Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 60-79)



  60. I read somewhere that you are planning to spend £200 million between April 2001 and March 2004 on `e'. How much of that money have you spent already?
  (Sir Nicholas Montagu) To date it is just under £105 million.

  61. So you are saying more than half of that £200 million has been spent already?
  (Sir Nicholas Montagu) Indeed.

  62. Are you expecting by March 2004 that you will be on budget or are you expecting that you will have to spend more?
  (Sir Nicholas Montagu) No, I am expecting to be on budget by then.

  63. How much money in round terms do you expect `e' to save you?
  (Sir Nicholas Montagu) Again, I cannot give you that answer, Mr Bacon, I am sorry. It is not like the other one, it is not that I have not got it. What we are talking about here is large-scale long-term investment. We are putting in an infrastructure to deliver the Government's undertakings on making the United Kingdom the best place to do business electronically. Over time as take-up increases, clearly there is the potential for considerable savings. At this stage I am looking on it as up-front investment.

  64. Have you not estimated what the savings might be?
  (Sir Nicholas Montagu) Only to the extent that it is in the Comptroller and Auditor General's Report.

  65. It says in Paragraph 2.4 that you have got a target of 50 per cent take up by 2005. "But the target is ambitious. Experience to date elsewhere suggests such levels of take up is unlikely to be achieved." You agree with that?
  (Sir Nicholas Montagu) Yes, in the sense that I agree as an across-the-board target we will not achieve it. We will certainly achieve it and possibly exceed it with some services.

  66. Over the page it talks about this electronic lodgement service and says at the first bullet point on Page 14: "The Electronic Lodgement Service, introduced in 1997, enables tax agents (such as accountants) to file Self Assessment annual returns electronically on behalf of their clients using an electronic data interchange service. Over 267,000 returns were submitted in this way in 2000-01, equivalent to seven per cent of the target audience". One would have thought that this body of professionals—tax agents and accountants—would have a huge vested interest in taking up the electronic lodgement service because presumably it enables them to get a much quicker turnaround and it will save money while they can still charge the old "quill pen" fees to their clients, and yet you have only got a seven per cent take up. Why is that?
  (Sir Nicholas Montagu) I do not know. Again, as you know, tax agents come in many shapes and sizes, from the big to the very small. We have tried to promote electronic lodgement because it has got all the advantages that you mentioned, but to date we have only got just under 3,000 users.

  67. That has been over five years.
  (Sir Nicholas Montagu) Yes.

  68. On page 36, Appendix 6, this talks about progress made in Australia, Electronic Lodgement Service in Australia. It says, "9 million taxpayer returns each year and 75 per cent are lodged using this service". How is it that the Australians can achieve such a high take-up and the Inland Revenue cannot?
  (Sir Nicholas Montagu) I think there are two points here. I need to sound a cautionary note that Sir John does and that, indeed, the office of the e-envoy does in even starker terms about international comparisons. Australia is generally more switched on electronically than we are—Barry and I were there looking at what was going on before we went to Singapore—they have 48 per cent, as opposed to 34 per cent here, internet usage. Remember that in Australia, unlike here, you have universal filing and you have systems in which most people are due a repayment of tax at the end of the year. That, I think, accounts for quite a lot in the comparisons between us and Australia.

  69. The fact that they are due money means they are more likely to do it on the internet?
  (Sir Nicholas Montagu) To do it on the internet, to do it on time and to be prompt about it. Remember that in this country 17 million taxpayers have their affairs dealt with generally, and absolutely rightly, very simply through the PAYE system and do not need to contact us at all.

  70. This group of people we are talking about, I assume when you refer to the 1,194 agents you are talking about tax agents, presumably if 1,194 is 7 per cent, then 100 per sent is roughly 14,000 or 15,000 across the country, these are people who have a professional interest in doing the thing the cheapest, fastest and most economical way. As it says on page 36, in Australia the paper based tax lodgement can take seven weeks to process and e-service has a ten day turnaround. You would expect that the difference would be similar in any jurisdiction. The incentive for professional tax agents to take up this service, if it is such an improved service, from their point of view would be huge because of what they could then do for their clients, yet they do not seem to have responded?
  (Sir Nicholas Montagu) Slow take-up, again, Mr Bacon, I quite agree. Under 3,000 for electronic lodgement and 1,194 for internet filing is not enough. Remember that is 1,194 in the first year. I do expect it to build and we will continue to target tax agents, with whom we work very closely, to e-file.

