as the Inland Revenue are
of course, that they are working with and co-operating with, it is a number
of other Government departments, for instance the Home Office, MAFF, the
intelligence services, DTI on trade facilitation. They have to have focused,
clear relationships with a number of different organisations and this
restructuring enables us to deliver that. If somebody takes the decision in
the future that is for them but that is not the purpose now of the
reorganisation, it is efficiency.
25. But you do accept that it does lend itself?
(Dawn Primarolo) I do accept that some people might speculate it does,
yes.
26. Right, that is fair enough. Coming to the Closer Working
programme itself, which is going to be an important activity of the largest
of the Customs and Excise two units, are you satisfied that there is now a
meaningful programme of Closer Working which is targeted at producing
measurable benefits? You referred to the annual report that we have requested
and you have indicated your view about that. When could we anticipate that?
(Dawn Primarolo) In terms of the progress of Closer Working, and I
think that both Mr Montagu and Mr Broadbent covered this in their separate
appearances, I think it would be an understatement to say that we have learned
a great deal in the approach that hitherto had been used in order to encourage
it. We now have real progress in a number of areas. I think that you have
been informed, but just to recap, that what we are going to do, for instance,
is have 14 of the largest businesses managed by joint teams, Customs and
Revenue in one team, and that will start on 1 April. We are going to have 20
shadow economy teams and they will be operational, in addition to the ones we
already have, on 1 April. We are developing a single unit on company
voluntary arrangements, particularly looking at insolvency, which is something
we need to do some more work on, and on joint debt recovery services, which
has been of some contention in Parliament in terms of when the two departments
engage in these activities. And, of course, a joint audit of our computer
services. As I said, it is about getting better value for money, customer
improvement, better compliance. Given that we are to start that, locating the
teams, teams put in place, training completed, I think for the 20 shadow
economy teams the final location has been agreed and the facilities are being
developed. An annual report seems to me to be suitable in April 2002 because
that is when the teams will have been assessed. I cannot personally see any
problem. The Committee might prefer to have a sort of half-way house of an
update, say six months into the process, with the formal report being done at
the end of the first year. I can do a note to the Committee if you do not
already have the information about where the locations of these different
facilities are going to be rather than go through all the locations now. As
I have said, I am happy to send a note or go through them now, whichever you
prefer.
Chairman
27. Would it be possible for you to write to me about that?
(Dawn Primarolo) Yes. I have got quite a lot of information here, Sir
Michael. It is things like where the audit computer accounts will be based,
where the risk analysis and intelligence will be based, the actual locations.
Rather than go through all the towns and cities I am happy to do a note for
you and get it to you by Monday, if I can.
Chairman: Fine.
Mr Beard
28. Could you update us on the strategy for tackling tobacco
smuggling that you launched last March?
(Dawn Primarolo) The vast majority of the Customs' staff which were
planned for introduction have now been recruited. I think we are at 85 per
cent of the staff. Three of the x-ray scanners are now operating. There are
two more being built for delivery in April and orders are planned for a
possible further ten, but naturally we are assessing the scanners. The
scanners are mobile, we can move them if necessary. We have undertaken the
advertising campaign which is developing. In terms of the results, in the
first nine months of this year 2.1 billion illicit cigarettes bound for the
UK were actually seized. Our target for the year was 2 billion I believe.
Yes, 2 billion. We have severely disrupted or broken up in those nine months
38 organised gangs, very large criminal gangs. In the first nine months we
have seized 6,658 vehicles - Customs like to be precise about this - which is
up 65 per cent on the corresponding year. Our combined efforts on
intelligence gathering, disruption and seizure at ports and then inland
disruption and seizure, as well as the use of our increased penalties, are
very promising in these first nine months. We are achieving the first set of
targets in terms of disrupting those who are organising it as well as seizing
the goods. Clearly this is a three year strategy and we need to look very
closely at our experience over these last nine months, and that is what we are
going through now, and the last three months of the year when we have it, as
to what that teaches us about what we need to do to increase our activities
to meet the challenging targets of the next two years.
29. What elements of the strategy are proving most productive? Are
the scanners proving very useful in all of this?
