Examination of Witnesses (Questions 140-159)
SIR NICHOLAS
MONTAGU KCB, MR
BARRY GLASSBERG
AND MR
TERRY HAWES
MONDAY 18 MARCH 2002
140. You got the £10 whatever happened
if you were owed just a small amount?
(Sir Nicholas Montagu) Yes. If you filed electronically
and if the payment or refund was dealt with electronically you
got the £10.
141. Can you tell me about contingency plans.
Suppose the whole thing suddenly went wrong or everybody decided
that they were not going to use it at all and you had to go straight
back to a paper system. What contingency plans do you have now?
Presumably you need a lot more staff to handle it.
(Sir Nicholas Montagu) The Committee has been reminding
me that take up is still not enormously high. I think if we had
to go back to paper systems, we would look to absorb that within
our existing budget and by redeploying staff as necessary. This
is quite peaky work. Equally I should say—and again Terry
can amplify this if you want—we do have very strong business
continuity plans in place. I should make clear also perhaps, in
view of some press comment, not about us but more generally, that
we have always done so, this well predates the events of 11 September.
142. I was not thinking so much of your computers
breaking down but somebody proving they had been able to get into
the system and, for security reasons, a lot of your users suddenly
deciding they did not want to use the electronic system any more
because they were worried about their details becoming known to
other people. If you suddenly got a user rebellion, so to speak,
and they said, "We are not going to do this electronically",
you might suddenly find you had to do it manually.
(Sir Nicholas Montagu) The effect would be the same,
Mr Rendel, but I do need to stress here what Sir John has said,
that our security matches the industry best and it has been validated
by the Defence Evaluation and Research Agency. That is a pretty
powerful validation.
Mr Rendel: Thank you.
Jon Trickett
143. I just want to go over one or two points
which I have not fully understood. Accepting this was a political
initiative, nevertheless you also said you wanted to prepare a
business case or some sort of business exercise was done. Can
you describe that to me again, I am not sure I understood what
you meant?
(Sir Nicholas Montagu) Yes. What I am saying is that
before any new system is introduced, it goes through a rigorous
business case project evaluation.
144. And that happened in this case?
(Sir Nicholas Montagu) That would have happened in
this case.
145. I presume you would still want to be cost
effective notwithstanding the fact this was a political initiative,
therefore I am not quite sure I have understood the calculations
about savings which have been offered in this paper and which
other members have asked you about. At one stage you talked about
a £3 saving. Presumably that is simply for filing, is it?
(Sir Nicholas Montagu) That is the straight processing
saving.
146. For filing but not for paying?
(Sir Nicholas Montagu) That is right.
147. Is there an additional saving for paying
as well then?
(Mr Hawes) Yes, there are additional savings for paying.
They were not in that business case.
148. In the original business case.
(Mr Hawes) The original business case was concerned
with filing.
149. I understood you to be asked the question,
"Have you considered a £3 incentive bonus", and
rightly you were asked, "Were you giving this advice to ministers"
and obviously, quite rightly, you declined to answer about your
discussions with ministers. But it is clear in paragraph 7 in
Appendix 2 that you have incentivised in the past filing and paying.
Individuals were offered a £10 discount if they filed and
paid electronically and companies were offered a £50 discount
if they filed and paid. Therefore one assumes you knew the likely
savings which might be incurred beyond the £3 if one was
paying as well as filing. I wonder if you could indicate if you
have done that calculation.
(Sir Nicholas Montagu) I do not think the figure is
in quite that form, Mr Trickett. If I can clarify the business
case, yes, there was the policy objective which I have described.
Also, of course, providing the electronic channel is an improvement
in the service, and we would appraise rigorously—not just
in terms of cost and savings—any project. To take an analogy,
as you will know, very high up the Government's agenda are new
tax credits. This necessitates our putting in place systems five
times as complex as those for self-assessment. These are nevertheless,
and it is not a question of pay back, subject to the same rigorous
appraisal I have mentioned.