  71. I really only want to ask you about one more area, that is computer security. It says on page 39, Appendix 7, iii, concerns about security in electronic transactions can deter people. This is the NAO, "We were satisfied that the Inland Revenue's security standards matched best practice". My question is whether the fact that they matched best practice is much of a reassurance in light of the types of `cock-ups', if I can use that phrase, one hears about in both the public and the private sector? You hear about Powergen putting all of its credit cards on to a website so that anyone can look at them, and mistakes by Barclays Bank. We have the recent example of the Independent Learning Accounts, where people were hacking into the computer at Darlington, run by Capita, and stealing thousands of ILA numbers. What steps have you taken to reassure yourself that the security that is in place is adequate? That is the first question. What, if any, research have you done among customers to see what might be done to allay their concerns about these security issues?
  (Sir Nicholas Montagu) On the second point I think it is something which we would talk with customers about as a matter of course, saying, what do you like, what do you not like? Remember, we do not just talk to people who did file. There was a great gap between the number of people who registered and the number of people who actually filed. We went back to those people who registered and asked them why they had not filed. We got a variety of reasons. I do not know if we have figures on security. We are able if they do raise issues with us to give them categorical and copper-bottomed reassurance. You quoted Sir John saying we matched the best in the industry. We constantly revisit. Possibly one of the most telling points is that we have got the Defence Evaluation and Research Agency—again I think the C&AG's Report notes this—to look at our systems. More than that, we have got them to try and crack our systems, and on the `gamekeeper turned-poacher' principle, or the other way round, they should have been able to, if anybody could, and they could not hack into it at all.

  72. Do you think that is possibly because they did not hire any of those 15 year-olds that hacked into the Pentagon?
  (Sir Nicholas Montagu) It is always possible, Mr Bacon. As you say, one reads in the press of disasters with this bank or that building society. I do not preen for more than half a minute, I am always aware of, there but for the Grace of God go we.

Mr Davidson

  73. I must say you are in a combatant mood today!
  (Sir Nicholas Montagu) Well, I know what I am up against.

  74. I hope you get away without the verbal equivalent of GBH. Can I follow up this point about fraud? What has been the experience elsewhere within the governmental system? Is there anything in particular that you have learned from their experience about hackers, and the like?
  (Sir Nicholas Montagu) I am not aware of any specific experience from elsewhere. As I indicated to Mr Bacon, so far as external security is concerned, we have the Defence Evaluation Research Agency and we keep that constantly under review. So far as internal security is concerned I wonder whether that is what you have in mind when you mentioned fraud. Again, our Departmental Security Unit keeps a really close eye on this and our system, very importantly, is built so that we can actually check back who—I am talking about individuals—did what in the operation and use of the service.

  75. There is no experience else where in the world of which you are aware where moving to electronic filing, and all of the rest of it, has caused any difficulties?
  (Sir Nicholas Montagu) I am not aware of it. I do not know whether any of my colleagues are.
  (Mr Hawes) There is one published example that I am aware of, the General Accounting Office Report on the IRS, where people were able to access information that had been submitted through their lodgement service. Whether any of that information was ever actually extracted and taken I do not remember. That is the only example I am aware of.

  76. Can you just clarify this, have you access to bank interest, for example, bank accounts electronically, are you able to assess whether or not the amount of interest is actually correct?
  (Sir Nicholas Montagu) No, we do not. What we do have is a system with banks and building societies under which they can pass on details of interest under third party arrangements. Your bank account is absolutely safe from our scrutiny unless we get a specific order on the bank to produce.

  77. I am trying to remember how this system operates, I seem to remember getting a certificate from my bank, which I then passed on to you, which presumably then got written in somewhere or another. Is it not easier to electronically miss out the middleman, as it were, miss out the paper trail and just have that trawled so that everyone who would get a paper statement of interest that would get fed into yourselves electronically?
  (Mr Hawes) The information is passed to us. The legal position is that the individual on their tax return must include all of their income, whether we have already been notified of it or not. What the electronic service has opened up the possibility of doing is advising people that if we already know at the time they fill their return in that the amount we have been notified of is this, that it is your responsibility to ensure that it is right and that there are no other sources and do you want to confirm this or change it. That is where the real benefit comes for individuals.

  78. That is helpful. In all that I must admit that I am surprised by the point you made that there is a £3 saving if people do this electronically. I would have thought it would be much more than that. It does genuinely surprise me. Is that net of the advertising campaign you had and any capital expenditure? £3 seems a very, very small amount.
  (Sir Nicholas Montagu) That is the transaction cost, so it is certainly net of capital expenditure and it is certainly net of the advertising costs. The advertising costs are essentially both to encourage people to file electronically but also to raise awareness of it: these are purely the processing costs. There would be potential stationery and postage savings too.

  79. That is what I thought. If somebody files electronically now there is a £3 saving netted off, it might be greater than that because of the savings in postage, and so on and so forth. Presumably if they keep on doing it, and presumably you have examined the retention rates that there are for people who do it once and then continue to do it, presumably some way down the line there will be virtually no expenditure on an individual and only savings. How much is that saving then, have you estimated? What scope is there—I presume this is a Ministerial decision—for providing incentives for people to lodge electronically?
  (Sir Nicholas Montagu) Certainly what you say is true, Mr Davidson, to the extent that if people file electronically and get it right there are very considerable potential savings. In a world in which electronic filing and payment were the norm across the piece and we had cleaner data and people got it right, the potential savings would be huge.

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