(Dawn Primarolo) Absolutely. As you know, we are not talking about
what was commonly known as the "white van" trade, although we have strategies
to deal with that as well, this is the systematic freighting in in containers,
often concealed, of millions and millions of cigarettes at a time. Our
intelligence is informing which containers we suspect. It takes us, I think,
three minutes to scan one of these containers now, it used to take us five
hours with a larger number of Customs' officers to physically search these
vehicles. Obviously the scanners are proving extremely useful. The
disruption of the criminal chains by using the intelligence combined with
action on the ground is proving very successful. Those are the main elements
I think.
30. ASH pointed out in oral evidence that the essence of this
smuggling is taking cigarettes from the United Kingdom and going through
places like Andorra, Montenegro and Latvia. This must be a very big element
of their economy, is it not possible to take steps at that end as well as at
the United Kingdom end to stop this?
(Dawn Primarolo) Indeed, and our intelligence work outside of the UK
is directed at that. You are quite right to point out that these goods are
coming back from wider fields, the Balkans, the Far East, South Africa,
certainly outside the European Union. It is very important that we have that
information. Obviously as we are seizing the goods we are profiling the goods
that we seize. There is a significant presence of counterfeit tobacco
products. It is difficult to estimate exactly but somewhere in the region of
20 to 30 per cent. The rest is predominantly manufactured in the UK by
British tobacco firms and, in fact, three brands dominate what we seize. It
is very important that in working with the manufacturers we are able to trace
whether or not some of the exports actually end up having gone through a
chain. They do not go to one place and come straight back, they go through
a chain of different countries and then come back, so appear to be sold
perfectly legitimately, and that is what happens subsequently. What Customs
are working on is to find out whether and how that could be fuelling the
products that are being smuggled back into the country and, therefore, what
steps we would need to take to deal with it. That is a very urgent piece of
work that we are currently undertaking.
31. Are you at all concerned that some of the tobacco manufacturers
themselves are facilitating tobacco smuggling, either knowingly or otherwise?
(Dawn Primarolo) The tobacco manufacturers in the UK continue to say
publicly that they are just as concerned as the Government about the level of
smuggling of products into the UK. So we have initiated steps to ensure that
we are able to share information that may be helpful in helping us trace goods
that are being rerouted back into the UK. Customs' teams have been into the
manufacturers and are challenging and are requesting data on the export trade
to see whether we can marry that up with the intelligence that we are
collecting through the seizure of the goods. I think it is very important to
say, nonetheless, that the export of cigarettes from this country is a huge
trade and the overwhelming majority of that trade is perfectly legitimate and
ends in source. What we have noticed is that certainly there appear to be
exports to places where the domestic consumption would not indicate that level
of purchase, if I can put it that delicately.
32. Minister, Mr Broadbent told us that he felt that there was "a
very strong common vested interest" between the tobacco manufacturers and
Customs and Excise in tackling the smuggling problem. Is that necessarily so?
(Dawn Primarolo) The tobacco manufacturers continue to say that is
their view, yes, and that it is not in their interests to see the growth in
the last few years that we have in this huge trade - we are talking about one
in five cigarettes before the Government started its action - and they wish
to co-operate with us. So we now have a series of questions which we would
expect them to co-operate in answering so that we can ascertain whether there
is a link, and if there is what they, and us, need to do about it.
33. Is it not strange that so many of the smuggled cigarettes
actually originate in the United Kingdom?
(Dawn Primarolo) I think in the United Kingdom it is a huge industry
in terms of production here. Of course, we are talking about very substantial
companies: Imperial, Gallaher, BAT. These are world leaders, so it is not
surprising that there is a huge manufacturing base here in the UK and a lot
of that would be exported.
34. The campaign for Action on Smoking and Health has suggested that
there is almost an unhealthy closeness between elements of Customs and Excise
and the tobacco manufacturers. Would you care to comment on that?
(Dawn Primarolo) I deeply regret that comment, it is not true. I think
Customs are proving quite clearly now that cannot be true, once they have the
specific resources and the new strategy, by their ability to challenge and to
deal with this growing problem of the smuggling of cigarettes. I do not think
it is helpful that anybody should speculate or make allegations, whoever they
are, without the facts of the case, and there are no facts to substantiate
such a proposition.
35. What did the Butler report into the collapse of the Regina v
Doran case tell you about the workings of Customs and Excise's legal team?
