Examination of Witnesses (Questions 448
- 459)
WEDNESDAY 19 APRIL 2006
SIR DAVID
VARNEY, MR
PAUL GRAY,
MR STUART
HARTLIB, MR
STEVE LAMEY
AND MR
RICHARD SUMMERSGILL
Q448 Chairman: Sir David, could I
welcome you back to the Sub-Committee. Could you introduce your
team, please?
Sir David Varney:
Thank you, Chairman. Starting on the far right is Steve Lamey,
who is Director-General for Information Management Services, basically
our IT infrastructure, also responsible for Knowledge Analysis
and Intelligence and Pay As You Earn, National Insurance and self-assessment.
Next to me on my immediate right is Richard Summersgill, who is
Director of Child Benefit and Tax Credit Operations, whom I believe
some of you met when you went up to Preston. Then on my left is
Paul Gray, Deputy Chairman, who is responsible for individuals'
benefits and credits and has had, over the last six months, direct
responsibility for new tax credits. Finally, Stuart Hartlib, who
is Director for National Compliance.
Q449 Chairman: Thank you very much.
These new tax credits have now been in existence for three years.
Do you think the system has been in operation for sufficient time
for the Government to be able to sensibly assess how it can be
simplified?
Sir David Varney: Obviously the
Government has made some course corrections in the announcements
it made in the Pre-Budget, but of course with the annularity of
new tax credits we are only now getting into the area of the first
full year of operation. So I think we have made some amendments.
We have been working hard, literally, since a number of us joined
Revenue and Customs back in 2004 to improve what we inherited
and to deliver a better service for our customers.
Q450 Chairman: I think it was you
originally who said the system might take two or three years to
bed down, and we have now had three years. How much longer do
we need to be able to pronounce as to whether this thing can be
simplified and improved?
Sir David Varney: I think there
have been some measures which were taken in the Pre-Budget Report,
as I have said, but do not forget that we have still only had
one full year of operation because of the annularity and the catch-up.
So I think we need a bit more time, although we have made some
changes and operationally we continue to look at what we have
learned about new tax credits to see how we can deliver a better
service. I think, as the Paymaster General said to you, we are
looking at whether particular customer groups have particular
needs and the extent to which we can address those in a way which
eases the operation of the system.
Q451 Chairman: One of the problems
we have had in our inquiry is the difficulty in getting more precise
information, for example there seems to be no definitive breakdown
of the causes of overpayments. Is this because your senior management
does not have the information, or is there a difficulty in making
this information more publicly available?
Sir David Varney: In general,
I think we would like to increase, and are trying to increase
the amount of information which is in the public domain. We are
trying to do that. I think on the issue about what are the causes,
we have to operate on the basis of sample. This is such a big
system that you cannot do work by virtue of looking through every
single case. We have actually got to take a sample and work through
that sample and make sure we understand it. Often in cases of
overpayment it is not a single cause which you can identify uniquely,
so it is an inherently complex problem.
Mr Gray: Just to expand the point
about the factors being rather interdependent, we have identified
and the Paymaster General has explained in previous evidence and
in statements to the House that there are several factors which
taken together account for a substantial proportion of the overpayments,
including income rises from one year to the next, the fact that
we operate on provisional payments for a significant part of the
following year, and the fact that sometimes when income falls
during the course of the year the extent of that fall is over-estimated
by claimants. All of those three factors, as Sir David was saying,
will not always operate in isolation and you will quite often
have two or more of them operating in combination. Our best estimate,
as I think has been made clear in earlier evidence, is that if
you take those three factors together they probably account for
about two-thirds of total overpayments. But it is very difficult,
with the best will in the world, to actually precisely identify
the component that each of them makes because they are not always
in unique operation.
Q452 Chairman: My colleagues may
return to that. The Comptroller and Auditor General's report on
your standard accounts for 2003-04 said that an IT system release,
which provided management information, had only been "part-delivered".
Has it ever been fully delivered? That was back in January 2004.
Sir David Varney: I will pass
over to Steve to give more details, but can I just explain what
we do on release, just as a background? We inherited a system
which when it had been upgraded had unintended consequences which
had not been predicted. So we have worked quite carefully to both
stabilise the system and to produce new functionality. We now
have to plan somewhere between eighteen months and two years in
advance what we need to do with the system. So there is a lot
of work which as gone in, and Steve and his colleagues have delivered
a system which is much more stable but still quite complex to
deal with and we have just, I think, put in a release which has
given us better quality management information.
Mr Lamey: I think there has been
a progressive improvement really. I think when we started I do
not think management information was necessarily always available
as we would have liked it, but I think from releases 4, 5 and
6 onwards we have improved the level of management information
and the release which went live not last weekend but the weekend
before Easter has actually added to the amount of management information
we are now able to review and analyse. But I should add, as David
mentioned earlier, the system does not actually enable that information
to come out as you would hopefully ever expect, so we do have
to still do an awful lot of manipulation of the data when it comes
out to actually get it into a useable format, and that work is
ongoing as we speak.
Sir David Varney: The other thing
is, if you compare the complexity of this system with, say, our
Pay As You Earn or NIC system, it is about three times more complex.
Q453 Mr Gauke: HMRC is obviously
reducing its staff numbers as part of a Government efficiency
drive. I think the aim was 4,000 reductions full-time equivalent
by 2005-06. What has happened with regard to those staff administering
tax credits? Have there been any staff reductions in that area,
and if not what are the plans for staff reductions there?
