---

Mr. David Laws (Yeovil) (LD): We, too, support new clause 1 and amendments (a) and (b), which go to the heart of what the Bill is designed to achieve. Like the hon. Member for Chichester (Mr. Tyrie), I do not wish to revisit all the discussions that took place on Second Reading on 8 December, but some of us were left with the feeling that there was a lack of ministerial clarity about the cost benefits of the merger and the wider objectives that it is designed to achieve. New clause 1 and the associated amendments focus on setting up a monitoring regime to demonstrate whether those objectives have been achieved, and also establish precisely what they are. To that extent, they are very helpful.

The context in which the Government initially announced the planned merger of Customs and Excise and the Inland Revenue was the political battle among all the main parties to demonstrate that they could achieve better value for money from existing public expenditure. It was in those terms that the Chancellor announced the merger in the 2004 Budget statement, when he said that it was designed to secure value for money. When the measure was announced in the Gracious Speech on 23 November last year, it was also put in the context of reducing bureaucracy and the costs to Government. There was nothing in either statement that implied that the major objective of the policy was to close the tax gap. There was nothing about the compliance burden on business or about improving customer service in the ways suggested in the amendments tabled by the hon. Member for Hayes and Harlington (John McDonnell), yet all those are important objectives in merging two such organisations.

As a member of the Treasury Committee, the hon. Member for Bexleyheath and Crayford (Mr. Beard), said on 8 December, that some of the individuals who were consulted after the O'Donnell report made it clear that the cost savings and benefits from the Bill may be quite small in the context of the other objectives,
 
26 Jan 2005 : Column 406
 
particularly that of reducing the tax gap, which Gus O'Donnell had estimated at £30 billion or £40 billion per year.

As the hon. Member for Chichester mentioned, new clause 1 deals with two big issues—first, the lack of clarity about the costs and benefits of the Bill in purely economic terms and how much it will save the Exchequer in the short term, and secondly, the Government's lack of clarity about whether there are bigger objectives for the merger of the two organisations.

The hon. Member for Chichester noted that when we debated the issue on 8 December there was some uncertainty on the Government Benches about how much the merger would save. It was initially suggested that savings would be £500 million per year. Later in the debate, it was made clear that that related to the total savings coming out of the Gershon review, of which the merger savings and staff reductions were just a small part—3,200 job reductions from the merger, set against about 16,000 job reductions gross from the entire process, including the Gershon review.

David Taylor: Does the hon. Gentleman accept that it is extraordinarily difficult to calculate savings in such a Department? If initiatives such as spend to save and spend to raise are put on hold, it is impossible to define the loss of revenue associated with ill-judged cuts or changes that are not justified. A calculation of savings is impossible to achieve, is it not?

Mr. Laws: The hon. Gentleman is right that taking into account factors such as the tax gap, it is particularly difficult to do a sensible cost-benefit analysis. However, the Government could make some reasonable assessment of the likely savings in terms of staff numbers or the additional costs in the short term arising from investment in capital equipment. That would provide at least a simplistic analysis of the costs and benefits over the short term, yet we are uncertain what that calculation is.

On Second Reading, we were unable to get the Paymaster General or the Economic Secretary to say whether there would be any net savings, however limited, in the first five years of the merger. The Conservative party and others are making claims about cutting waste and bureaucracy in Government. We can see in relation to the Bill how difficult it is in practice to turn grand aspirations to save money through reducing waste into specific figures. One potential achievement of new clause 1 is that it would allow us to see, even in the narrowest economic terms, whether there was any economic benefit from the merger.

Many of us doubted whether clear economic benefits would result and those doubts were reinforced by the statements of the Paymaster General and the Economic Secretary in the debate on 8 December on cost savings from reduced staffing. We assumed that the reduction of 3,200 staff consequent on the merger was the result of a rational calculation, but the Paymaster General stated that it was only a working assumption based on savings in other departments where similar major changes have occurred.

The Economic Secretary admitted that the reduction was not based on a rational calculation and that it is a target—he also said that it is a realistic target, but we
 
26 Jan 2005 : Column 407
 
have only his word for that. One benefit of new clause 1 is that it would allow a much clearer assessment of the short-term benefits or costs of the merger, which is something that the Government have been unable to provide.

Mr. Jim Cousins (Newcastle upon Tyne, Central) (Lab): From his study of the possibilities offered by the merger, does the hon. Gentleman believe that the target could be greater than 3,200 net job losses?

Mr. Laws: It is impossible to say, because the Government have not given us any information about the assessment of 3,200 job cuts. The only conclusion that we can draw is that the figure was picked out of the air and based on the percentage reduction in jobs when other bodies have merged. It is impossible to tell whether the figure is too high or too low without knowing whether it is based on a serious assessment and I hope that the Paymaster General will clarify that matter when she responds on new clause 1.

New clause 1 and its associated amendments (a) and (b) would also deal with the point that the merger concerns not only the economic issue of saving on the costs of Government bureaucracy, but much bigger prizes, not least the closing of the tax gap, which the hon. Member for Hayes and Harlington has already mentioned. A year or so ago, Martin Taylor made this submission to Gus O'Donnell's report, saying:

"the reduction of the tax gap is far the bigger prize, and should be the priority rather than costs . . . this should be made clear to the new management, who should not be judged primarily on the attainment of secondary objectives."

David Varney also made that point in his contribution to the O'Donnell report. People outside the Treasury are clear that bigger prizes are at stake than the reduction of job numbers in the new merged department, but we have no way in which to assess what the Government hope to achieve on reducing the tax gap, which should be the priority.

Finally, no clear assessment has been made of the reduction in the compliance burden or, as the amendments tabled by the hon. Member for Hayes and Harlington indicate, what effect the merger will have on the service and performance that the merged department will provide for our many constituents who rely on those services. Earlier today, he referred to the problems in the Child Support Agency, which the media have discussed today. As he and many other Labour Members know, however, many hon. Members receive even more complaints about the operation of the tax credit system than the operation of the CSA.

John McDonnell: The hon. Gentleman knows that one of today's report's recommendations, which arose out of the monitoring process, urges the Government not to go ahead with staff cuts in the CSA until those matters are resolved.

Mr. Laws: The hon. Gentleman is right. Even the Government appear to acknowledge that, because of the customer service problems at the CSA—if I can put it like that—the planned staff cuts may have to be deferred to make sure that the service can be improved.
 
26 Jan 2005 : Column 408
 
One wonders whether the same is true of the tax credits department of the Inland Revenue, which is struggling to process tax credits and so causing a great deal of difficulty for many of our lowest-income constituents.

Dawn Primarolo indicated dissent.

Mr. Laws: The Paymaster General shakes her head, but I think that she is out of touch with what is going on throughout the country in relation to tax credits. As a constituency MP, I can tell her, as I have many times before, that I am inundated with constituents on very low incomes, who are exactly the people whom the Government set out to help by introducing tax credits, and whose income position is being even more disturbed by the way in which the tax credits system is operating.

6.30 pm

---