Examination of Witnesses (Questions 160
WEDNESDAY 28 NOVEMBER 2001
PRIMAROLO, MP, MR
160. Some people think that is happening now!
(Ms Primarolo) Really, Mr Ruffley, I wonder why!
161. There are no lessons for the Treasury at
all in its own oversight of departments that come out of this?
(Ms Primarolo) They clearly do not engage in that.
This is a rather, forgive me for saying so, bizarre point in that
Customs and Excise is a department that has operational responsibility,
that is managed through a board that is held to its targets and
has to deliver within that. That includes the revenue it collects
and the way it discharges its responsibility.
162. So if the new Chairman had not come to
you, this inefficiency and incompetence and fraud could have gone
on for ever and the Treasury would never have been any the wiser?
(Ms Primarolo) No, because, with respect, Mr Roques
says that the department itself had discovered it, had actually
made all the connections, was dealing with the problems and that
by 1998 it had been completely closed down. Mr Roques then goes
on to make further observations about the department, which have
also been responded to.
163. I think you are in a very good position
because the activities took place when we were not in government.
Secondly, you are obviously no longer the Minister and so you
take a detached view. I would urge you to take a detached view,
Minister, because I find it hard to accept that you are so blasé
about an agencyand that might not be the right legal wordthat
is responsible to the Treasury for collecting £100 billion
a year in revenue but when it makes a major mistake it says it
is arm's length, "It is nothing to do with us". It is
your agency. It is not the Secretary of State for Education here
answering questions on it but the Treasury Minister because the
link is to the Treasury. Do you not find it worrying that a board
appointed by the Treasury mishandled that amount of money and
is so incompetent, when you read what Mr Roques said, and yet
says, "It has nothing to do with us"?
(Ms Primarolo) I am very sorry if I have given you
the impression that somehow I am blasé, I think you said.
164. I said you appear to be blasé, but
I am sure you are not.
(Ms Primarolo) Of course not, and I commissioned an
external inquiry because I felt it was so serious that we did
that, and I did not give it to Customs to do an internal inquiry
as they needed to have that external scrutiny. I do have the power,
as the Minister responsible for reporting to Parliament for Customs,
to do that. Customs as an organisation, in terms of its appointment
and structures, is not an agency. It is a free-standing department
that has to account for its work. Of course, the seriousness of
the shortcomings that were revealed to my mind made it clear that
we needed that external scrutiny, which is what we have now. I
think there are, of course, lessons to be drawn, but what I am
finding a little difficult is the idea that somehow Treasury manage
this. We have three Treasury departments: the Treasury, Customs
and Revenue. Customs failed in this particular area and Roques
identifies what the failures were and has made recommendations.
What triggered the report and the investigation was the fact that
Customs itself finally managed to make all those connections.
Now, it is regrettable it took so long and the issue is one I
then cannot answer about what happened between 1995 and 1997.
What I can say is that by 1998 it had been dealt with because
Customs were already dealing with it.
165. Did the Chairman go and did any of the
Commissioners go? Are any of the Commissioners who were on the
Board at that time still on the Board? Was any action taken by
(Ms Primarolo) There was no action taken and again
the Roques Report makes that clear, that there is no one individual
or collection of individuals who can be pointed to as being responsible
for what Mr Roques identified as a systemic failure to notify
within Customs and pass information through, which is incredible,
I agree; hence my rapid action. Within a month, I had commissioned
this. In terms of action against the Board, I must be perfectly
honest and say that I cannot actually tell you exactly who is
on the Board now and whether they were on the Board in 1995. I
am told that it is a new board.
166. On this same topic, looking forward and
weighing things, here you have a management which, according to
Roques, virtually collapsed; it was dreadful, and it was only
discovered to be dreadful when you have this extravagant mistake
that cost so many millions of pounds. The question really is:
what is the means now of supervising the present Board? I think
it is admirable that it has been replaced so promptly but that
Board is there. It is a small organisation that could suffer the
same sort of problems that the last one did. What is to stop it?
Who is supervising it? If it is the board of a company, then the
shareholders supervise it and the income supervises it in a way.
If it is a ministry, then Parliament supervises the Minister.
Who is supervising this Board and who, in the future, is going
to catch up on some of these mistakes before they get to these
extravagant proportions that the last lot got to?
(Ms Primarolo) Mr Roques deals with that in two specific
steps of recommendations: one is about the reorganisation of the
department, and the checking, reporting and restructuring of the
department. That has been done. The second is the recommendation
on estimates of fraudtherefore, how great that is and the
development of strategies. That is now within the two publications
that accompanied the PBR yesterday, which shows the level of fraud
and suspected fraud in the various areas and the strategies necessary
to tackle it. That means that Customs are now held to account
on those estimates and their strategies are monitored against
their delivery. To give the example of the tobacco strategy in
dealing with tobacco fraud, you can see the targets we set and
the department is very closely monitored now to ensure that those
targets are met, which they have been, and the problem is being
dealt with. So there is the second series, if you like: what is
above the Board is the fact that the fraud figures are there.
