Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 100-119)


12 OCTOBER 2005

  Q100  Mr Mudie: I am just asking these for the benefit of the Ombudsman.

  Mr Varney: And I am sure she will be very grateful to you. We are looking at the extent to which we can deliver more case capacity and—the point that was made earlier—the accessing of multiple files. Clearly, given the resources we have, there is a limit to how much case management we can do one-on-one but we are going to take that recommendation forward.

  Q101  Mr Mudie: The three you have mentioned, the last three, I regard as policy and I would not have thought you need ministerial agreement for those. But one to nine are administrative. Have you accepted those as recommendations?

  Mr Varney: We have accepted 11 of the 12 recommendations.

  Q102  Mr Mudie: Which one have you not? Just the write off?

  Mr Varney: The write off.

  Q103  Mr Mudie: So you are accepting the statutory test?

  Mr Varney: We were asked to give consideration to the adoption and that is what we are going to do.

  Q104  Mr Mudie: That does not mean to say you are accepting it. You are considering it.

  Mr Varney: That is what the recommendation says. I do not want to be pedantic. It is a good job I brought my copy. It says, "Consideration should be given," and that is what we are going to do.

  Q105  Mr Mudie: You are considering it.

  Mr Varney: If the recommendation said, "You will adopt," I might take a different position. It asks us to consider it and we are seriously—

  Q106  Mr Mudie: How long will it take?

  Mr Varney: We are in discussion at the moment in all these aspects. Paul and Sarah have been talking to the Ombudsman. This is a matter which we will take forward.

  Q107  Mr Mudie: On the "payments page", paragraph 3, are you doing it?

  Mr Varney: This is the challenge in terms of COP 26 and TC846.

  Mr Gray: We talked in response to an earlier question about revising the guidance material, and this is one of the issues we are looking at as we revise the guidance material, whether we can make that clearer. It flags up the dilemma I was discussing with Mr Viggers, in that at the same time as simplifying the guidance we are trying to make sure that we add extra things into this.

  Q108  Mr Mudie: Could we have a note, a position statement, up to these dates on each of the recommendations, whether they are being considered, being reviewed or being implemented, and, if so which date of implementation.

  Mr Varney: Yes, we could do that.[5]

  Q109 Mr McFall: The deadline for application for tax credits renewals was 30 September. How many applications were supposed to have been returned by that date? Of these, how many do you estimate have in fact been received? Is it likely to be more or less than last year?

  Mr Gray: Slightly more than last year. If I could answer it in the negative, in terms of those that have not been returned: last year the figure was slightly over 200,000 and this year it is almost exactly 200,000, so the number for which we have not had completion of the renewal process is slightly smaller. The caseload of course has gone up a few hundred thousand over the years, so the number actually returned in absolute terms has gone up.

  Q110  Mr McFall: Can you confirm that within a few days—if it has not happened already—those people who missed the application deadline will stop receiving their tax credit payments?

  Mr Gray: As we speak, this week, termination notices are being issued to those approximately 200,000. If any of those people were quickly to respond to provide the information we need and demonstrate to us good cause why they were not able to do that beforehand, we will reinstate their payments. Last year, approximately one-half of the people who received termination notices did respond quickly and we reinstated them.

  Q111  Mr McFall: Are you satisfied that steps were taken to impress upon people the importance of beating this deadline?

  Mr Gray: Yes. We have done more things this year than we did last year. We have had a bigger and more proactive telephone campaign, we have done advertising, we have sent at least one communication—probably more—to most people. We feel we have done as much as we reasonably could.

  Q112  Mr McFall: Will all the people who have missed the deadline also be expected to repay immediately the total amount of any overpayments which they have received in the past? To what extent will that cause hardship?

  Mr Gray: They will not face a repayment schedule any different from anybody else who has an overpayment, so we will apply the normal rules to them.

  Q113  Mr McFall: How do you intend to treat those people who miss the 30 September deadline and reapply in October? Will they be treated as new claimants and expected to repay some of the tax credits received earlier in the year?

  Mr Gray: It depends. If they quickly respond to us and provide the information we need and a reasonable reason why they have not done it before, we will reinstate. If we do not hear from them, say within 30 days, then the termination process will be completed and the overpayment procedure will be put into place. If they then wish to reapply, it will be treated as a new claim and normal arrangements for up to three months' backdating of credit.

