Examination of Witnesses (Questions 20
- 39)
MONDAY 24 JANUARY 2005
INLAND REVENUE
Q20 Jim Sheridan: On the question
of claimants themselves, there is an awful lot that depends on
the claimants themselves giving you accurate information. Is that
right and proper, that you should be dependent on claimants giving
you that information?
Mr Varney: This is a difficult
question to answer, is it not? I think claimants have some responsibility.
The judgement Parliament took is that there was a £2,500
dead zone in which changes on the income would have no impact
on entitlement inside a year and there was the judgment that that
£2,500 was a reasonable number, and not every single change
had to be reported. Clearly there are other changes like the child,
the state of the relationship, who has been claimed for, where
it is right that claimants have some responsibility in the activity.
I think that is fair.
Q21 Jim Sheridan: In circumstances
where people's lives change, it is not a priority for them to
automatically contact your Department to tell them that circumstances
have changed, is it? Could it be that they forgot about it?
Mr Varney: We try, through newsletters
and publicity, to make sure people understand, and when the Chairman
asked me about the annularity of the awards, I will get more experience
of how much people are learning and they do have a three-month
window in which to notify us of some of the changes, like a child
or a partner, but I think Parliament has really made a judgment
which, as far as I can see, is still pretty reasonable. It passes
the man on the Clapham omnibus test.
Q22 Jim Sheridan: Given that there
are a large amounts of overpayments due, and as the Chairman has
already identified a lot of these people are vulnerable, how do
you intend claiming back the money that has been overpaid. Is
it a one-off lump sum payment?
Mr Varney: No. We will obviously
study those cases where people are claiming it is an official
error and that we are responsible and they could not reasonably
have known. We will not pursue them. But in those cases where
we do want to pursue reclaiming the money individuals obviously
have the right to appeal, if that is what they want to do; if
we still get through and that is the right decision, then the
amounts that we can reclaim are limited by our code of practice
which is repeated by the Comptroller and Auditor General in his
Report, so depending on family circumstance we would recover in
a more delayed way, and people who are no longer receiving tax
credits whom we want to recover the money from sometimes seek
from us a timescale over which that can be done.
Q23 Jim Sheridan: And what happens
if they refuse or cannot pay back?
Mr Varney: I think "refusal"
is slightly different to "cannot".
Q24 Jim Sheridan: What is the penalty
if they refuse?
Mr Varney: In the end we could
seek to pursue recovery of the money through the courts.
Q25 Jim Sheridan: How much would
that cost?
Mr Varney: We would have to make
a judgment in each case. There is no point going through the courts
if it is going to cost you more than the benefit you receive at
the other end, but can we just be clear that refusal for no reason
puts us in an incredibly difficult position. If someone has a
hardship case our instructions are to examine that hardship case.
Q26 Jim Sheridan: But if some of
the claimants know exactly what you have just said, that it is
not worthwhile the Department pursuing them through the courts
so just drop it, that is what they will do.
Mr Varney: That is not good either
so we have to have the right balance between compassion and compliance.
Q27 Jim Sheridan: But what I am saying
is that if someone knows that it is not going to be worthwhile
the Department pursuing that claim because it is going to cost
more to go to court then that is what some claimants will do.
They just will not pay it.
Mr Varney: We have to make judgments.
It depends on the case itself. It is very difficult to give a
generalised view on this but if we decide that this is a vexatious
refusal to pay which may have wider consequences then it is perfectly
fair to pursue it through the courts.
Q28 Mr Bacon: Mr Varney, I would
like to draw your attention to paragraph 1.16 on deleted taxpayer
records. It states, "The Department became aware in the autumn
of 2003 that a well established and accepted housekeeping routine
on the PAYE computer databases had for a number of years deleted
some records before the usual final review to check whether any
tax remains overpaid or underpaid for the relevant year. This
means that some customers will not have received the repayment
to which they may have been entitled and others may owe tax which
has not been collected. As the records have been deleted there
is no way of identifying those whose records were open when the
process was run." Now since then you have written to me and
it has been copied to the Committee stating that some 638,000
records, it is estimated, were deleted while still open for the
years 1999-2000 and 1998-99. That is only for two years but in
your letter you state also that the process, the function, the
routine, is at least 10 years old, so firstly how many in total
do you think had their records deleted, whether or not there is
anything you can do about it now? Presumably that 638,000 is a
small proportion of the total number of deleted records.
