Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 60-79)

HM REVENUE AND CUSTOMS

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 2010?

  Mr Gray: Yes, I did.

  Q61  Mr Williams: Which is the first year?

  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 million—the £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 the entitlement.

  Mr Gray: But the entitlement is not a cost to the Exchequer; the £50 million is the only cost.

  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 a cost.

  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 in entitlement.

  Q67  Mr Williams: Okay, we disagree on that. Perhaps you will let me have a further note on the subject.[5]

  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 for that.

  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 Clark—that 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 charge—say, the Permanent Secretary—consult 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 it?

  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 portal.

  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 with EDS—

  Mr Williams: Sorry, can you speak up slightly?

  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 all—you do not remember a grand total at all—was any penalty clause invoked against the supplier?[6]

  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 price of?

  Mr Gray: Sorry. Again, I do not have that figure, but I can let you have it.[7]


  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

6   Ev 23-24 Back

7   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 million. Back


 
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