  Q114  Mr McFall: In that case, how does such treatment differ from being a penalty for late submission of the application for renewal?

  Mr Gray: I am sorry, you are implying that we are imposing a penalty for not renewing?

  Q115  Mr McFall: Yes. If you are treated as a new claimant and expected to repay some of the tax credits received earlier in the year—and you said yes to me on that—how does such treatment differ

  Miss Walker: They have not made a valid claim. If we have not heard from them by 30 September and then within a month of getting their termination notice they still have not notified us that they had a good reason for being late, then there is no valid claim for that year and they then have to start again.

  Q116  Mr McFall: Is there a penalty for that?

  Miss Walker: No, it is not a penalty, but there is no longer an entitlement to the amount we have paid them on the provisional basis for the first part of the year, so that becomes repayable and we would have to treat them as a new claim under the legislation.

  Chairman: We are going to move on to the merger.

  Q117  Peter Viggers: A large merger: two large organisations, the Inland Revenue being very much the larger of the two: three time larger in terms of group size and 18 times the budget, and of course a different ethos. The Ombudsman review looked at the prospective merger and warned of potential risks. Do you feel you have been able to maintain service to your clients during the early period of the merger?

  Mr Varney: It would be a foolish man, reflecting on the conversations we have had for the last hour and a bit, who said we have done it in every theatre, but I think that in quite a lot of theatres customers have been satisfied. The expectations of us are rising and we are trying to respond to those. I think moving to new premises in the Treasury was actually very helpful, because people left behind their tribal homes: people have come together and want to make a success of HMRC, which has been a very encouraging basis for moving forward. Also, because we had a year in which Parliament was deciding what were the powers and status of HMRC, we were able to engage the people who worked in the organisation in designing the structure. We have looked around the world at the organisation of Revenue and Customs authorities. I do not think any Revenue and Customs authority feels it has the right organisation. That encouraged us to go for the structure we have gone for, which we think better manages the risks.

  Q118  Peter Viggers: Will your customers have felt a benefit?

  Mr Varney: Some of them are remarkably coy when they feel a benefit. I think we have seen some progress in terms of reduced size of the self assessment form. We are talking to all small- and medium-sized enterprises that we can about how we can have a regime which achieves the objectives we want with less negative impact on them. I think that has been positive. I think we are at an early stage in terms of large business: we have put large business together from the two organisations and we are beginning to be able to talk to some of the bigger companies in the land economically about both the old Customs sector taxes and the Inland Revenue. In law enforcement, there is another class of customers who are not the customers we want to delight: they are the people we want to discourage and hunt down; the people who are not complying with their obligations or are involved in criminal activity. There I think the merger between the skill-base of Customs & Excise and the Inland Revenue has been very positive.

  Q119  Peter Viggers: Has there been a clash of cultures or ethos? A constituent's company was fined one-third of a million pounds by Customs & Excise some years ago. I pointed out that this would bankrupt the company and, without a qualm, the company was duly bankrupt by Customs & Excise—a decision from which there was no appeal. Do you find the staff are thinking differently? Are you seeking to transfer staff in order to build up the awareness of these cultures?

  Mr Varney: I think the popular view outside is that we have two cultures. I sometimes think we have 19 and to have two cultures would be a luxury! It is the case—and it is true of Customs authorities around the world—that where they have defined legal obligations and defined situations, they tend to have a clearer position and a more forceful position on their interventions: it is either right or it is wrong. In a lot of cases in the Inland Revenue there has been negotiation about what the law means. There is a scope for consideration. We have done what you have suggested, so that there are people in different parts of the outfit: in areas which were traditionally Customs, we have Inland Revenue people, and Customs people in Inland Revenue areas. It will take time, though, because there is a big need to make sure that people are trained and developed for HMRC, and most of the people who have worked in the two organisations have been developed by the Inland Revenue or Customs & Excise. That is also true for companies. Companies have the same issue. They have people who have skills in Inland Revenue tax or VAT, and they will need to produce an integrated big personnel, so that will take time. Professional firms have to do that too. So maybe there is some common ground between us.

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