Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 80-99)

Wednesday 31 March 2004

Mr Mike Eland, Mr Mike Wells, and Mr Richard Summersgill

  Q80 Mr Jenkins: If you could do one of these a week, roughly a two year case, I am talking about £7 million. You could collect in £7 million off small traders whereas, when you take your large case to court and we know that there is an estimate that maybe they defrauded VAT of £30 million, you bring back moneys and some of your cases show that you bring back in very small amounts because the individual does not have the assets anymore.

  Mr Eland: We are seeking to tackle all of those levels. As I said, we would not use a trained criminal investigator to look at some of these cases. We would use a VAT assurance officer and VAT assurance officers are bringing in about £3 billion a year there.

  Q81 Mr Jenkins: Do you think it is justifiable that you have actually done a value for money exercise by ensuring that you are going to get more money out of the serious crime activities by diverting resources away from this type of activity, the small trader?

  Mr Eland: We have to cover all of those different elements. We are obviously trying to optimise the use of resource across those areas and we do look at things like the rate of return that we are getting.

  Q82 Mr Jenkins: So, the answer is "yes"?

  Mr Eland: We do use cost benefit analysis in how we allocate our resource.

  Mr Summersgill: These two cases are specifically done by our shadow economy teams which are looking for those 125,000 to 180,000 people who are trading above the threshold but are not registered. We have about 200 staff years going into that sort of activity which is routinely capturing about 4% or 5% of those people. One can argue either way how much resource you should put into that but I think that is about the right balance.

  Q83 Mr Jenkins: All I wanted to know was that you had done the evaluation, you had done the analysis and you decided it was best and good value for money to put the resources out of what is an easy roll-out plan

  Mr Eland: Yes.

  Q84 Mr Jenkins: I have a belief that you would be far, far better off if you were paid by the results. I think if you were just told to go out there and collect it in you would collect it in and I think this would drop dramatically. That is what Mr Steinberg was referring to in the allocation of resources point, where you felt the allocation of resources was disproportionate to the cost overall and now you have assured me you are doing the figures.

  Mr Eland: Yes, we are.

  Q85 Mr Jenkins: You got an extra 1,000 staff over the last three years.

  Mr Eland: Yes, that is right.

  Q86 Mr Jenkins: What return do you expect from the extra 1,000 staff?

  Mr Eland: The target which has been set is two billion.

  Q87 Mr Jenkins: Two billion? Will they achieve it?

  Mr Eland: We hope so, yes.

  Q88 Mr Jenkins: Are they on a bonus scheme?

  Mr Eland: Not related to that amount of money.

  Q89 Mr Jenkins: Should they be? Should they have an incentive?

  Mr Eland: We do not have direct linkages to the amount of money brought in but we are clearly evaluating the performance of our staff in meeting these overall targets. If they do perform well than there are rewards within our pay system, yes.

  Q90 Mr Jenkins: When they brought 69 cases successfully to court do you think they would get a bonus on that?

  Mr Eland: I think you have to look at the quality of the cases as well as the quantity, some of them are extremely complex. As you will see from the case studies for some of them the trial takes six months, this is not just small-fry cases here, we are trying to tackle it is some of the higher end of the fraud market.

  Q91 Mr Jenkins: We know there are very complicated and difficult cases, do you feel you have the right team in place? Do you think you have the right skills in place so that we know as we are going on that each step is being investigated so that the lawyers can tell you, "yes, we have a chance of being successful in this prosecution, this is what we need before we get the case in to court?"

  Mr Eland: Yes, we do have some very skilled investigators working in this area.

  Q92 Mr Jenkins: I understand there is a point in the Report which says you do lack lawyers in the team.

  Mr Eland: Is this the reference in the Butterfield Inquiry?

  Q93 Mr Jenkins: Yes.

  Mr Eland: We have a prosecuting group of lawyers who advise during the case and are responsible for taking it to court but we should add to that and expand the number of lawyers who are actually working as part of the investigation team. We have accepted their recommendation and we are implementing it, so we are putting it in place.

  Q94 Mr Jenkins: The skill level of the team is critical, is it not?

  Mr Eland: Yes.

  Q95 Mr Jenkins: These teams are specialist teams?

  Mr Eland: They are specialist teams and as you will also see from the Butterfield Report we have accepted the recommendation there that although he was satisfied with our initial training of investigators he felt there needed to be additional refresher training, and we are also introducing that as well.

  Q96 Mr Jenkins: When a case comes to court the word goes out, when you catch a small trader the word goes out and it reduces the amount of fraud in the system and traders are going to come on board. When you have caught somebody how much publicity do you give it in the local press?

  Mr Eland: We are increasingly seeking to use this as a means of deterring people and to get as much publicity as we can when we do that. Part of this recent exercise we have been doing in terms of focusing on the shadow economy is we are concentrating that regionally as well as by trader type so that we can actually increase the impact it has through the local press in that region.

  Q97 Mr Jenkins: Now you are going to be working even closer to the Inland Revenue so you can attack these people as a team, a concerted effort goes into it, are you going to start flagging up, are you are going to go in there and target them and hopefully bring people on board before they come under your microscope?

  Mr Eland: Yes, we do want to do that sort of thing. We accept that we can do more in the press and publicity area. We do also need the co-operation of the press but certainly the local press are usually willing to do that.

  Q98 Mr Jenkins: What incentives are you offering traders to come on board?

  Mr Eland: We had an incentive scheme where we said to them that if they came forward in a particular period although we would expect them to pay back tax we would wave the penalties that we would apply and that would then be followed by a period of cracking down.

  Q99 Mr Jenkins: Using the carrot and stick approach, if you felt as a trader you were defrauding the VAT of £100,000 and if you got caught all you have to do is pay £100,000 plus a fine of £25,000 do you think it is worth the gamble?

  Mr Eland: No, I do not think it would be quite as straightforward as that. First of all it would be a question of if we are talking about £100,000 whether we would impose the 20% or a higher figure—we have dealt with that, I think. Secondly, you are then getting that on your VAT record now and that will mean we will be paying much closer attention to you in the future.

  Mr Jenkins: Would it be worth the gamble? There are thousands and thousands of people in this country driving round without car tax because they know it is worth the gamble, without insurance because they know it is worth the gamble, and I suggest they do not pay VAT because they know it is worth the gamble.

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