(Dawn Primarolo) It revealed the complexity of the work undertaken by
Customs and in particular when you have a department that is putting together
international intelligence collection and is trying to stop goods arriving
here in the UK in the first place rather than wait for it to arrive here and
seize it. My understanding is that on all of the points, and there was a
review team to look particularly at the role of Customs having prosecution
powers and solicitors' offices inside Customs, that report has now been
reported to the Attorney General, because it was decided that the Attorney
General would be the best person to deal with this. He will be making
recommendations on that on behalf of the Government. I think that the problem
for Customs clearly is they are very high profile cases, so when a case goes
wrong it is big news. When their success rate is scrutinised they have a
very, very good and high success rate, it is just that the nature of these
cases means if they go wrong they are rather large cases that go wrong.
36. The Butler report was quite an indictment of the legal team in
this particular case. Were the findings of the report surprising in the
department?
(Dawn Primarolo) Personally I thought it was rather mixed. It did say
some rather good things about the department, it said quite a few. Obviously
it is important, it is nice to have the good things said, but one has to focus
on if there are weaknesses and those need to be addressed. Customs are a
robust organisation in the sense if something is not being done correctly then
they will set about taking on the recommendations and dealing with it. The
review on whether or not the solicitors' offices should remain in Customs and
Excise, as I said, is a matter for the Attorney General and not for me, and
I think that is right given some of the criticisms that have been made, and
will be reporting soon I understand.
37. You have already received the report that you are referring to?
(Dawn Primarolo) Yes, we have, but the Attorney General is in the lead
on it, not us. The review team looking at what should happen, on behalf of
the Attorney General, obviously is looking at both the reports.
38. When is it likely to be published?
(Dawn Primarolo) I really do not know that because it is not in my
gift.
39. There is no forecast?
(Dawn Primarolo) No. I do not think it is going to be very long though.
(Mr Hanson) It should be ready soon.
(Dawn Primarolo) Yes, I understand it is going to be quite soon. It
is the Attorney General, we will just be notified when he has made the
decisions on the date.
40. The significance of the case that I was referring to was that it
did sponsor the Butler report and the Butler report, from its findings, did
result in this question of whether the prosecuting powers should be retained
by Customs and Excise, so there were some significant things arising from
that. What factors, when you consider the report, will you be taking into
account in deciding whether the prosecuting powers should be retained by
Customs and Excise or not?
(Dawn Primarolo) The Attorney General will decide that and that is what
the report is about.
41. The Attorney General will decide?
(Dawn Primarolo) Absolutely, yes. Customs in terms of both of those
reports were exonerated but obviously the issue of whether it was correct to
have the prosecuting authority within the same department was a particular
focus. That was then taken out to a review that then looked at both of the
inquiries. That review was appointed by and reports to the Attorney General.
Obviously they would have sought information from Customs in the progress of
that. The Attorney General will take a final decision on what is best,
whether it remains or goes somewhere else.
42. Will that take into account the relative conviction rate of the
present team compared with other prosecuting authorities?
(Dawn Primarolo) I presume so. I presume it will take everything into
account, yes. This is a review being done on us, so other people will decide
these things.
Judy Mallaber
43. Can we move on to the Inland Revenue and particularly its
changing role as a result of legislation over the last few years. How well
do you think the Inland Revenue has coped with the changes to its remit
introduced since 1997? I am particularly thinking of things like the
introduction of tax credits and enforcement of the minimum wage.
(Dawn Primarolo) I think that the Inland Revenue, which has had a huge
change, both with the development of tax credits, with the Contribution Agency
moving in, has coped extremely well and it has met all of its performance
targets set by the Public Service Agreement. At the same time, the cost of
collecting, price per pound, has gone down. It has dropped to 1.1p per pound
collected. Across the board, whether it be telephone calls or letters, the
mobile advice centres or the customer service performance, the complaints,
what has been done on tax credits, minimum wage enforcement, it has done a
fantastic job and I think that is generally recognised, how well the
department has coped. That is obviously not to conceal the fact that there
have been particular issues around IT.
44. What do you think have been the particular challenges as a result
of the legislation?
