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Orders of the Day

Commissioners for Revenue and Customs Bill

[Relevant document: The Ninth Report from the Treasury Committee, Session 2003–04, on The Merger of Customs and Excise and the Inland Revenue, HC 556.]

Order for Second Reading read.

12.31 pm

The Paymaster General (Dawn Primarolo): I beg to move, That the Bill be now read a Second time.

The Bill implements the principal recommendations of the O'Donnell review of the revenue departments. It brings together the Inland Revenue and Customs and Excise to create a single new department called Her Majesty's Revenue and Customs. It also establishes a new, fully independent prosecutions office, the Revenue and Customs Prosecutions Office. This office will provide independent scrutiny of all Her Majesty's Revenue and Customs prosecution cases, and will conduct prosecutions where appropriate.

It is principally a machinery-of-Government Bill to implement sensible reforms to tax administration, and I was pleased to hear the shadow Chancellor support that when he said in the debate on the Loyal Address last week:

"The Treasury's Bill on the merger of the Inland Revenue and Customs and Excise carries our general support".—[Official Report, 1 December 2004; Vol. 428, c. 636.]

I therefore look forward to a constructive and useful debate on the detailed measures. Before I go on to discuss those, I should like to take a moment to thank members of the Treasury Committee for their excellent work, which culminated in the recently published ninth report, exploring the issues around the merger of Customs and the Inland Revenue.

Sir Teddy Taylor (Rochford and Southend, East) (Con): Will the Minister comment briefly on the employment implications of the proposals? Will they be substantial or limited? Can she give us any idea?

Dawn Primarolo: I shall address that in the course of my remarks. If the hon. Gentleman forgives me, however, I will continue to pay fulsome tribute to the Treasury Committee's report.

I welcome the Committee's endorsement of a pragmatic approach to legislating for the creation of the new department. I have carefully considered all the points contained in its thorough report and will respond to them. Although it is not a matter for the Bill, for completeness I shall quickly clear up one concern that the Committee raised about the clarity of ministerial accountability arrangements for the new department. David Varney, the prospective chairman of Her Majesty's Revenue and Customs, wrote to the Committee Deputy Chairman, who I am pleased to see is in his place, on 15 October to help with this matter. The position is clear. I shall be the departmental Minister for HMRC, and all Treasury Ministers have lead responsibility for specific matters. Such arrangements are normal in central Government departments. We regularly review such arrangements
 
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and, as suggested by the Treasury Select Committee, we shall review these arrangements as the merger progresses.

I shall return in more detail to the other points raised by the Committee in the course of my remarks and, no doubt, as we discuss the relevant clauses in more detail in Committee. As I have said, I am pleased that the shadow Chancellor and the Treasury Committee are not alone in their support for integration. Over the summer my officials have conducted a programme of consultation with representatives of the new Department's stakeholder groups to inform the development of the Bill. A summary of that consultation is reproduced as an annex to the regulatory impact assessment. I am pleased to say that support for integration was almost universal.

I shall explain what I mean by integration. I am talking about a major change in the way in which taxes and revenues are administered. This is not about shuffling a few Whitehall deckchairs, creating a new department and then assuming that the job is done. It is far more fundamental than that, as the Treasury Committee highlighted. I am talking about a process that goes beyond a simple merger of departments. It is a process of real integration, of bringing the two existing departments together and developing better new ways of working. It is about delivering truly joined-up services to taxpayers, and about creating an organisation that can meet taxpayers' needs because it can look across their affairs and tailor its services to their particular circumstances.

The question of meeting taxpayers' needs is a key one. That means that integration must mean different things in different parts of the business—another point touched on by the Treasury Select Committee—with parts of the business with very similar activities and remits merging in their entirety. For example, there are the corporate services; business areas with similar stakeholders or functions fully integrating their structures and activities—for example, the large business service—and other parts of the business that deal with a unique group of stakeholders not shared by other parts of HMRC connecting into the new Department structure. One example is some of the frontier protection work.

That sounds like a huge job and of course it is. Integration cannot be delivered overnight nor can it be delivered in this Bill alone. I shall give the House some idea of the scale of the task.

Mr. Andrew Turner (Isle of Wight) (Con): Before the right hon. Lady moves on, I thank her for mentioning frontier protection work. The Bill proposes the saving of 16,000 posts by 2007–08. There is already considerable dissatisfaction with the extent to which our borders and ports are left open to smuggling. The Bill appears to be driven more by revenue than by the prevention of smuggling. Will the right hon. Lady assure me that our ports will be better protected as a result of the Bill and not less well protected?

Dawn Primarolo: The hon. Gentleman confuses two subjects, one of which is not connected with the Bill. When he refers to reductions in staff across the Inland Revenue and Customs and Excise and to savings of 16,000 posts, he is referring to the Gershon efficiency
 
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savings, not the Bill. If the hon. Gentleman looks at the regulatory impact assessment, he will see that the proposals surrounding the merger are very different from those that he has suggested.