Mr Varney: We think not, but let
me explain why. We think in the earlier years when the routine
housekeeping was being done there were fewer problems with open
cases—
Q29 Mr Bacon: You were clearing 99%
of your cases before they became three years old?
Mr Varney: Yes. The issue really
came with the NIRS 2 problem which led us to get behind on clearing
up open cases, so we have an estimate of cases which we think
were in 1997-98 which I think were about 275,000 which were deleted.
Q30 Mr Bacon: That is on top of the
638,000?
Mr Varney: Yes.
Q31 Mr Bacon: So that is already
pushing up towards 900,000?
Mr Varney: Yes.
Q32 Mr Bacon: If you go back towards
the 10 years that this function has been operating, what would
it be in total?
Mr Varney: No, we do not think
there would be many open cases because we were clearing open cases
within three years.
Q33 Mr Bacon: Or 99% of them?
Mr Varney: Yes, so we think it
is a very small number.
Q34 Mr Bacon: It says in your letter,
"New management information systems . . . revealed that a
function to cleanse the database of old redundant records was
deleting cases that we did not want deleted". I must say,
you make it sound like Hal 9000 going off and doing its own thing
completely independent of human hand but it strikes me if this
new management information system revealed this, what else did
it reveal? What else has it detected?
Mr Varney: One can never be quite
sure but what we have done is, as a result of this, looked at
our other systems. In almost all other cases we keep the data;
what we were not doing in this particular case was backing up
the data. The data has to be cleared in order to keep the PAYE
database operable, and not loaded with cases which are finished.
Q35 Mr Bacon: It is not a philosophical
question. I am asking you what else has been detected, if anything?
Mr Varney: Nothing else.
Q36 Mr Bacon: What I do not understand
is how could a routine be created which deleted material it was
not supposed to delete? We are talking here about your core data
on taxpayers, people who owe you money and therefore owe the Exchequer
money to pay for our public services, and people who are owed
money, and before that was settled, whether they owed you or whether
they were owed, it was deleted. How could a programme have existed
for such a long time that allowed that to happen?
Mr Varney: I think it existed
because the connection was not made between the build-up of open
cases and the length of time and this routine, so this routine
was seen separately from the build-up of the open cases.
Q37 Mr Bacon: I am still not clear
that this is the answer because whether you have a build-up of
open cases, whether you have 100,000 or a million open cases,
or 25 open cases, surely to goodness any sensibly designed architectural
system would say "This is an open case; it is a case that
should not be deleted", full stop, no matter the quantum.
Mr Varney: I think the system
was designed on the basis that there were not open cases over
three years old, and that was the assumption that had gone into
it. It was clear that that was incorrect given that what was happening
to the handling of—
Q38 Mr Bacon: This brings me to my
next question because how much does the deletion affect your reported
progress in clearing up the backlog of cases, because if you do
not have the case then you do not appear to have a backlog, do
you?
Mr Varney: It has about a 1% impact
on the reported level of backlogs.
Q39 Mr Bacon: In your letter you
also say, "Obviously we have to cleanse our databases regularly
or the systems will become overloaded and would eventually break
down."[1]
Anybody who has seen an ad for the Oxford English dictionary which
is 20 volumes or an ad for Encyclopaedia Britannica, which is
Lord knows how many more volumes, knows you can fit an awful lot
of data on to one CD, so why have you written this sentence, "Obviously
we have to cleanse our databases." To most lay people it
would not be obvious at all.
Mr Varney: When the programme
was put in and with the background against which this was established,
storing data was much more expensive. You are absolutely right;
there are more options available now so we have changed the operating
procedure so we keep data for six years, and what this episode
has done is illuminated an area in which we have some historic
decisions which have proved not to be correct when faced with
the problems we have been dealing with, and therefore we have
gone back and looked at it, and at some of our other storage information.
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