Examination of Witnesses(Questions 140-159)
SIR NICHOLAS
MONTAGU KCB, MR
DAVID HARTNETT
AND MR
STEPHEN BANYARD
MONDAY 20 MAY 2002
140. I am not sure this comparison is fair,
but we had Mr Broadbent from the Customs and Excise—
(Sir Nicholas Montagu) A great friend of mine. I am
afraid I am not going to name and shame a tobacco company. The
Committee can leave now if they want. I am less entertainment
value than Richard.
141. Mr Broadbent certainly seems to deal in
much bigger sums of money in fraud than you do. What I seemed
to conclude was that the more you invested in trying to catch
people, the more people you caught and the more money you saved.
As far as Mr Broadbent was concerned, the more money you put in
to try to find out who was doing the smuggling and how much was
being smuggled, the more you saved the taxpayer. Here I get a
similar situation. The more money you put in to detect fraud,
the more money you will save and the more money you will recoup.
Is that right?
(Sir Nicholas Montagu) It depends entirely on the
area. I shall resist the temptation to say that maybe Richard
had more fraud in the first place than we did, because that would
be hubris of the highest order and I might regret it when I re-appear
before this Committee. There is a dead serious point, which is
that Sir John is conducting an investigation into fraud in four
different Departments: Health, Work and Pensions, Customs and
us. I think this is going to be an invaluable exercise, and I
say that as somebody knowing he is quite likely to be dragged
back to talk about it. I think that what you may find coming out
is the different considerations as well as the common consideration
between Departments. This is the age-old compliance problem. In
some parts of my organisation, if I put an extra body there, she
or he can bring in many times their salary. In other areas, it
is less. What we have to balance the whole time in the tax credit
office is the imperative need to get the benefit of the tax credits
to the deserving claimant as soon as possible with the need to
ensure that we do not allow fraudulent claims. There is always
going to be a balance for any Department operating with necessarily
limited resources. You are talking about choosing between priorities.
142. Can you anticipate what is actually fraud
in working tax credits? How much the taxpayer loses?
(Sir Nicholas Montagu) The study which we were talking
about earlier of 3,250 cases, although small, will give us a better
idea, but it is always impossible, by definition. It is like the
interesting discussions I have with the Committee on the size
of the informal economy.
143. Continuing on paragraph 3.19, we are not
talking huge amounts of money as we were with Mr Broadbent, but
on the other hand, 3.19 tells us that you investigated and found
overpayments had been made to people yet you did not recover them.
Why not? It is a very small amount of money but I get the impression
that you found out that £114,000 had been overpaid and you
did not claim it back. Why? Or am I reading it wrongly?
(Sir Nicholas Montagu) Yes, you are reading it wrongly
quite honestly. What Sir John is saying in that paragraph is that
his example of—
144. No, I am not reading it wrongly. What I
am saying is that overpayments have been made and you have found
out that those overpayments have been made but it was not reported
to the debt recovery team to get it back.
(Sir Nicholas Montagu) Yes, that is right. You have
it right now, but not the way you said it before. What you said
was that we failed to recover it. What Sir John is saying is that
the failure to report to the debt recovery team—
145. It is the same, is it not?
(Sir Nicholas Montagu) Yes; absolutely. That is why,
picking that up, even though extrapolation suggested that there
might be 226 cases, 0.8 per cent, in every case now we require
our managers to check that the overpayments are reported. It's
a `fair cop, guv'. Done something about it.
146. Again I might be reading it wrongly, so
forgive me if I am. Can we turn to your memorandum? In paragraph
14 of that memorandum, it seems to indicate that employers make
all sorts of mistakes when they are filling in the P35 form and
it also seems to indicate that you do not get the information
at the right time. I might be wrong, but I gleaned that the end
of the financial year is 5 April, but the form actually asks the
employers to put down the results to 31 March, or the other way
round. In other words, the form does not cover the time of the
actual payments. If that is true, why are the forms and the financial
year not the same date? I could be totally wrong.
(Mr Banyard) It is that the employer reports payments
to 31 March if they have paid. The tax year is very slightly out
of step.
147. That is right. What I am saying is that
if that is the case and it causes problems, why do you not change
the date on the form to the end of the tax year? They would then
be the same and it would mean you do not have to wait another
year to get the correct information. I could be wrong.
(Sir Nicholas Montagu) I think you probably are, with
the greatest of respect.
148. Probably; I always am.
(Sir Nicholas Montagu) Not so; Homer very rarely nods
in your case. Think of those employers paying monthly where you
will get the payment at the end of April, even if it related to
a period before the start of the new tax year.
149. Are you saying that it does not matter
that the end of the financial year and the final date on the P35
are different, that it has no effect?
(Mr Hartnett) Maybe I can help. Some employers run
their P35 to 31 March, others run it to 5 April. We have traditionally
allowed that approach, provided it is applied consistently year
on year by employers. If I have understood your question correctly,
changing the date to 31 March would not help those who worked
to 5 April.
150. No; the other way round. Do not change
the end of the tax year, change the form to 5 April rather than
31 March.
(Mr Hartnett) For some people it is 5 April and 5
April appears on the form. The form is 5 April.
(Sir Nicholas Montagu) What you are getting from here,
with a degree of bewilderment, is a clear message that the P35
relates to payments made by the employer in respect of the tax
year, in other words from 6 April to 5 April.
Mr Bacon
151. I should like to start with some points
of agreement about your friend Rachel Lomax and suggestions to
her which are unwelcome. I certainly agree with you that she responds
very robustly to suggestions which are to her unwelcome. I suggested
to her that it might be a good idea if she gave the C&AG a
set of Appropriation Accounts each year which were not qualified.