Sir David Varney: I will pass
over to Richard, but in broad terms we have got a target for a
department which I think when I arrived was over 100,000 and we
are now down to about 92,500. That 100,000 was also quite a lot
of part-time, so the full-time equivalent is about 98,000. We
took a decision very early on that new tax credits needed to be
brought into a state of delivering what ministers, clients and
claimants expected of it, that we had major problems and we had
let down the people we serve and we needed to improve it. We therefore
concentrated on getting the resources that we have got to work
on the problems we faced. We are now at a stage where we think
that is bedded down. We have got some more work to do over the
balance of 2006-07 and then we would look for TCO to be part of
the productivity drive with managing the whole of HMRC, but from
time to time we will deploy our resources within that efficiency
drive in areas where we have got special needs or special requirements
in order to provide a better service.
Mr Summersgill: So far the Tax
Credits Office has grown each year and certainly the management
team's focus at the moment is on improving customer service and
productivity. We certainly want to make the office as efficient
as possible and we have got a lot of activity going on to make
it more efficient, involving all of our front-line staff, improving
complaints, for example, on which we have had favourable reports
back from the Adjudicator and from the Ombudsman. Over time I
would hope that as we become more efficient we will be able to
reduce our size and contribute to the broader efficiency targets,
and I think that will be a good sign of our success.
Q454 Mr Gauke: So in two years' time
what would you envisage? Would staff numbers be substantially
down on what they are at the moment?
Mr Summersgill: I think it will
be a little longer than that. I think for the next two years our
real focus is on improving productivity and customer service.
There will be some IT changes which as they roll out will offer
opportunities for us to reduce slightly or to re-focus those resources
on other areas of the office as well.
Q455 Mr Gauke: Would it be fair to
say that within the next couple of years you do not think you
could have reductions in staff numbers in this area without actually
damaging the service you provide?
Mr Summersgill: I think that very
much depends on what comes out of our efficiency activities. We
have got a very large programme of work going on which is called
Pacesetter. Part of that is about engaging front-line staff in
improving the way we operate. Some of the earlier work has produced
very positive results, in some areas increasing productivity by
60%. I think, for a number of reasons, I will not get that sort
of result in every area where we hold these sorts of events. So
I do not want to be pessimistic about what the future holds. I
do not think the TCO needs to keep growing, certainly, and I think
we have a real opportunity significantly to increase customer
service and productivity over the next couple of years.
Sir David Varney: Could I just
add to that, because I think it would be helpful for the context
also? We talked to the PAC about what was error and what was fraud
in the system. We have done some very early results which we said
understated our problem, but the characteristic of the performance
of the system was error, which was much, much more important than
fraud in terms of total value. Error tends to create re-work,
which tends to create more havoc, so the more accuracy we can
get into the system—and that is why we have revised the
forms and why we are revising the disputes procedure, all those
sorts of things—the better we are at that the less we will
need to put resources into fixing problems which we have helped
create.
Q456 Mr Gauke: I was going to make
the point actually, and I am glad you have come on to that, that
the PCS argues that actually you need more staff to tackle fraud
and therefore it would be difficult for you to reduce staff. The
other point which could be made about staffing numbers is that
you have paid out something like £9 million in the last four
years in overtime. Is that not an argument that you still need
more staff dealing with tax credits rather than less at the moment?
Sir David Varney: PCS, whenever
I meet them, are always in favour of more staff! The particular
reason varies by location and timing. Overtime runs at about 2.75%.
I do not think that is too high, and often what we want (which
staff are willing to do and help us) is that at times, particularly
with computer changes and upgrading, we want to minimise the amount
of time the system is down and we need their experience and expertise.
We have also got some staff who are on fixed term assignment and
clearly the progress we make will enable us to decide how many
of those we want going forward.
Q457 Mr McFall: Sir David, can I
take you back to the evidence session we had on 25 January, the
exchange between George Mudie and Frank Field when he was here.
George mentioned the wage-type slip being produced for tax credits
and this centres on form TC647, and I think it was agreed it was
a very complicated form. As a short-term measure, could something
be done with that form because the issue of the wage slip is that
nothing automatically triggers it? You have to know about it,
or your Member of Parliament knows about it, and it seems as a
practical measure something could be done in that area.
Sir David Varney: I will hand
over to Paul, but we have just changed the statement of the prospective
awards which has just gone out. Those are much clearer. I think,
if I am right, you are talking about playback, and that will depend
on computer functionality.
Mr Lamey: We are planning to roll
out playback in November this year.
Mr Gray: In terms of when that
will improve the position for customers, as Steve says, the IT
functionality for that will be rolled out this November. That
will mean that this time next year, when we are starting the 2007
renewals exercise (we have just started the 2006 renewals exercise
last week), this new playback form will be fully operational then
for everybody in next year's renewal exercise and that should
very substantially help with the problem you have identified.
Sir David Varney: I think also
we have done something which the Paymaster General talked about,
which is pro-actively contacting people whose circumstances might
change, and that is tending to lead towards the conclusion that
writing to them is more effective than telephoning or any other
means.
Q458 Mr McFall: Could you keep the
Committee informed on that? That would be helpful.
Sir David Varney: Yes, I am more
than happy to do that.[1]
Q459 Mr McFall: Frank Field also
followed up his evidence session with a letter to us when he asked
the question, "Are there any major reforms to the structure
of the scheme that can be advocated over and above the package
the Paymaster General announced towards the end of last year"?
He states that the only alternative is to go to a fixed awards
scheme, but he suggests that Members of Parliament would have
as many problems, if not more problems, with that situation. Have
you considered that and have you ruled something like that out?
Sir David Varney: I think at the
announcement, the PBR, the Government said that they would continue
to listen to alternative ideas. I think our view on this is that
this is very much a matter for the Treasury and it is a policy
issue. We concentrate on operating the system we have got to the
best of our ability.
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