I hope to make it clear in the debate that the Bill takes every opportunity to protect the current functions of both departments. It involves a change in the machinery of government to allow the departments to start to come together and, over the period of integration, many issues will need to be addressed. However, I absolutely assure the hon. Gentleman that the figure of 16,000 that he quoted is not correct.

Mr. Turner: Will the right hon. Lady give way?

Dawn Primarolo: I will give way again, but if the hon. Gentleman looks at the regulatory impact assessment—I do not believe that he has it with him—he will see that figures are given for the expected savings across all the departments. They involve 100,000 staff and they will not have the impact that he fears.

Mr. Turner: I am grateful to the right hon. Lady for giving way again. Among other things, the press notice issued by her Department on 23 November said:

"Through delivering a single Department, the Bill would . . . Enable the new department to meet its demanding Public Service Agreements and realise efficiency savings, with integration contributing 3,000 posts towards total savings of 16,000".

Dawn Primarolo: Yes, but if the hon. Gentleman will allow me to make progress, I can specifically address that point. We are discussing the merger Bill today, not the efficiency savings that are in the agreements arising out of the Gershon review. My speech will touch specifically on the reductions in staff anticipated as a result of the departments being merged and duplication being removed. I will also touch on safeguards, efficiencies and the delivery of services. If the hon. Gentleman is a little patient, I will be happy to give way to him again if he feels that my remarks have not addressed the points that he has raised.

The Inland Revenue and Customs and Excise are among the oldest Government departments. The Inland Revenue can trace its history back more than 300 years—it is a rather junior partner in some senses—while a nationally organised customs system dates back to the 13th century.

The new department will have more than 30 million taxpayers and stakeholders, of which 4 million are businesses. HMRC will collect more than £400 billion a year in receipts and pay out over £25 billion in tax credits and child benefit. The costs of running HMRC will amount to some £4.8 billion a year, and the department will have nearly 100,000 staff; 20 per cent. of the civil service. It is a huge task and I very much understand the hon. Gentleman's point about the continuation of services through the period of change.

Given the huge task, it is not particularly surprising that the Treasury Committee has suggested that further primary legislation is required fully to implement integration. Of course, as we the start the process of integration, I cannot confirm what will be needed, but
 
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I can say that we will be doing further work with David Varney, the prospective chairman of the new department, to look at how it should manage its business. If legislative change is needed to support our conclusions, it will be brought forward in an appropriate form for consideration by the House.

Delivering real, meaningful integration is a process that should be measured in years, not weeks. That has been acknowledged by all those who have commented on the Bill. It must be an ongoing process of continual improvement; a process that identifies and responds to taxpayers' needs, involving proper consultation where appropriate to produce robust and effective new policies. It must develop and exploit new technologies and working methods to create the integrated, coherent and consistent approach that we all seek, and that taxpayers rightly expect.

The Bill is, and can only be, the first step in that process, but it is a vital step. It creates the organisational structures within which the process of integration can develop. Without the Bill, that process of improving the way in which we deliver services to taxpayers cannot even start in the systematic way that we all want.

I shall explain briefly why integration is so important. The O'Donnell review identified clear benefits from integration that will pay real dividends for people and businesses throughout the UK, and are vital to ensuring that this country remains a highly competitive place to do business. Foremost among those benefits are the improvements to taxpayer or customer focus that integration can deliver. The delivery of more joined-up services will result in a more consistent and coherent approach to taxpayers' affairs. Understanding taxpayers and taking a view across their affairs is essential to deliver a world-class service, built on support for taxpayers that is tailored to their needs.

We have already started identifying areas where this approach would be beneficial. The Chancellor's announcement at the pre-Budget report of a new small business unit at the heart of the new department is a key example. Improvements to the use of information within the new department should, as IT capability is developed, reduce the need for taxpayers to supply the same information several times over. The Chancellor's pre-Budget report announcement of work to develop ways of minimising the requirements on small businesses through, for example, a single tax return for all taxes and a reduction in the number of forms, is a key component of this agenda. Returning to the point made by the hon. Member for Isle of Wight (Mr. Turner), that will bring efficiency savings for business and Government alike.

The same developments that will improve the taxpayer experience will also improve the effectiveness of revenue administration, helping to reduce the tax gap. Better use of information, built around an ability to look across a taxpayer's affairs, will allow for more effective targeting of resources to areas of risk. That will improve fairness, making it harder for those who seek to avoid their obligations to succeed, and reducing unnecessary interventions in the affairs of honest taxpayers. There will also be efficiency improvements. Through economies of scale and alignment of common areas of activity, integration will produce efficiency savings of 3,200 posts by 2007–08.
 
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The Treasury Committee's report rightly suggested that a detailed analysis of the costs and benefits of integration would be helpful. The regulatory impact assessment published alongside the Bill sets out the costs and benefits of the legislation. Future substantive proposals for legislative reform will also be accompanied by regulatory impact assessments in the usual way, so that the costs and benefits of particular measures to effect integration can be considered. That further addresses the hon. Gentleman's point with regard to progress on integration over a period of time.

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