I think that is the key in many recommendations that Mr Roques
167. I understand that and that is one element
of being accountable. We go into the targets in later questions.
On this question of accountability of the Board, that did not
prove adequate for them to be caught up with last time because
they had targets before and Treasury were measuring them against
targets before. These failures that are itemised in the Roques
Report are not just failures on the targets, because targets are
so loose that anybody could have met them by the sound of it;
it was a deep seated failure in the management. For instance,
they did not have any management information to discuss between
themselves; they did not have any analytical background to it.
Somebody looking at this from the outside as Roques did saw this
straight away. So anybody who envisaged that organisation with
a critical mind anywhere in the last six years would have seen
the same thing. Are we not making some preparations to spot things
not in a nit-picking sort of way or down into the detail, but
in a structured way that is not necessarily reflected in the targets?
(Ms Primarolo) I think it is important to have it
reflected in the targets that the department is charged not only
with collecting the revenue, and so was doing forecasts of possible
revenue receipts which were then measured against actual receipts,
but that it now has, through the collection of information, through
its risk strategies, identified, and is charged with doing that,
the weaknesses that may exist, or potentially could occur, and
therefore what strategies they will take to deal with that. I
think when you have an organisation charged with working that
way round, and that is being monitored closely, then that provides
the checks that you are seeking. I am prompted on the point that
the PSX Committee, in monitoring the performance, obviously now
has this as a focus in terms of what departments need to do. I
suppose that takes us back in a sense then to Mr Laws's question
about whether the Treasury were checking that it is actually delivering
what it is charged to do. I think that the Roques Report and the
NAO report provide a rigorous framework in which to have a much
more reasonable way of seeing how the department is operating
and judging its performance and identifying the possible problems
that can occur with exposure to fraud and where that might occur.
They are charged with not just telling us that it is there, but
what they are doing about it and what their targets are within
168. Coming specifically to the targets now,
could you clarify the point about the minutes? Is it still the
case that the Board minutes are not copied to Treasury officials?
(Ms Primarolo) I will have to check that.
169. Could somebody come back to us on that?
(Ms Primarolo) Of course. Of all the things I thought
you might ask me, whether the minutes of the Board were sent to
the Treasury, I am afraid
170. Mr Roques is critical because, first of
all, he could not find minutes before 1997 and he was critical
of the way the Board operated. We would like to know whether Board
minutes are copied to those officials in the Treasury who look
after this particular area. We would be grateful if you could
find that out for us.
(Ms Primarolo) Yes.
171. Paymaster, on page 167 of the Roques Report,
Mr Roques says that the Board, was, and I quote "lulled into
complacency by its focus on the targets it had agreed with the
Treasury to deliver and which in general were being met".
Could you describeand for the record I absolutely know
it was not on your watchto the Committee what role Treasury
officials and Treasury Ministers had in setting those targets?
(Ms Primarolo) The discussions on the targets are
discussions with Customs and the Treasury and then monitored,
and they would be checked regularly. I think part of what Roques
is saying is that the measurements pre-1997 perhaps were not the
best ones to have - I think he puts it slightly stronger than
that - and that they needed to be revisited. As to why those were
the targets set at that time, I rely on Roques to provide that
information. In the absence of any other information, it was difficult
to see how that could be questioned on the change of government
in 1997. There was not a perceived problem and the information
was not being passed through up to Minister. I am afraid I am
in some difficulty exactly how that was done when he refers to
these specific issues. How it is done now is as Mr Roques suggested
it should be done, which is by providing estimates, because we
are particularly talking here about the exposure to fraud, and
strategies of how to deal with that fraud and then being measured
172. What Roques exposes I think is well summed
up in what he said when he gave evidence to this Committee within
the last month, and it is a transcript which I will read out for
the record. He says, and I quote: "Most of those targets
were in the area of how much fraud they discovered and, as at
the beginning of the period there was not much fraud, the reason
they kept doing better than that was in my judgment not because
they were very good but because the amount of fraud was so much
larger than they had understood." I am agreeing with you
here; it was the fault of the targets. But what Mr Roques is saying
is that the targets were loose, they were easily met, they were
useless. What I wondered was how rigorous now are Treasury officials
and Ministers, who have a clear responsibility for setting the
targets, which I think we would all accept, in saying, "We
are not going to set soft targets that can easily be met."
How are we going to set fairly high hurdles so that these are
targets that really mean something?
(Ms Primarolo) The difference is in how the targets
were set, whether they were outputs and measured on outputs, or
outcomes, and looking at that. The rigour, it seems to me, and
this is one of the points that Mr Roques made, was in being required
to assess the exposure to fraud and to make those figures available
publicly and the strategies to go with dealing with the fraud.
