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Mr. David Heathcoat-Amory (Wells) (Con): This merger is fine in principle, and I support it. That is not enough, however. What concerns me is that we have to make a success of it in practice. I very much agree with the remarks made by my hon. Friend the Member for Sevenoaks (Mr. Fallon) on the lack of a detailed plan for, or even an assessment of, the savings envisaged. Hope is travelling faster than experience here. I have been involved in mergers in the private sector that have been uncomfortable experiences for staff and for customers. I hope that this will not be another.

6.45 pm

The problem of bringing these departments together is immense. They employ about 100,000 people between them and have different structures, assets, histories and traditions. I have detailed experience of only one of the existing Revenue departments, Customs and Excise. I have always been impressed by that department and the quality of the people whom it attracts. Indeed, it has a proud historical tradition in attracting able people.

It might be appropriate, on the day after Burns night, to recall that Robert Burns himself worked for the Excise. Some years ago, I visited a small museum at
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Greenock and saw opposite his name a copperplate entry, "The poet does well." That was an early staff assessment of one of its employees, who obviously managed to make a living as a poet as well as serving in the Excise.

I do not know what Burns would have made of the proposed merger. I hope he would have been enthusiastic, because in many ways he was a modernist. I certainly believe that a modern state needs a modern tax-gathering department and the overseas experience is that bringing such departments together in a single entity is probably wise.

However, government as an activity, as well as being the largest service industry in the world, is usually among the least efficient. Therefore, it is very important that Parliament lay down requirements and disciplines to make these things work. That is why I support new clause 1, which was moved by my hon. Friend the Member for Chichester (Mr. Tyrie), as a discipline on the Government to ensure that they turn the hope of greater efficiencies and well-being for staff employed into a practical reality.

I also want to comment on new clause 2, to which I have put my name, because there is, I am afraid, a poorer record in recent history in managing some existing assets of the two departments. My hon. Friend the Member for Sevenoaks mentioned the Mapeley STEPS contract, which is still relevant because it will run for some 20 years. It therefore straddles the transition between Inland Revenue and Customs and Excise and the new merged department.

We know now that that contract was something of a fiasco. It was signed without any clear understanding of what the deal entailed. It was undertaken partly for tax avoidance purposes, in contradiction of the Government's other expressed intentions. That is history, but because the contract is so long, it will affect the new department. Again, I therefore think it right that we should lay down a discipline on the Government in respect of reporting on these matters, drawing up a scheme for managing the property assets and achieving the best-value obligation, which is written into the new clause.

The new clause also covers IT systems. Here again, I have some quite severe misgivings. We know that there are more than 250 major IT systems in the two existing departments, together with two very large IT contracts that have been signed by each department. I am afraid that the chairman designate of the department, in evidence to the Treasury Committee, was not very clear about how they will be managed. So, we need a plan and a best-value obligation, which is provided for in the new clause.

Finally, I want to mention amendments Nos. 4 and 5, which are related to the functions of the new department. I agree with many of the remarks of the hon. Member for Hayes and Harlington (John McDonnell), who also spoke about that. It is not right that functions of such departments should be able to be transferred without primary legislation, unless the functions are wholly trivial. Such matters are very sensitive: taxation goes to the heart of what a Parliament is about, and we delegate the task of tax raising and enforcement to agencies and commissioners on our behalf. We need to be sure that those functions are not
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then passed on or back to day-to-day politicians in charge of Government Departments. The whole point of having Revenue Commissioners is that it removes such tasks some way from day-to-day politics and from Secretaries of State. That structure has evolved over many years, and it goes to the heart of the relationship between such Revenue departments and the Treasury. That would be undermined if important tax-associated functions were to be transferred to Secretaries of State in Government Departments.

