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Nevertheless, there remains a point at which delay becomes unreasonable and unjustifiable, whatever the worthy objective behind it. The Financial Secretary cited a figure of 12 months for the completion of verification checks which had been accepted by the courts. If that is truly a reasonable and justifiable delay, let the Treasury specify it in an order, or let HMRC print it in a glossy brochure so that businesses know what to expect.

Thirdly, the Financial Secretary argued that HMRC’s record on MTIC fraud is very good, showing that the Government’s strategy on MTIC fraud is well focused. He cited the figure that we heard earlier, that only 1 per cent. of the VAT that had been withheld because of verification was found to be correctly claimed and repayable, but that statistic will be of little comfort to those who are caught up in investigation, and it has no direct bearing on whether HMRC can agree a timetable for verification and then stick to it.

I raised the issue in Committee because I was worried that HMRC might lack the resources that it needed to cope with the scale of MTIC fraud. Publicised time scales for VAT registration and repayment would assist resource management within the organisation. It would also be invaluable to businesses that rely on prompt VAT repayment in order to maintain a healthy cash flow.

One of my constituents was a director of a firm that was caught up in an MTIC fraud investigation. My
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constituent’s company supplied mobile phones, and it had exports totalling £60 million in 2006. It waited some 10 months for a VAT repayment claim of £6.7 million to be met while “extended verification” procedures were carried out on its supply chain. Unfortunately, that wait did not have a happy outcome; on 17 January, the company went into administration due to the significant dent in operating cash flow represented by that £6.7 million, which is a substantial sum for a company with a £60 million turnover.

It is unfortunate to say the least that any company should be driven to the wall in those circumstances. I do not wish to second-guess HMRC’s judgment on that particular case, but I do question the process. I suspect that the uncertainty of living month to month while investigations were carried out was the final straw for my constituent. He also told me that he did not think that any investigation was going on for much of those 10 months, as few of his suppliers were even contacted.

Proposed subsection (3) of the new clause would ensure that HMRC had an incentive to get a move on, since running out of time would result in a determination in favour of the application. It is better that HMRC should run out of time than a company should go to the wall or go bust having run out of money. What the new clause does not do is prescribe a reasonable time scale. It is quite right that HMRC should, informed by all the relevant operational considerations, advise the Treasury on an appropriate time scale. Once in place, however, that time scale would introduce some accountability and get companies that are being investigated for MTIC fraud out of limbo.

My final word is a note of scepticism on proposed subsection (5) concerning force majeure. As we heard earlier, Mr. Eland, the director general of enforcement and compliance at HMRC told my hon. Friend the Member for South-West Hertfordshire that HMRC was

Given the Government’s woeful record on IT projects, I hope that the routine IT failure will not be brought within their ambit under force majeure.

John Healey: We have had yet another good debate on the challenges facing HMRC and the Government in tackling some of the systematic and very serious fraud perpetrated against our VAT system. I welcome the support that hon. Members in all parts of the House have given us in that regard. We have also had a useful debate, as we have done previously during the Bill’s passage, on some of the problems that are evident and that senior HMRC officials and I have recognised and are concerned about in relation to delays in VAT registration and repayments. I shall come in a moment to the provisions in new clause 4, which I do not think will help deal with those problems. Nevertheless, given the scale of the work that HMRC does and the intense impact and difficulties that can be caused for individual companies, it is appropriate that we debate these matters on the Floor of the House.

The hon. Members for Ludlow (Mr. Dunne), for Rochford and Southend, East (James Duddridge) and for Braintree (Mr. Newmark) all mentioned particular
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constituency companies. If each of them separately would like to give me the names of those companies, I shall consider the cases. I shall check on the present position of the company raised by the hon. Member for Ludlow and ensure that he receives an update, and I shall do the same for the hon. Member for Rochford and Southend, East, whom I can reassure in passing that carousel fraud in the VAT system is a major concern, although our vigilance on other forms of VAT fraud continues. If the hon. Member for Braintree can let me have the name of the company—we have discussed it before and I have caused inquiries to be undertaken, as I undertook to do—for the purposes of taxpayer confidentiality and to ensure that I have the right company, I can, with that confirmation, get back to him on the current position.

Mr. Newmark: I appreciate the Financial Secretary’s comments, but the spirit in which I was trying to make my points was not so much about the case itself as about the process that it had to go through, which lasted rather a long time. That was the thrust of my argument, rather than the rights and wrongs of HMRC’s judgment on my particular constituent’s case.

6.45 pm

John Healey: I appreciate that, and even where the hon. Gentleman has been very critical of the Government in the thrust of his argument, I accept the manner in which he has put it.

The hon. Member for South-West Hertfordshire (Mr. Gauke) asked me for specific information on certain important aspects. Let me try to deal with them at the outset, after which I shall come on to the proposals set out in the new clause. First, claims that registration applications have not even been opened are simply not true. Post received by the registration units is opened on the day of receipt. The timetable against which HMRC attempts to manage its operations, which it monitors and then is judged against, counts from the point of receipt of the form.