(Dawn Primarolo) They are all significant challenges. Perhaps you
should ask my officials which they thought were the worst. I should imagine
that the movement of the Contribution Agency into the Inland Revenue, the
moving of the staff, the management of that, the bringing of the Contribution
Agency into the systems of the Inland Revenue, was a huge issue, and clearly
the movement of tax credits as we took the tax credits in and developed them
on. I think the biggest challenge for Inland Revenue is one of culture, that
they have to move, and are moving, to be a department that has, if I can put
it this way, social responsibilities. They are the lead department for the
payment of the tax credits, the monitoring of the national minimum wage, as
well as their functions as a tax collecting department that also has
compliance responsibilities. Customs and Excise have to do the same but
Inland Revenue have to do it much more, which is to balance now a sort of
enabling, facilitating role with, if you like, an enforcement role, a
collection role. Although there have been management changes to bring in more
staff, actually changing those attitudes and how the department operates is
a huge challenge.
45. What work has been done, for example, to enable the staff to deal
with handling a rather different client base from its traditional areas of
work? What particular things have you put in place to assist staff to deal
with that and to make that culture change?
(Dawn Primarolo) Clearly with the Contribution Agency the staff moved.
With the tax credits some staff moved and we recruited further staff. What
we have done through the department is to ensure that we have training and
support in the department to move people to those functions. I have to say
as well that the staff in the Inland Revenue are used to dealing with people
and it is nice for them. They have a more diverse role and they are very
excited about that and very keen to feed into the department's strategies for
training and support of staff to take on those different roles that they now
fulfil.
46. Are you getting a universally positive approach to that? I have
just moved over from the Employment Committee to this Committee and we have
been pleasantly surprised by the way the Employment Service has adapted its
role to deal with a similar change in what they are meant to be doing. Are
you saying to us that this is a success and that the Inland Revenue staff are
fully on board?
(Dawn Primarolo) Yes, I would say that it is a success and I would say
that the staff are on board. I would not want to say that the staff, in
representing their views on what they feel is best for them, would not have
other objectives. If you wanted it to be arranged we could certainly give you
access to the sorts of things that have been going on, you could speak to our
staff. We could arrange a visit for you so you can see in detail what we have
done both with our tax credits and with the Contribution Agency, as an
example, and with the national minimum wage enforcement unit, which I think
has done a brilliant job and has worked very well indeed.
47. What have been the difficulties? What has not gone right? You
obviously mentioned the IT.
(Dawn Primarolo) The Inland Revenue has a huge IT system, I think it
is in the top one per cent of IT users in Europe, and we need that IT to be
user friendly for our staff as well as to be able to give the information.
Obviously there have been pressures on staff in terms of deadlines to
accommodate this change and the changes that have gone on and that has been
very intense at different times. All of the staff in the Revenue have
responded incredibly positively because they are committed to making sure that
they give the very best service. Even on measuring, for instance, the level
of complaints coming into the department and the percentage of complaints that
go into the formal procedure and then to the adjudicator, we see a declining
rate. Touch wood, we have moved away from the horrendous headlines in the
late 1990s, 1997-98, that we were getting about staff, whether they were
unfriendly or abusive or unhelpful, because they have improved so much on the
customer service.
48. How can you continue to ensure that the Inland Revenue's
traditional work, such as getting in the money from income tax which they need
to be able to do as well as everything else, is not overlooked in the rush to
embrace tax credits and the culture change and everything else?
(Dawn Primarolo) It will not be overlooked. It is œ195.6 billion to
overlook. Although our staff are very keen, particularly those who are
specifically engaged in the tax credits, the Contribution Agency, in making
the important contribution, all of the staff in the Inland Revenue, I think
it would be fair to say, view their role as to collect the right amount of
tax, and only the right amount of tax, in an efficient and fair way so that
Parliament can take the decisions on how it wishes to spend that money on its
public services. It is very difficult to convey strongly enough how the staff
in both the tax departments see their crucial role in that wider picture of
securing fairly the resources that are then allocated by Parliament to our
public services.
49. How do you expect the Inland Revenue to evolve over the next few
years? Where do you see it in another four years' time?
(Dawn Primarolo) I think they probably wish "more slowly". I think we
need to go into a period of consolidation. For instance, the Contributions
Agency's IT system will be within IT2K (?) by August of this year, the tax
credits by the following year. We could not do it any faster than that
because of resources and priorities elsewhere. So we will have the integration
there. The partnerships and the closer working with Customs clearly over the
next year will develop and bed down, and I certainly think that all of us see
now that the Inland Revenue needs to consolidate the changes it has already
made and bed them in well, and that will be our priority. How could I
describe what I would like? What I would like is that somebody rings up a
local tax office and at the end of the conversation we have got to a position
where we can say to that individual, "Would you like me to check whether you
have paid too much tax and we need to give some back to you?" I would like
that conversation for two reasons. One, that we were able to do it and, two,
so that the taxpayer would not feel reluctant, as sometimes they are, to
engage in that but confident that the Revenue is only seeking the tax level
that is necessary and if there is too much which has been inadvertently given,
we would give it back.