150. I want to return to the issue of incentives
if I have time, but I want to understand the calculation of savings,
because I think you are using a precise verbal formula and I want
to understand what it is we are actually identifying. I seem to
think you are separating out the development costs from the operating
costs and I wonder if that is the case, since it seems to me it
is counter-intuitive to argue that if you were including both
the fixed capital costs of the development together with the running
costs you would achieve a straight line curve of £3 per head.
(Sir Nicholas Montagu) We are not separating them
out.
151. So the £3 saving is a straight line
taking account of both the capital costs and the revenue costs?
(Mr Hawes) The £3 saving is the amount we would
save per return on our normal operating costs. The business case
will include capital and operating costs.
152. I seem to think you just had a slight difference
there, and you gave a more precise response. Just to be clear
about it, and if you do not mind I will ask you, Mr Hawes, the
£3 saving is the net saving, taking away the revenue costs
of the paperwork system from the paperless system, which does
not include the development costs and the capital costs of acquiring
the additional equipment?
(Mr Hawes) Yes. Nick made clear earlier in an answer
that this was a very precise restrictive figure relating solely
to the cost of processing the tax return and nothing else.
153. I thought that was what you were saying
but I am not sure it came out as clearly as that in the questioning.
The next question is, what is the development and establishment
cost of the system to date?
(Sir Nicholas Montagu) So far, of the £200 million
mentioned in the Comptroller & Auditor General's Report, we
have spent rather over £104 million.
154. That was on all e-services and therefore
not all of that £105 million would refer to this.
(Sir Nicholas Montagu) For what? Self-assessment?
155. Yes.
(Sir Nicholas Montagu) We have spent slightly over
£30 million on self-assessment.
156. So if I was to divide the number of people
who have filed and paid into the £30 million, that would
give me the unit cost to date and that would negate the £3
saving per head, would it not?
(Sir Nicholas Montagu) It would also be a misleading
way of looking at it, for the reason I gave earlier. We are not
talking about that sort of figure. We are talking about putting
in place a long-term investment in infrastructure to deliver a
whole range of services electronically.
157. I understand that but we are concerned
with value for money. I am asking these questions because I do
not think they are clearly answered in the Report and, with due
respect, I am not sure we have actually got to the bottom of what
it has cost per person so far taking up the system.
(Sir Nicholas Montagu) But I do not think that is
the right way to look at it, and that may be why Sir John did
not look at it this way. What we are looking at is the cost so
far of putting in place a system which is required if the option
of filing for self-assessment electronically is to be available.
You do not expect, Mr Trickett, on a major development of this
sort to get a pay-back in year one, or year two or whatever.
158. The fact is, if I bid for a bypass around
Hemsworth, an analysis will be made of the cost of the road as
well as the wear and tear on the road, the number of times the
black stuff has to be replaced and so on, and it seems to me that
here we are excluding the cost of constructing the road and all
the other set-up costs. I think that is a fairly precise analogy.
I want to understand what these figures are in paragraphs 9 and
10 and Table 17 on page 29. You will see in paragraph 10 it talks
about the transactional cost of £700. I do not really understand
what that figure is and how it relates to the table beneath it.
Can you explain that to me? What do we mean by "a transactional
cost"?
(Mr Glassberg) I assume, and I have not got a calculator
with me, it is the number of transactions made. No, it cannot
be that.
159. It tells you what the cost per pound received
is but the transactional cost is £700 and I wonder how that
relates to the so-called £3 saving. Is that the cost? It
would actually cost £703 if it was a paperwork system but
it is costing £700? I do not understand what the figure is
and how it relates to the savings. It does not make sense. Not
only that but—if I might just finish—Table 17 is probably
the origin of the £700 plus figure. Somebody has aggregated
together the £614 for individuals and the £99 for employers
and made it just over £700. That is the only way I can see
the £700 figure has been derived. Why should those two figures
be aggregated because they relate to two separate classes of people?
(Sir Nicholas Montagu) Table 17, Mr Trickett, is about
payments—
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