On repayments, the hon. Gentleman said that he had been pressing for more information and a breakdown of some of the figures that he and I have discussed previously. In particular, I refer to the process of verification of repayments that may have been linked to MTIC loss where there are grounds for further investigation. In a third of those cases—or, if he likes, 95 per cent. by value—there was firm evidence of links to such fraud. In two thirds—by number, but not value—there are strong indications of such links, warranting further investigation. I hope that that helps him with his question.

The hon. Gentleman asked about the closure of the Newry office, and indeed about the proposals to close the Carmarthen office as well. That is part of a long-term process of making sure that, as in other parts of government, we can deliver the services that are required—by taxpayers, in this case—better, but do so more efficiently with the resources that we have. That is part of a long-term process of reducing delays and backlogs. Increasing capacity at Wolverhampton and Grimsby will ensure that there is no need in future for four processing sites. Clearly, however, the capacity
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is not there yet and Newry will not be closed until capacity in the other centres has been increased.

I welcome the hon. Gentleman’s response to Government amendment No. 2, which changes the procedure for this House in considering Treasury orders relating to joint and several liability provisions for VAT. In future, both types of order will be subject to the affirmative procedure.

Let me turn now to the new clause and concerns about registration and repayments. I understand the concerns and I recognise that problems have been caused to some legitimate businesses, but I think that hon. Members on both sides of the House have also recognised the necessity of the action that HMRC has to take to try to counter what is a very serious and systematic form of fraud. We already have a good deal of scrutiny of HMRC’s performance in these fields, and there are also well-established arrangements for judicial challenge, should that be required. I hope that the hon. Gentleman will accept that his new clause is not necessary and may risk causing complications and further problems.

There must be agreement across the House that, as well as delivering the highest possible quality of service for compliant and legitimate businesses, it is important for HMRC to guard against the threats of fraud and attack. The House is well aware of the scale of that threat; its impact on VAT receipts was estimated at between £2 billion and £3 billion in 2005-06. The House is also well aware of the range of measures that the Government have taken to stem those losses. I am confident that the combination of those measures, together with the work of HMRC officers in tackling the fraudsters, is beginning to have a significant impact on the scale of MTIC fraud losses.

In 2006-07, 7,100 applications for registration were refused on the grounds that they were suspect, and 2,500 applications were registered with specific conditions such as financial security. It remains the case, however, that the two key components of HMRC’s MTIC strategy must be, first, to prevent bogus businesses from obtaining a VAT registration, because without that it is not possible to operate that form of fraud, and, secondly, to verify that VAT repayment claims suspected of arising from the supply chains affected by that type of fraud are properly checked and verified.

VAT-registered businesses submit about 2 million applications for repayment every year, which is worth between £50 billion and £55 billion. The House will accept that it is only right that those returns are subject to certain credibility checks before payment is made. Just 10 per cent. of all repayment returns fail those credibility checks and are therefore selected for further checking—in other words, nine out of 10 returns are not selected for further checking. A tiny fraction of those claims is suspected to be linked to MTIC fraud and is therefore subject to a highly targeted process of extended or in-depth verification.

The verification of suspect repayments that may be connected to MTIC fraud can be complex and time-consuming, not least because such organisations deliberately make it time-consuming to check their complex supply chains. I am glad that Opposition Members accept that only 1 per cent. by value of the VAT withheld under that programme has been found to be correctly claimed and properly payable. In 19 out
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of 20 cases in which traders have been subject to extended verification, HMRC has found either evidence that traders have participated in or profited from trading linked to MTIC fraud or sufficient grounds for suspicion that further investigation is required to determine the veracity of the claim.

As VAT registration is clearly the entry point to MTIC and other types of serious VAT fraud, it is right that we take stringent action to deny fraudsters the opportunity, where we can. That includes rigorous pre-registration checks, which can cause delay. However, the picture behind the performance of HMRC on VAT registration is rather more complex than that. Historically, the delays in registration have been largely due to incorrect or incomplete applications, and the introduction of a new form in December last year made registrations easier to complete accurately—the number of people who get their applications right first time has increased from 30 per cent. to around 70 per cent. The assessment procedures around registration have become more targeted, and they have also become more flexible as we have detected changing risks. Nineteen out of 20—95 per cent.—of applications are now cleared for registration after an initial check, and for those applicants the average time to process an application is currently 38 days. I acknowledge, however, that there are also some unacceptable delays in the registration service at the moment.

The hon. Member for South-West Hertfordshire cited Mr. Paul Gray, the HMRC chairman, and Mr. Mike Eland conceding that point before the Treasury Committee and asked what steps HMRC is taking to tackle those delays. First, a taskforce has been set up within HMRC further to concentrate on the highest risk applications to minimise the disruption caused to other legitimate applications. Secondly, the maximum resource possible has been committed to introducing the medium-term changes to concentrate registration staff and expertise in two sites rather than four. Thirdly, there has been a concentration on making the necessary improvements to the computer system. I recognise that it may take some time to get those measures precisely right. HMRC has told me that it is confident that by the autumn it will be on track to deliver a sustained improvement in the registration service that serves taxpayers’ needs while remaining tough and strong on fraud. On top of the undoubted pressure with which HMRC is dealing, Opposition Members have proposed a new obligation, which could cause further problems.