50. My local tax office has won plaudits for its Outreach work, so
there are lots of good stories.
(Dawn Primarolo) Absolutely, and they have done very well on Charter
Marks. When we had the Tax Back Campaign, just as an example, we gave the
challenge to our offices that they were responsible for getting the local
publicity and I was stunned, amazed, at the imagination and diversity of what
they did. There were tax inspectors busking in shopping centres - I hasten
to say not because we do not pay them enough but because they wanted to get
their message across in a different way - there was a huge range of things
they were doing in their local communities, and I think that is something we
want to build on. We have quite a way to go before we get to the user-
friendly, softly, cuddly Inland Revenue.
51. I know you said you wanted to have stability but do you think
there is a need to look fundamentally at the boundary between tax and the
benefits system?
(Dawn Primarolo) The Government is actively looking at that. The
development of the next generation of tax credits and reforms we have
undertaken to date are exactly about addressing the boundaries and taking away
the cliff edges or the problems which were building up in the system, and that
will not stop.
Mr Cousins
52. I will certainly treat buskers with more respect if I think they
are tax inspectors in disguise.
(Dawn Primarolo) You will give them some money, will you!
53. There was a review of the Inland Revenue's policy work which was
carried out last autumn and published just before Christmas, and one of its
conclusions was that it was difficult to identify anyone in the structure of
the Inland Revenue who has the background and capacity to think about the tax
system as a whole. That is a fairly heavy criticism. How are you going to
respond to that review and to improve the Revenue Department's work on tax
policy?
(Dawn Primarolo) Firstly, clearly when looking at the Treasury
Department and the issue of policy we would not see the Inland Revenue as
free-standing in future planning because clearly the Treasury itself has a
role in that. What Revenue has done, and the report sees, is made a real
improvement in strengthening its policy function and in particular to have
dedicated quality staff who have the depth of knowledge on particular subjects
and therefore can assist in the effective implementation of policy as well.
The review team did give the Inland Revenue credit for its expertise, for its
professionalism, for its integrity and for the development of things like the
tax credits which shows its capacity to do that. What we have done in
addition is that Mr Hartnett has the role of ensuring the co-ordination of
work that is being developed in Revenue and that it has that focus, because
I think the peer review was questioning not only that it was not going on but
that the depth and the focus needed to be directed, and that is what is being
undertaken now. In particular, the review referred to the need for developing
staff and recruiting staff who would assist much more in evidence-based
information and research, the modelling that is necessary, and again that is
being addressed. I do not know whether I could commit Mr Hartnett to do a
short note for you on the changes which are being developed to address that
issue?
54. Yes, that would be useful.
(Mr Hartnett) Yes.
55. The review did discover there was no business taxation model.
Is that being done?
(Dawn Primarolo) Yes.
56. Is it fair to say that some of the difficulties that the
Government got itself involved in, like how you deal with taxing insurance
companies' reserves or stock options in small e-economy companies, might have
been avoided if there had been better and more coherent tax policy advice
within the Revenue?
(Dawn Primarolo) Yes, it is being addressed - your first question. On
your second question, I doubt it, ensuring that everybody is always at one
with the Inland Revenue. We are in a changing world and it is changing very
rapidly and we collect information, but I have had some salutary lessons as
a minister on questions of consultation. When I tried to address it on the
basis, "We have a problem here and it is a big problem, how do you think we
might deal with this?", I was criticised for doing an inadequate consultation
process and people wanted specifics. Then, of course, when we do specifics,
people complain it is all cut and dried. I think the relationship not only
of Inland Revenue internally in having that policy capacity but, most
important, the dialogues with the representative bodies outside representing
taxpayers, is something we have strengthened and continue to strength, so we
have both our own views and information about how we see the tax system moving
- if you like as tax collectors what we see the issues are - and also the
experience of those businesses in terms of what would or would not work for
them. That is never a perfect exercise but we have to strive to constantly
improve it.
