GOVERNMENT RESPONSE TO THE TREASURY COMMITTEE'S
FIRST REPORT (2000-01)
Inland Revenue matters
We recommend that the Inland Revenue analyse more
rigorously the extent of and reasons for late filing of income
tax self assessment returns, and take steps to reduce the problem
The Committee may have gained the misleading impression,
from the oral evidence given to them in November 2000,
that the Inland Revenue had only just begun to investigate the
reasons taxpayers have for filing late. As the Revenue explained
in its written submission, this work has been under way for some
time and a great deal of research has been done. It is fair to
say though that the Department is only beginning to understand
the reasons taxpayers have, either for filing late, or for not
filing at all.
The questions they are trying to answer are not straightforward.
Complex combinations of factors determine taxpayers' behaviour.
These can range from innocent misunderstanding ("this return
has obviously been issued in error so I don't need to complete
it"), through confusion ("I don't understand what I
need to do") to a straightforward desire not to pay any tax
Part of the research programme involves the use of
data mining techniques, involving repeated searches of Revenue
computer records to pick up patterns of characteristics which
appear to be associated with particular forms of behaviour. This
is an ongoing programme of work and its value will build with
time. But it is already providing significant insights into some
of the probable causes of non-compliance. The Revenue are using
it to develop customer service strategies aimed at providing targeted
support and encouragement to those groups of taxpayers most likely
to file, and sometimes also pay, late.
This work is regarded as both urgent and important;
indeed it is key to delivering the year on year improvements in
Self Assessment filing and payment compliance that the Department
is committed to under its Service Delivery Agreement.
It is hard to escape the conclusion that the Inland
Revenue's computer systems are struggling to cope with the demands
placed on them and that taxpayers are being affected as a result
The Inland Revenue have provided the Committee with
- the overall reliability and effective interoperability
of the Revenue's IT systems, and
- the Department's general success in managing,
with its IT suppliers, its IT development against a backdrop of
intense change for the Revenue.
The Revenue is a large organisation which carries
out a wide range of tasks. The Department's IT reflects this size
and complexity. It has over 200 different, but inter-related,
IT systems supporting its business, processing several million
transactions a day. This puts it in the top one per cent of IT
users in Europe. The systems are subject to continual change and
developmentfor example, to respond to Government initiatives,
to improve customer service and to take advantage of improving
Given the sheer size and complexity of the systems
and the intensive use the Department makes of them, it is unsurprising
that there are sometimes problems. No comparable organisation
is yet capable of operating computer systems which have 100 per
cent reliability and are free of problems.
The Committee discussed with the Revenue several
of the Department's IT difficulties which have had an impact on
the public in some way. But these need to be seen in the context
that most of the Inland Revenue's IT works well and most of its
systems run effectively day to day. The average reliability of
Inland Revenue computer systems is currently over 99 per centexceeding
the targets agreed with its IT suppliers, and well in line with
other organisationsproviding effective support in enabling
Inland Revenue staff to carry out an increasing range of responsibilities.
The example cited in the Committee's report reflects
particular problems that stemmed from the delayed implementation
of and teething problems with the new, very large and complex
National Insurance Recording (NIRS2) computer system in 1998.
Those problems have since been resolved, and the Department works
very closely with its main IT suppliersAccenture and EDSto
ensure the effectiveness of the NIRS2/PAYE computer interfaces.
The example does not demonstrate the general incompatibility
of computer systems, but rather that the Revenue's business processes
are highly dependent on IT support, with the risk that the consequences
of delays in IT implementation for those processes can be felt
long after problems have been fixed and computer systems stabilised.
This is a risk the Inland Revenue are actively managing.
The Department fully appreciates the impact that
even minor IT problems can have on taxpayers. Revenue staff are
determined to maintain the best possible IT services to minimise
any adverse effect. The Revenue, working closely with its IT suppliers,
keeps a constant watch on its IT systems, and devotes considerable
effort to making sure that the systems work as they should and
remain reliable, as well as identifying and making necessary improvements
as quickly as practicable.
Customs & Excise matters
We welcome the new approach taken by Mr Richard
Broadbent to the management of HM Customs and Excise and look
forward to reviewing the progress he has made (paragraph 49).