There is an established series of regularly and properly used procedures in this House for holding HMRC to account and for HMRC to report to this House, and there are a number of judicial safeguards and methods of redress for companies that may require them. In the end, HMRC is, of course, subject to judicial review for its actions, and it is noteworthy that the courts have consistently supported HMRC’s verification approach, including checks made in the past 12 months. To date, all cases reaching a full hearing in the courts have been dismissed.

I submit that HMRC has recognised the drop in the proper and rightfully expected performance on registrations and that steps are being taken to rectify the situation. The fact that that is a temporary dip in performance levels and that the Government will
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implement public service agreements to ensure that the situation is effectively monitored and scrutinised in the future mean that new clause 4, which would give the Treasury the power to propose statutory time limits for processing VAT registration and repayment applications, would be counter-productive. In the context of a VAT registration service that is currently under pressure and that is dealing with temporary problems, new clause 4 is a disproportionate overreaction. As the hon. Member for Falmouth and Camborne (Julia Goldsworthy) has rightly pointed out, it might have the perverse effect of tying up HMRC in unnecessary bureaucracy and litigation at a time when all of us want it operationally to sort out the problems and delays on registration and to maintain the pressure on VAT fraudsters.

I hope that I have been able to give the hon. Member for South-West Hertfordshire and the House the reassurances that they have been looking for. I therefore hope that the hon. Gentleman will not consider it necessary to press new clause 4 and that the House will welcome Government amendment No. 2.

Mr. Gauke: I agree with the Financial Secretary that we have had a good debate this afternoon. My hon. Friends the Members for Ludlow (Mr. Dunne) and for Braintree (Mr. Newmark) and my right hon. Friend the Member for Wokingham (Mr. Redwood) have highlighted some of the issues for business caused by the delays in VAT registrations and repayments. Indeed, the hon. Member for Falmouth and Camborne (Julia Goldsworthy) supported the objectives of new clause 4.

I am grateful to the Financial Secretary for clearly acknowledging the difficulties. He has referred to 95 per cent. of VAT registration cases being determined within 38 days, which is somewhat above the 21-day HMRC target. He has been clear that problems are evident, and he has recognised the difficulties for businesses and that some of the delays are “unacceptable”.

The Financial Secretary adopted a slightly different tone than has sometimes been the case for Ministers. On 24 January in evidence to the Treasury Committee, the Paymaster General did not seem to recognise the difficulties. None the less, I appreciate the tone adopted by the hon. Gentleman. He has been clear that he sees this as a temporary dip. Obviously we will watch the situation closely to see whether the steps that he outlined that HMRC is taking to address this succeed in meeting those objectives. If next year improvements have not been achieved, we will look at the matter again. However, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 8

Rural Fuel Discount Scheme

‘(1) The Treasury shall by regulations provide for the introduction, by no later than 1st May 2008, of a Rural Fuel Discount Scheme.

(2) The purpose of the Scheme is to provide a rebate on road fuel duty to qualifying persons at qualifying retail outlets.

(3) Qualifying persons under subsection (2) are persons residing in remote rural areas and qualifying retail outlets are outlets located in remote rural areas.

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(4) Regulations under subsection (1) may—

(a) specify the amount of the fuel duty rebate;

(b) define “remote rural areas” in such a way that the combined total of the qualifying remote rural areas does not contain more than three per cent. of the total population of the United Kingdom;

(c) specify how the rebate is to be applied, including—

(i) how a person’s eligibility for a rebate is to be verified at the point of purchase of road fuel, and

(ii) how any administrative costs are to be defrayed;

(d) provide for it to be an offence for a person fraudulently to claim a rebate to which he is not entitled;

(e) provide for a system of registration of eligible vehicles.’.— [Danny Alexander.]

Brought up, and read the First time.

7 pm

Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): I beg to move, That the clause be read a Second time.

The new clause would reduce the burden of high fuel costs on residents in remote rural areas, such as those in the highlands and islands, including in parts of my constituency and those of other hon. Members. Some hon. Members here were present for a similar debate this time last year, and I welcome the opportunity to return to the subject. I recall that Labour Members chose to vote against the new clause on that occasion, and Conservative Members by and large abstained. I hope to have a little more support this time, although I note—perhaps this is an augury for the future—that the Chancellor of the Exchequer did not vote last time, so perhaps this is an issue on which he wishes to move forward when he becomes Prime Minister in a few days’ time. However, as my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) says from a sedentary position, his track record may suggest that his heart does not warm to this issue.

In bringing forward the new clause, I have tried to address some of the criticisms that were made when the matter was last debated and I have come up with a modest proposal, but one that will make a real difference and help to remedy a real disadvantage. This is a matter that I raised, in writing, with the Chancellor before the last Budget, and I am grateful for the reply that I received from the Financial Secretary, although it was not particularly positive in terms of moving the issue forward.

Mr. Redwood: Will not second home owners and millionaires be eligible for this within the chosen areas?

Danny Alexander: The right hon. Gentleman raises an important question about the definitions, to which I will come, but I should like to outline my argument first and then address his point.

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