My alarm has been somewhat increased by the Treasury's provision, which is helpful, of the functions that could be transferred by secondary legislation. It is true that those are not mainstream, core tax-raising functions, but they are: the regulation of charities; child benefit; child trust funds; oil and gas royalties, in so far as they are still collected; the regulation of certain pension schemes; rating lists; valuation of property; and valuation lists in relation to council tax. Those are not trivial functions, and under this legislation, such matters could be transferred out of this Revenue department to other Departments. That undermines the certainty that we seek in primary legislation. It is also unfair on existing staff who are planning careers in those departments, and who hope to do so in the new department, because they will not have the certainty of knowing that their department will be administering such functions, at least for the foreseeable future.

I know that the Government have no present intention of transferring those matters, but they retain the ability to do so by secondary legislation, which we will have no opportunity to amend or perhaps even debate. For those reasons, I commend to the House this collection of amendments and new clauses.

Dawn Primarolo: Let me respond to this wide-ranging and important debate.

First, perhaps the right hon. Member for Wells (Mr. Heathcoat-Amory), who was rightly concerned about the security of staff and their future, should take a closer look at his party's proposal to cut 28,000 from the Revenue and Customs without any details on how to achieve it. He will understand if I put aside for now his conversion on that point.

I recognise, of course, that Members of the House are interested in the ongoing process and success of the integration of the two departments. That interest will be shared by not only Parliament but other groups, particularly taxpayers, claimants who deal with the Revenue and Customs, and the staff of both organisations. Such interest is right and proper, and I share many of the concerns about monitoring that Members have expressed, as do my right hon. Friend the Chancellor of the Exchequer and my hon. Friend the Economic Secretary. So do David Varney, chairman-designate of the new department, the senior management teams in the two departments, and the Treasury itself.

Members have observed that integrating two departments of this size—they represent a fifth of the civil service—is a massive undertaking. Such an undertaking requires careful planning, assessment of risk, internal monitoring and the appropriate level of external assurance. For example, all major IT and data system programmes undertaken by Her Majesty's
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Revenue and Customs will be subjected to a formal assurance process by the Office of Government Commerce. It is right that, at key stages, we should assess progress and take any necessary steps to stay on track. We should also realise as many of the potential benefits as possible.

Let us be clear about the case for a merger. The O'Donnell review outlined the kind of benefits that could be expected. It spoke of the potential involved in closer working, the additional moneys that could be expected in the first two years of the large business joint team trials, and potential benefits that are clear from international examples of increased yield from compliance work. It cited the Australian example. It discussed the adoption of merged compliance strategies for small businesses, the administration costs of integration and the savings in the Canadian revenue agencies. All that was in the O'Donnell review, and subsequently in the regulatory impact assessment.

The process of regular and continuing assessment is built into planning for what is a significant programme of change. As the right hon. Member for Suffolk, Coastal (Mr. Gummer) pointed out, that has to be expected. Project plans are in place. The costs of integration will be monitored, and the arrangements will reassure us that the programme is on track to deliver the anticipated benefits. The new clause, however, attempts to draw a distinction that does not exist between the activity and results of integration and the activity and results of the new Revenue and Customs department.

It is no coincidence that the key areas from which we have said we expect benefits following integration are compliance, service to the taxpayer and efficiency. Those are precisely the areas targeted in the public service agreements that will apply to the new department. They will be monitored and subject to parliamentary scrutiny, according to the usual rigorous process. To measure progress against all those targets is to measure the success of the new department and hence the integration.

Many of the benefits will accrue over time, and stem directly from decisions that will need to be made over the next few years. For example, some changes may be piloted in the first instance, and the pilots will be evaluated before a decision is made on any wider roll-out across the United Kingdom. Of necessity, key pieces of evaluation lie ahead of us. As we make progress, the integration of the two departments will be a gradual and continuing process, and will become increasingly indivisible from the ongoing planning and running of the business of Her Majesty's Revenue and Customs.

However, as I said in earlier debates and as the O'Donnell report makes clear, there is a compelling case for integration now. The report also set out at some length the evidence that had been considered and analysed. There was recognition of the difficulties faced, both in the UK and in other countries that had undertaken such exercises. The likely costs and benefits were also quantified at the outset. That was made clear in that report.