Indeed I pointed out to her that if she were unable to do this,
she might set a target date for when she was going to do it. It
turned out that she was not proposing to do it at any point in
the next three and a half years before she was planning to retire.
(Sir Nicholas Montagu) I find it very depressing that
she is planning to retire. It makes me come back to the sense
of deprivation which the Committee is obviously feeling about
my impending retirement. Being deprived of Rachel within two years
is more than any Committee, however vicious, deserves.
152. The reason I mention that is that I have
only been on this Committee since last October. In that relatively
short period of time, frankly I have gained a very considerable
and healthy degree of scepticism about the Government's abilities
to do anything right. You mentioned your friend Mr Broadbent.
Just to take him and Rachel Lomax together, Customs and Excise
estimates tax fraud to be somewhere between £6.4 and £7.3
billion. Rachel Lomax, depending on which day of the week it is,
seems to give a different answer. The Social Security White Paper
in 1999 said £7 billion of fraud and error. She now thinks
it is £2 billion, but I put down a Parliamentary Question
the other day to which the answer was £3 billion and when
the Daily Mail picked up the answer to my question—I
did not speak to them—they published a little article and
I subsequently had several letters from people who had worked
as employees in the Benefits Agency talking about the despair
they were in, one person resigned through ill health and so on.
Of course the NHS, according to Stuart Emsley, who is inside the
Department, loses somewhere between 16 and 20 per cent of its
budget. That little lot alone comes to somewhere between £15
and £20 billion, depending on whether you take a conservative
estimate or not. What I am therefore wondering about is why your
level of fraud should be so much lower than all these other people.
You have this new tax credit and it seems from the figures Mr
Hartnett was giving that you have very few which required action.
Why should yours be so much lower than the others?
(Sir Nicholas Montagu) The nature of Richard's and
Rachel's and my businesses is different, which is why I think
that Sir John's study will be genuinely valuable because it will
bring in Nigel Crisp's empire as well. The plain answer on this
one is that we do not know. This is why we have a robust fraud
strategy and we have appointed the director of my special compliance
office, John Middleton, as the departmental fraud champion. What
we are trying to do is to arrive at a much better understanding
of the risks, estimating the amount at risk, getting to where
we want to be and thinking about how we should then get there.
In addition we are doing various piecemeal studies like the ones
I mentioned in reply to Mr Steinberg, which will give us a much
better understanding of where we think we are with fraud. We appointed
a leading academic economist last year as our director of analysis
and research, David Ulph, whose name may be familiar to some members
of the Committee, and he will be leading the analytical work on
the rigorous lines I have discussed. It is an area where, although
I would stand by the answers I have given the Committee previously,
which were endorsed by Lord Grabiner. All of us recognise we need
to do more to see whether we can scope the problem or the scale
of it rather more than we have done in the past.
153. Sir John, may I carry on this subject of
fraud and ask you a question? When you referred earlier, in answer
to Mr Trickett, to the desirability from your officers' point
of view of having access to employers, you were obviously thinking
about the business of doing your job of assessing economy, efficiency
and effectiveness. To what extent is fraud a component of your
desire to have the ability to get in to employers?
(Sir John Bourn) It is an aspect of it. If you do
have information which indicates the possibility of fraud in that
aspect of work. As in any other the ability to secure direct evidence
is certainly relevant and helpful. I do not base the case that
I made simply on fraud.
154. You base the case on the ability to do
your job of reporting to Parliament.
(Sir John Bourn) To report to Parliament on the disbursement
of public money.
155. You were quite graphic, I paraphrase you,
when you said that to say your heavy hand must be stayed is an
attempt to push you aside with a false argument. Are you basically
saying that you do not think you can adequately, properly and
fully do your job of reporting to Parliament on how public taxpayers'
monies are spent unless you have the ability at your discretion
when you choose to exercise it but the ability to access employers?
(Sir John Bourn) I am saying that the external auditor
of whatever activity needs direct access. It is up to the external
auditor to determine the mode, method and occasions on which he
exercises it. I think that in relation to this I should have the
same rights of access as I have to the Department for Work and
Pensions and the Inland Revenue.
156. Are you saying that without those rights
of access it is not possible for you fully to do your duty to
Parliament in respect of these expenditures?
(Sir John Bourn) I do not want to say that all my
work in this field would be totally undermined. What I am saying
is that the external auditor requires rights of direct access
and that he or she determines upon their employment.
157. If this Committee were to recommend that,
you would not have too much difficulty in agreeing with that recommendation.
(Sir John Bourn) I should have no difficulty at all.
Chairman: You might even assist us in
writing the report.
(Sir John Bourn) That is a pleasure I could not decline.
(Sir Nicholas Montagu) I shall be totally hands-off
where the Treasury Minute is concerned.
158. May I ask about the Tax Credits Bill? The
Tax Credits Bill includes provision for the transfer of child
benefit from Work and Pensions to the Inland Revenue. Could you
just say something about what that will entail? How it will work?
(Sir Nicholas Montagu) I hope it will work very well.
The child benefit centre of Work and Pensions is a highly professional
organisation of some 2,000 people operating out of Washington
in the North East. It has regularly exceeded its targets. It provides
a first-rate service. The Prime Minister announced last year that
they would join us in April of next year at the time when we acquire
responsibility for the new tax credits. Certainly a lot of us
are doing a great deal to ensure that the merger goes smoothly.
We are talking with the trade unions, we are talking direct to
them.
159. That whole payment centre is moving across
under your aegis. Is that right?
(Sir Nicholas Montagu) Yes; absolutely. For example,
a month ago I was up in Durham at their spring school, together
with my Director of National Services who is Stephen's opposite
number for national services and under whom they will come.
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