Select Committee on Treasury First Special Report


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 (paragraph 42).

The Committee may have gained the misleading impression, from the oral evidence given to them in November 2000,[3] 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 at all.

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 (paragraph 43).

The Inland Revenue have provided the Committee with evidence of:

  • 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 development—for example, to respond to Government initiatives, to improve customer service and to take advantage of improving technology.

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 cent—exceeding the targets agreed with its IT suppliers, and well in line with other organisations—providing 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 suppliers—Accenture and EDS—to 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 those units.

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 8,000 staff.

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 small—consisting 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 change—in 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.

Closer Working

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 and—for that matter—HM 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) 953. Back

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