57. Yes, but the lack of a business taxation model points to
difficulties between the Inland Revenue and the Treasury. I take your point
about consultation outside, but there is a distinct feeling if you read that
peer review report that all is not well about the exchange of proper advice
between the Inland Revenue and the Treasury. There are mistakes which have
been made which could have been avoided.
(Dawn Primarolo) To be honest, I did not read the remarks quite as
critically as that. Yes, the business model needs to be developed.
58. Needs to be developed?
(Dawn Primarolo) Absolutely, and is being addressed. Yes, of course,
there always needs to be the exchange of proper and relevant information
between government departments, not just within the Treasury departments, when
issues are being developed, but I thought the peer review was saying, "These
are the things you need to specifically address", which we have. It also
said, "There are things you have done very well and things that you have not
done so well, concentrate on what you have not done so well, learn the lessons
and put it right." The idea of peer reviews is not to be antagonistic, and
the Revenue accepted entirely what was said and are acting on it.
59. Judy Mallaber mentioned the ever present problem of computing,
and just to briefly come to that, can you bring the Committee up to date with
how many cases will be closed from 1998-99?
(Dawn Primarolo) As the clock was ticking by, I could not believe I
might get through an entire hearing without referring to that. The original
figures were reported to you by Nick Montagu. The figure now is 1.7 million
where we have incomplete information and which we are working on. As Nick
Montagu agreed with this Committee on working through them on an individual
basis, we are hopeful and expect that the 1998-99 figures will be considerably
reduced and will report to you at the end of the year where we are.
60. This carries the implication that potentially a very large number
of taxpayers may either have paid too much or too little because of that. Can
you quantify that? Is this something the National Audit Office are looking
at?
(Dawn Primarolo) I cannot quantify that at this moment with regard to
the 1.7 million, but the answer would be, yes, it would be something, as I
understand it, the National Audit Office would be interested in and would seek
to quantify at the relevant time in agreement with our statisticians.
61. Do you think the computer systems that the Inland Revenue now
has, bearing in mind it is two different ones anyway which do not completely
talk to each other, are adequate for the job they are now committed to?
(Dawn Primarolo) Yes, I do. The average reliability of the Inland
Revenue IT systems is over 99 per cent - over 99 per cent - which is well in
line with any other comparable organisation. I do not know whether Dave
Hartnett remembers but the scale of the information that we deal with in terms
of it being processed through these computers is truly phenomenal.
(Mr Hartnett) 30 million taxpayers.
(Dawn Primarolo) We are talking about a colossal amount of information.
There were particular problems which are well-documented with regard to the
NIRS2 computer which was commissioned under the previous Government, was
supposed to come live for the year ending 1997-98, was then transferred into
the Revenue with the Contributions Agency, and there were particular problems
with that 1997-98 year return because of the system not being able to deal
completely with the information. Clearly, my priority as a minister when the
particular system was transferred over to us was, firstly, to ascertain it
would work and it could be made to work, that it should be stabilised and that
we should move as quickly as we possibly could to deal with the 1997-98
returns and make sure subsequently the system was working well. We are
confident in terms of the non-matched items that we will be restored to the
previous position - we always had unmatched items at the end of every year,
it is not just a product of a computer system, manually you would have those
issues as well because it is about incomplete records, somebody may have done
several different jobs and we cannot trace them, we do not have the right
address, or they have moved on from an employer and that employer does not
know where they are and you cannot match them up, so there has always been
this issue of non-matched items. What we have to make sure is that that is
in a proportion which would be acceptable and we find ways of driving that
down even further, which is what we are doing. Although incredibly time-
consuming and difficult to do, reviewing cases on an individual basis may help
us in developing strategies for the future on how to monitor this better.
62. When the Government is considering tax changes, does it also have
some kind of analysis of whether the IT systems which underpin it are robust
enough to support the tax change?
(Dawn Primarolo) Yes, absolutely. An example would be the Working
Families Tax Credit when we had to build out of the Family Credit IT system,
and it constrained the development of some of the policy issues until we had
improved the IT system enough to cope with some of the changes. We absolutely
have to make sure we can deliver the policy, and IT considerations are
paramount.