The Committee may wish to be aware of further developments
in this area. On 17 January 2001 Customs & Excise announced
the re-organisation of its activities along functional lines.
By 1 April 2001, all its activities will be organised into one
of two core business units or in a defined support function for
The core business units will be:
- Business Services and Taxes,
comprising all business taxes, the facilitation and information
services of Customs, international movements and trade services.
It will have as its focus legitimate businesses and will have
approximately 13,000 staff. Some services will be delivered regionally
and some (such as services to large businesses) will for the first
time be managed centrally.
- Law Enforcement, comprising
all investigation, intelligence and detection activities of the
department. It will have as its focus fraud or other regulatory
breaches where business activity, if it exists, is incidental
to the main purpose of the activity. It will have approximately
The management committee will remain unchanged.
The support services will be Logistics, Finance &
Strategy, Human Resources and Legal.
These changes include the abolition of the distinction
between "Collections" and "HQ". All activities
will be included in one of the business units or in a support
unit. The departmental "centre" will be extremely smallconsisting
primarily of support to the Chairman and a Parliamentary Unit.
Each business unit will be managed by an operating
committee of directors. Regional management committees will ensure
that the regions work effectively together. The support services
will also be managed by an operating committee of Directors. Its
initial function will be to oversee a review of the support functions
and their relationship with the business units. It aims to set
a new relationship between the core businesses and support services.
The role of support services will be clarified, through this review
which will have an external input, to ensure that they are either
integrated into line management or centrally managed by professional
support functions. New business design functions in the core business
units will enable the businesses to provide clear and focused
requirements for the support functions.
The re-organisation will put in place two clearly
focused core businesses with direct lines of accountability and
enabled to set a clear strategic direction. It is aimed at removing
the artificial barriers between "headquarters" and "the
Outfield", by bringing all staff in these core businesses
together. This will reduce fragmentation and improve communication.
Re-organising structure in itself will achieve little.
Much will depend on the commitment of people throughout the organisation.
This will require a considerable cultural changein terms
of more active managers and everyone thinking smarter and acting
faster and more decisively. This will take time.
The re-organisation at senior management level last
April, the HR reforms agreed last Autumn, the new management development
programme and the re-organisation of the structure of the department
announced in January 2001 represent a concerted approach to meeting
the concerns about the Department which the Chairman mentioned
when he met the Committee on 1 November. Together they are aimed
at making a step change in performance through improved focus
and accountability, better management and a smarter approach to
learning and responding to change.
We welcome Mr Montagu's frankness in discussing
this matter with us, but we are surprised, given what he said,
that the development of joint policy making with HM Customs and
Excise has been sidelined following the re-focusing of the Closer
Working programme. ... We recommend that the revenue departments
publish details of the work undertaken so far by the Policy Steering
Group mentioned in the 1999 Closer Working action plan, and the
Group's future work programme (paragraph 44).
This is an unfortunate interpretation of the current
position and I apologise if the evidence submitted to the Committee
in any way served to confuse matters. Policy was explicitly identified
as a priority area in the original closer working action plan
and both departments remain committed to it. Indeed, significant
strides have been made in ensuring the Revenue, Customs andfor
that matterHM Treasury officials work closely together
on policy formulation.
The Committee will be given an update in six months'
time on progress on all aspects of the Closer Working programme,
including closer working on policy formulation.
The case against merging the revenue departments
continues to rest on untested assumptions about the cost and benefits
involved: we remain convinced of the need for a full investigation
by the Government into this matter (paragraph 53).
The time for the programme of Closer Working between
the revenue departments to deliver clear, quantifiable benefits
is long overdue. We recommend that, from next year, the departments
publish an annual report on the activities covered by the Closer
Working programme, an evaluation of progress made, and an indication
of future work (paragraph 55).
The Government remains convinced that the best way
to exploit the synergies between the two revenue departments and
deliver real, measurable benefits is via Closer Working.
We will provide the Committee with an update on progress
against the programme's objectives in six months' time and will
provide a full evaluation in April 2002.
3 Minutes of Evidence, 1 November 2000, HC (1999-2000)