Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 120-123)



Geraint Davies

  120. Can I ask one more question of you Mr Broadbent. If the situation is that it costs £1.16 to do one of your VAT returns and there are 1.7 million of those people doing them, that is about £2 million every time they do one return. If they did four returns a year that would be £8 million. How is it we are spending £150 million providing an alternative system? It would seem to me that we could keep going 20 or 30 years with the old system rather than spending this enormous amount of money on a new system, and that is assuming the cost will be reduced to zero which it is not?
  (Mr Broadbent) There are two things. First of all, the £1.16 does not measure the cost of collecting VAT. It simply measures the cost very narrowly of the processing of a return on a cheque. Secondly, at the one end the cost is—

  121. So the cost is much more than £1.16 per collection.
  (Mr Broadbent) For example, collecting VAT also requires 160,000 audits a year. It takes about 6,000 staff to conduct them, so the narrow transaction cost does not measure the full cost of collecting VAT. I believe that some of the benefits of getting a real take-up of VAT is not just in the processing function.

  122. So you would still have to do those, would you not?
  (Mr Broadbent) One of the advantages of the genuine e-enablement of the organisation is that the ability to accurately sort, sift, store and manipulate large volumes of data is enormously enhanced. It will increase the level of compliance of our tax regimes and hence allow a reduced number of physical audits.

  123. What is the cost per VAT return to the Exchequer in terms of overall administration costs?
  (Mr Broadbent) I would have to come back to you, if I may, to do the calculation and to get the answer right. 4

  Mr Williams: And deduct from them those costs that you would still have to do under the new system.

  Chairman: We will let you think on that and we will let you off the hook now, lady and gentlemen. Thank you very much for what has been an interesting session. We do remain concerned about this. A lot of claims have been made for e-government and government web sites. We remain concerned about the inadequate information on usage. We remain concerned about inadequate progress towards meeting targets. In the words of our briefing, we remain concerned that the Office of the e-Envoy cannot yet systematically establish electronic service delivery generating savings of public money or quality service improvements, so we shall report on that matter. Thank you very much.

Note by witness: Since the hearing we have completed an exercise which shows the cost of processing a VAT (payment) return manually to be approximately £0.95. This figure does not take wider establishment costs into account. Using the same assumptions and methodology to make a like for like comparison with the cost of processing a VAT return by electronic means, an approximate figure of £1.20 is attained. In comparison, the cost of processing a VAT return by electronic means is estimated to be £0.32. By necessity this figure is based on a number of broad assumptions, most notably take-up of the new system, variations to which could profoundly affect the final total.

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Prepared 13 December 2002