Mr Beard
63. Do you think the self-assessment system is now settling down?
(Dawn Primarolo) Yes, I do. If you look at the number of returns and
the proportion of people making returns, the self-assessment system is bedding
down quite well. Clearly there are still outstanding issues which we need the
information from previous years to refine, for instance, the use of the
internet, and our experience from this year, and analysing - I believe it is
called "mining", I do not quite know why - the data in terms of late returns
and why we continue to get late returns. It is in about the same proportion
as before self-assessment, so it is not new. This year we have tried to focus
on whether particular groups were at risk of sending in late returns, so some
of our advertising was targeted specifically at them. In the last few weeks
as we came up to 31st January, something like 3,000 people were telephoned or
written to, or both, who we thought were at high risk of not getting their
return in on time. Now what we are doing is looking at the groups which may
become late returners, whether there is an underlying policy issue there, or
whether it is presentation and whether we need to focus more on those groups.
64. What is the proportion of late filers this year, given that the
deadline was last week?
(Dawn Primarolo) It is 10 per cent of the total. There are
approximately 9 million self-assessment returns and about 10 per cent of them
come in late.
65. Did I understand you earlier to say that was about the same as
last year?
(Dawn Primarolo) Approximately, and pre-self-assessment as well. Late
returners is not just something which happened with self-assessment, it was
always an issue in the tax system.
66. Are you at all concerned that the proportion of taxpayers
submitting late returns and asking for the Revenue to calculate their tax
bills is increasing?
(Dawn Primarolo) We have no indication of that. Something like 49 per
cent of the returns are received in time for the Revenue to do the
calculation, which is the 30th September date. Obviously the Revenue will
continue to assist and advise, but the date where the Revenue calculates a
liability or refund seems to be working quite well.
67. Is that not rather a high proportion for a system which is
intended to be self-assessment? If I understood you rightly, 49 per cent are
asking for the calculation to be done?
(Dawn Primarolo) 49 per cent returned on or before 30th September.
68. Sorry, I misunderstood. I thought you were saying 49 per cent
were the people who were asking the Inland Revenue to calculate their tax
liability.
(Dawn Primarolo) That is right, but after 30th September they could not
even request that. After 30th September we do not guarantee to be able to do
the calculation of their tax in time if they wanted us to do so. I was just
indicating that 49 per cent of all returns are in before 30th September, which
is the date people know about if they absolutely want us to do that. The
percentage of those returns where we have calculated the liability, I do not
actually have. I do not think we have that analysis. I can try and get it
to see if we can break the information down. It is a bit like internet
filing, 38,000 individuals did it but something like 130,000-odd were actually
logged through internet filing because the remainder were done by
representatives of the taxpayers.
69. 38 per cent filed by internet?
(Dawn Primarolo) 130,000-odd filed by internet, of which 38,000 were
individuals and the remainder were representatives who were doing the returns
for an individual.
70. Is there anything which can be done to make internet filing
easier, because it does seem to be a bit of a palaver for individuals? They
have to register, receive a password by post, then install their own software.
There are quite a few barriers to them doing it.
(Dawn Primarolo) Yes, all of that is being changed. What we wanted to
do, and we did actually say this, was to have the internet filing option and
we knew we would have to refine and develop that, as happens with the
development of these sites, and also that we would need to take the site off,
close the site down, on two occasions because we wanted to make changes. What
we are doing now is a review, learning the lessons, and making improvements,
so the sort of points you are addressing are not issues for next year.
71. Do you have any target for the proportion of submissions you are
aiming to have through the internet?
(Dawn Primarolo) I do not have a target at the moment. What I have
asked Revenue to do for me is a break down of the self-assessment returns -
how many people do it individually, how many do it through representatives,
of that split how many would, regardless of what we did, prefer still to do
it through the post. So that we try and get a better understanding out of
that population of 9 million who would be likely to want to internet-file and
what we need to do to make that easier for them, rather than just assuming
somehow we could make a one-size-fits-all for the 9 million, because in that
9 million you go from very simple, straight forward returns to very complex
returns because of income and assets.
Chairman
72. The one bit of unfinished business is this letter which you will
be sending us on the closer working report?
(Dawn Primarolo) Yes, and I also promised one to Mr Cousins on the peer
review.
73. Yes.
(Dawn Primarolo) And the policy co-ordination in particular.
74. We will give you, if it would be helpful, our input into the
format question on the closer working.
(Dawn Primarolo) Indeed, yes, that would be good, and the annual
report, yes. Excellent.
75. Then we will have another meeting.
(Dawn Primarolo) Yes, of course. We will try to get the notes to you
by Monday.
76. Thank you.
(Dawn Primarolo) Thank you very much.