Reporting to Parliament is key, and it is right and proper. As well as Parliament, others will be kept fully informed of the progress that the department is making, of any significant changes or initiatives that are
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planned and of the results of such changes. Therefore, I anticipate a full programme of reporting to Parliament and the wider public over the next few years and beyond.

Let us look at the mechanisms. The annual reports and accounts, submitted by Her Majesty's Revenue and Customs to Parliament and published, will provide extensive information on the costs that it has incurred and other financial aspects of both the integration and the department's day-to-day business, including, as I have said, progress against the department's public service agreements and efficiency targets.

7 pm

Under corporate governance arrangements, the commissioners audit committee, chaired by a non-executive, will scrutinise the new department's risk management arrangements, and managing the integration will be a prominent element of that. The department's work and that of others will be reported in the annual accounts in the statement of internal control chapter. Those accounts will be subject to scrutiny in the usual way by both the National Audit Office and the Public Accounts Committee, both in general and in the statement of internal control in particular.

Moreover, the PAC can request the Comptroller and Auditor General to examine and report on progress and on the benefits of delivering an integrated department. It can also call commissioners before it to account for matters reported to it by the NAO. The NAO and the OGC are working with the department to provide external assurance of the arrangements for monitoring costs and for securing improvements from the merger.

The Treasury Committee has already indicated that it will take a keen interest in events. I fully expect that it will question my right hon. Friend the Chancellor, me, should I be the relevant Minister, the Economic Secretary and senior officials regularly over the next few years. Finally, Members of Parliament themselves can seek further information. That is a scrutiny process.

Taken together, all that represents an extensive and thorough programme of reporting to Parliament, including the assessments of independent parties, and provides more than adequate opportunity for hon. Members and the wider public to monitor and scrutinise the process and progress of integration. Therefore, the proposal in the new clause for an additional and parallel system of reporting simply duplicates what is in place and planned, and I do not think that the proposals would add anything. I shall ask my hon. Friends to oppose the new clause.

I turn to the amendments tabled by my hon. Friend the Member for Hayes and Harlington (John McDonnell). I recognise the specific issues that he has raised. They are issues of genuine concern among Inland Revenue and Customs staff generally, and among the Public and Commercial Services Union and other trade unions that represent many of the staff. Let me say straight away that, as I hope he knows, regular meetings are taking place with the trade unions about the creation of Her Majesty's Revenue and Customs in terms of both the overall picture and the
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individual changes to employment and human resources policies. That ongoing dialogue is an important part of planning for the integration of the two departments and delivering its benefits.

The amendments cover two areas: amendment (a) adds to the list of items to be reported the issue of staffing levels and the provision of service; and amendment (b) additionally covers a variety of compliance and tax yield issues. Both are concerned with the need to maintain and to improve the levels of service, as my hon. Friend said, and the tax yield, while delivering planned efficiencies.

On staffing levels and service provision, both Customs and the Revenue have been developing modernisation programmes that are already starting to have an impact on their business through increased e-filing. As these programmes and other major initiatives start to deliver a more streamlined service, they will allow scope for efficiencies in line with the announced plans, while maintaining and improving service. These plans include redeploying 3,500 staff into front-line areas of work, in support of compliance activity and services provided to taxpayers.

My hon. Friend the Member for Hayes and Harlington raised natural concerns about the security and location of the jobs of existing staff in the two departments. I want to be clear with my hon. Friend—he is keen to pursue his responsibilities in this House —and to convey to others outside the Government's intention. The greater part of the efficiencies will be achieved through natural wastage, but a number of actions are being taken to generate maximum flexibility, such as restricting the current recruitment of staff and managing vacancies across the two departments. We are also looking to offer redeployment with appropriate training where necessary. I am sure that all of us would want to see any form of compulsory redundancies avoided at all costs and considered only as a last resort. We have established a constructive relationship with the trade union side about the creation of the new department. Regular meetings are being held and arrangements have been agreed for discussing the new work force plans, including any reductions and skilling requirements. Talks on the detailed plans themselves are not yet under way because detailed plans have not been prepared. But I can absolutely assure my hon. Friend that there will be full consultation on these plans when they are available and in the preparation process.

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