That of itself sets very tight observations by Ministers, Treasury
and the Department itself, in terms of achieving those targets.
Again I return to the examples of the cigarette frauds that were
going on and the huge amount of revenue the Government does not
collect. Very clearly there the Government Minister put before
Parliament the extent of the problem, why it was happening and
why we understood it was happening, and what we were going to
do in order to tackle that, and that we would report on that to
Parliament. So there is a much tighter pressure now on those areas
than before the Roques Report. It is not a very pleasant experience
to be told as a Minister, even if it is, as you kindly put it,
not on my watch.
173. That is a helpful answer. What I am trying
to get at here is that the Treasury have a role in setting targets.
In the past, in the period under question, the targets were soft,
for reasons we understand. What I do not understand, and perhaps
you could enlighten us here, is how do your officials with Ministers
at the Treasury come to a target? Who gives you the information
as to what is a reasonable target and what is a tough target?
What kind of disciplines are you imposing on Customs and Excise?
How do you arrive at a target. What is the process?
(Ms Primarolo) The targets for achieving the reduction
in fraud are revealed for everyone to see and comment on. Firstly,
in the explanations in the document that was produced it explains
the methodology of how the Department arrived at those figures.
Secondly, the strategies agreed with the Minister to deal with
that, put forward by the Department and to deal with those frauds,
over a period of time are then obviously very closely followed,
and indeed followed by PSX as well. The focus is shifted into
ensuring that there is pressure on the points where the likelihood
or possibilities of fraud exist and therefore there is a loss
of revenue. So it is the combination of those activities, and
I am sure that you and all other Members of Parliament will be
reading these documents closely, and it is not just whether Ministers
keep the Department under review; it is actually that Parliament,
hence commissioning the Roques Report, would want to know exactly
what is going on here.
174. It is the responsibility of us all to find
(Ms Primarolo) No, I was not saying that, Mr Ruffley,
please; I do not see this as at all combative, so forgive me if
I gave that impression. What I accept is that the Roques Report
reveals an unhappy and very serious sort of problem within a Government
Department that had to be put right. They have been scrutinised
externally in order to do that and changes have now been made.
Given that I gave Mr Roques that brief, that he made all his recommendations
and that he said that if we did all of that, that would put us
in a better position to monitor and the Department respond, and
we have implemented those recommendations, I feel that what is
now necessary is to ensure that, for instance, targets on fraud
are closely followed and monitored and the Department kept under
pressure to deliver in that area.
175. Finally, the PSA targets for the period
2001 through to 2004 for the Department include a target for reducing
tobacco smuggling, but apparently no specific targets for alcohol
or for VAT. Could you explain why there are no targets for such
rather large revenue streams?
(Ms Primarolo) I am sorry to keep referring to these
figures, but the figures that are in the report give the estimates
in the areas of missing trade VAT fraud, oil fraud and alcohol
fraud. The question of tobacco, which had already been published,
and the results of the first year's target, which has been achieved.
That was published yesterday as well. So those targets are now
in place and the strategy is how we expect the Department to deal
with those issues.
176. Could you quickly give us a summary of
the new targets for alcohol and VAT in the PSA targets?
(Ms Primarolo) This is where fraudsters set up frauds
and buy goods that are VAT-free from another European Member State
and then sell the goods but with VAT on them, and then disappear
without paying the VAT over to the authorities. The figures show
that the estimate of loss in 2000/2001 is in the region of £1.7
billion to £2.6 billion. The strategy is targeted investigation,
increased checks on new registrations, which have to half the
fraud by 2003, saving £750 million. Between September 2000
and August 2001, there were 1000 suspected registrations rejected
and 350 registrations cancelled. Customs have also been charged
with developing new techniques to disrupt the fraudsters, tightening
on the VAT registraton procedure and increasing the numbers of
post-registration visits. That is in these documents.
177. Those qualify as PSA targets?
(Ms Primarolo) They will become so but we are moving
forward. You would not expect us to wait until the PSA targets.
The Department has to act on them immediately.
178. As PSA targets, they are operative from
(Mr Hanson) We have to finish the strategies between
now and next April and, if they are approved, there will be new
targets set for next April.
179. Minister, just before we leave this issue
about the Treasury's oversight responsibilities, in a nutshell
you are basically saying that the new Chair came to you and highlighted
these problems. You then acted, in all fairness extremely speedily,
to do something about them and you have taken up the recommendations
that were made, but you are maintaining that there is no Treasury
responsibility for allowing the Board to continue in operation,
even though it is a total shambles and acting like a charity board
rather than a board of a major entity. Is that not something that
you could look at again because it seems to me that there is a
lesson to be learnt here, which the Treasury have not managed
(Ms Primarolo) I commissioned an investigation.
1 Note by witness: In fact, four members of
the current Board were Board Members in 1995. Back