Examination of Witnesses (Questions 60-79)|
HM REVENUE AND
23 OCTOBER 2006
Q60 Mr Williams: Mr Gray, did I hear
the figures correctly when you referred to the disregard? Did
you say that in the first year the cost to the Exchequer would
be £50 million and that it would be £300 million by
Mr Gray: Yes, I did.
Q61 Mr Williams: Which is the first
Mr Gray: It is 2006-07.
Q62 Mr Williams: You also said that
the extra entitlement would be £500 million year by year?
Mr Gray: Yes, the entitlement
would come into effect more or less straight away. The Exchequer
cost builds up gradually over a number of years.
Q63 Mr Williams: So the total in
year one would be about £550 millionthe £50 million
and the £500 million combined.
Mr Gray: I do not think that it
is appropriate to add the two together; they are alternative measures
of different things. The increase in entitlement
Q64 Mr Williams: No; the £50
million is a cost, is it not?
Mr Gray: The £50 million
is a separate cost.
Mr Williams: It is a separate cost from
Mr Gray: But the entitlement is
not a cost to the Exchequer; the £50 million is the only
Q65 Mr Williams: With respect, it
is a cost to the Exchequer in one way or another, is it not?
Mr Gray: I do not think it is.
Mr Williams: It represents something
that has been foregone, for understandable reasons, but it is
Mr Gray: What we are trying to
measure in the figures described in the letter as Exchequer costs
is the extent to which, as a result of the increased disregard,
overpayments that would otherwise have been recovered are not
recovered. And the cost of that, which is the only cost to the
Exchequer in the first year, is £50 million.
Q66 Mr Williams: Yes, but the cost
of overcoming the fact that administrative impossibilities are
facing you in relation to the second figure does not alter the
fact that it is a cost. It is therefore £550 million in year
one; and the £300 million and £500 million in 2010 comes
to £800 million.
Mr Gray: I honestly do not think,
Mr Williams, that it is a cost to the Exchequer. The Exchequer
cost figures capture the whole cost to the Exchequer; the £500
million is measuring a different thing, which is the increase
Q67 Mr Williams: Okay, we disagree
on that. Perhaps you will let me have a further note on the subject.
Greg Clark followed up on the question of the
e-Envoy. Who was responsible for ensuring that the e-Envoy's guidance
was observed? Who ultimately was responsible for that?
Mr Gray: I would regard the senior
management of my Department as being responsible and accountable
Q68 Mr Williams: How did they explain
the fact that they ignored it?
Mr Gray: For the reason that I
sought to explain to Mr Clarkthat a judgment was being
taken, which seemed appropriate at the time, to seek to balance
the issues of accessibility and of security.
Q69 Mr Williams: Despite the fact
that, as Mr Clark emphasised, it said that it must be observed.
That is not optional, is it? It is an imperative. Did the person
in chargesay, the Permanent Secretaryconsult about
whether he was entitled to override the e-Envoy's advice?
Mr Gray: I am honestly not sure
what particular exchanges took place.
Q70 Mr Williams: I would have thought
that you would want to know about that. It is not an insignificant
thing, is it, when you get mandatory advice, which I think that
was, and when you or your Department choose to ignore it? I would
have thought that someone would follow up to see quite how it
had happened. Was any action taken against anyone for ignoring
Mr Gray: I understand the point
that you are making. The fact that the portal for Tax Credits
had been introduced before that guidance was issued clearly had
an influence on the situation. I have sought to explain to Mr
Clark and now to you the balance being
Q71 Mr Williams: But do we understand
that ultimately no one had to accept any responsibility or admonition
for having ignored mandatory advice?
Mr Gray: I have sought to explain
to you the basis on which a decision is taken. We now, after November
last year, are in a different position, where we have closed the
Q72 Mr Williams: Yes, but that is
not what I am asking about. I am asking about what happened there.
It seems that you do not run a very tight ship, does it not?
I switch again to the software errors. We are
told that 199 software errors are still not remedied. That sounds
to me like a lot. Who supplied the software?
Mr Gray: The majority of the software
would have been supplied under the Inland Revenue's former contract
Mr Williams: Sorry, can you speak up
Mr Gray: Sorry. The majority of
that would have been supplied under the Department's previous
IT contract with EDS.
Q73 Mr Williams: EDS? Is that why
it is your former, and not your current, supplier?
Mr Gray: As has been discussed
with the Committee before, there are a number of reasons why a
change of supplier was made. As you know, a new supplier was introduced
in July 2004.
Q74 Mr Williams: How long have the
software errors been identified but not remedied?
Mr Gray: They were progressively
identified over the first two or three years of the operation
of Tax Credits.
Q75 Mr Williams: So how many were
in total there originally, then?
Mr Gray: There were significantly
more than that originally, but I am afraid I do not
Q76 Mr Williams: There must have
been, if it took three or four years, but how many? You know that
there are 199 outstanding; how many have been dealt with?
Mr Gray: Quite a large number
Mr Williams: No, not "quite a large
number". "Quite a large number" is an insignificant
answer. How many errors have been addressed?
Mr Gray: I cannot give you a precise
figure. I can certainly let you have that figure separately. What
we have done very deliberately in the early years of the system
is to seek to address those errors that were having the biggest
impact in the system. That might have been a relatively small
number of errors but they were having the most significant impact
on the operation of the system.
Q77 Mr Williams: I would like a note
off you giving a precise indication of what errors have been dealt
with, in addition to those that have not been. Having identified
them allyou do not remember a grand total at allwas
any penalty clause invoked against the supplier?
Mr Gray: Well, I think
Mr Williams: Other than saying, "Come
and put it right"?
Mr Gray: As you are aware from
an earlier hearing, Mr Williams, we have reached a settlement
with EDS in relation to errors in the initial building of the
Tax Credits computer system and it is in the process of paying
us total compensation of £71.25 million.
Mr Williams: £71 million.
Mr Gray: £71.25 million.
Q78 Mr Williams: Out of a total contract
Mr Gray: Sorry. Again, I do not
have that figure, but I can let you have it.
Q79 Mr Williams: Okay. Finally, your
compliance teams have been getting improved returns. How many
compliance teams do you have?
Mr Gray: Do you mean how many
staff are there in total?
5 Ev 22-23 Back
Ev 23-24 Back
Note by witness: The EDS contract ran for 10 years and
the total revenues under it were of the order of £2,500 million
as was explained at the Committee's hearing in December 2005 (Q212-213)
in the 15 months to 30 June 2004 EDS earned revenue of £504.6
million from the contract and this gave rise to a profit of £121.3