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Mr. David Ruffley (Bury St. Edmunds) (Con):
This Bill on the merger of Inland Revenue and Customs and Excise carries the general support of the Opposition,
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although we remain concerned, as the House will have noted, about its practical implementation. We are dealing with two organisations that have between them 250 legacy computer systems and some 13 million customers. It is no mean feat to put those two together, and we will want to examine the details extremely carefully, not just during consideration of the Bill but in the first few months and years of the merger.
I had the privilege of sitting on the Treasury Sub-Committee in 2000, which was then chaired by my hon. Friend the Member for West Worcestershire (Sir Michael Spicer). In the course of our inquiry, we came to some conclusions: that the possibility of a merger had not, by 2000, been examined properly by Ministers; that differences in the functions of the two bodies were not insurmountable obstacles to a merger; and that a merger was in fact desirable.
Our 2000 report noted several concerns relating to the closer working programme, which—I should say in all fairness—had been developed not since 1997 but since 1994. We concluded that the programme had not been a great success. There seemed to be no general philosophy or rationale underpinning the various areas chosen for closer working between the two departments. The witnesses whom we consulted could cite few specific benefits to businesses as a result of the programme, and Customs and Excise gave us no clear idea of how it intended the programme to develop in the future. We agreed with the programme's aims, but did not feel that it was achieving its objectives. When we examine the way in which the two departments have tried to co-operate so far, we do not see a happy set of antecedents.
We were rather disappointed by the Government's response to the report. The possibility of a merger was rejected, and the explanation given was this:
"while the Government accepts that merger might bring some of the benefits outlined by the Committee, it believes that they can be achieved without the disbenefits of merger through a dynamic and focused programme of closer working."
The Government have clearly done some more thinking during the three or four years since that statement was made. Like other Conservative Members, I am prompted to ask the reason for the turnaround—the sudden Damascene conversion—especially in the light of the paucity of statistical information and data about cost and efficiency savings in the medium term.
We know that there will be transitional costs upfront, but although the Government seem to have moved to the right side of the argument, we have not seen enough of their working. Some indications of why their views had changed were given in the O'Donnell review, which concluded that a merger would be a good idea—although it noted at the same time that risks were involved in the "business as usual" tax collection model, and that the disruption of projects already planned could attend any merger.
I wonder whether the rather sad events of spring and summer 2003 might have prompted the O'Donnell review. As we all recall and as was mentioned earlier, a computer system that was installed did not deliver, and the fiasco of the working tax credit and child tax credit payments ensued. The Treasury Committee, of which I was a member, took evidence that revealed an unfortunate set of management relations at the Inland
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Revenue. We also discovered that when the national insurance contributions office was taken away from social security officials in Whitehall and merged with the Inland Revenue, the left hand did not know what the right hand was doing. That led to the shambles of the deficiency notices: Ministers were not aware that they had not been issued, and large parts of the civil service did not know either.
That brings me to two of my concerns, which have not been dealt with by my hon. Friends' trenchant criticisms of other aspects. They relate to information technology. The Treasury Sub-Committee noted the views of the Institute of Chartered Accountants of Scotland:
"From past experience of the merger of the Inland Revenue and Contributions Agency, the proposal to merge the Revenue and Customs does not inspire confidence. As organisations, the Contributions Agency and the Inland Revenue had different computer systems and five years after the merger had been completed they still have computer systems which cannot exchange information and accordingly duplicate enquiries and impose unnecessary additional costs on taxpayers in general."
In speaking to the Treasury Sub-Committee, David Varney made clear the scale of the IT problem for him and the associated risks. Indeed, he was very up front, and it might assist the House if I give a flavour of what he said:
"It is a huge expenditure . . . We, per year, put out 170 million forms and we run 100,000 desktops. So this is a big issue for us. I think what we are bringing in"—
in the recent recruitment of a chief information officer—
"is expertise of somebody who has a track record of managing change in IT and delivering business benefits. We also have to get smarter at our pre-risking and big risk minimisation projects, talking through both the IT risk and the operation."
Amen to that. The Paymaster General will doubtless work closely with Mr. Varney on the implementation of change in the IT systems.
However, I offer a strong word of warning. When the computer failures occurred that were responsible for the working tax credit and child tax credit shambles, and for the deficiency notice problem—without even considering the Mapeley problem, which is different in qualitative terms—the chairman of the Revenue came before my hon. Friend the Member for Sevenoaks (Mr. Fallon) and I, and said that the Revenue take this issue terribly seriously. He said that a lot of time had been spent stress-testing the system before putting it in place. He acknowledged that it was very complicated, and said that they would spend a lot time ensuring that they got it right.
The problem is that warm words are no use when the system crashes or fails to work in an optimal fashion. Who suffers? The taxpayer suffers, and bad governance is the result. That does no good for the Government of the day, or for democracy and our constituents.
I pray in aid the National Audit Office, which noted in its recent report:
I have great regard for the Paymaster General, who gets into the interstices of her brief. I hope that she will put contingency plans in place, and she will doubtless ask
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her officials to speak to the NAO and other stakeholders. We need to bear in mind the huge risk involved. We do not want a repeat of the IT shambles.
My final point, to which reference has already been made, concerns enforcement and the culture of the departments that will be merged. I welcome the placing on a statutory footing of the new Revenue and Customs Prosecution Office, which will undertake all the new department's prosecutions. However, I am not entirely clear as to how it will be staffed, or how the varying expertise of the current Inland Revenue and Customs and Excise prosecutors will be melded.
In 1999 and 2000, my hon. Friend the Member for West Worcestershire and I examined how the experience of the Canada Revenue Agency compared with ours, and we discovered that it was similar. To put it bluntly, the expertise of those in the revenue departments here and in Canada is of a higher quality than of those in the customs and excise departments. That is simply a cultural difference. Melding the two to achieve an optimal solution is what this is all about. However, the most recent Select Committee report—the proceedings were chaired by my hon. Friend the Member for Sevenoaks—stated that
"witnesses were concerned about the different approaches of the revenue departments and how this might impact on the new department."
Those concerns were summarised by the Association of Chartered Certified Accountants, which said:
"The Inland Revenue is more prepared to negotiate and has a more human face. By contrast, mention Customs investigators to accountants and businesspeople and exasperation sets in. Once the Revenue has made a ruling, it generally sticks to it. VAT offices change their minds more often—partly because they tend not to commit themselves in writing."
There is clearly a culture problem and I hope that, when the matter is put to bed, we adopt a pretty robust approach to change management. Ministers should adopt a hands-on approach to ensure that the execution of the merger takes the different cultures into account, but not use that as an excuse for things not going right. We need people to get thinking the right way and to do so quickly.
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