Examination of Witnesses (Questions 20-39)
MR PAUL
GRAY, MR
MIKE ELAND
AND MR
DAVE HARTNETT
24 JANUARY 2007
Q20 Mr Gauke: The Chartered Institute
of Taxation has said that you are an organisation under pressure
and suffering under the strain of too many initiatives. Do you
recognise that description?
Mr Gray: I recognise us as an
organisation that is under a rightful degree of pressure. We have
been set challenging targets. It is right that we should have
been. Are we trying to cope with too many initiatives? No, I do
not think that we are. We are facing a challenging task but one
that has an appropriate degree of challenge that it is right for
this Committee, the public and Parliament in general to expect
of a large, public sector organisation such as ours.
Q21 Mr Gauke: On VAT registration,
there is good reason why there has been an issue on this to do
with MTIC. In the summer I was hearing plenty of things about
considerable delays in VAT registrations. Is that a problem that
you think you have resolved now?
Mr Gray: That has been one of
the areas where we have had probably the greatest degree of pressure
and the performance certainly was not as good as I might have
hoped. I think we are improving there. I would not though at this
point like to say that we have completely cracked that problem.
Mr Eland: As you indicated, it
is trying to get a balance between facilitating legitimate business
and tackling fraud. We did not get that quite right. We put the
emphasis on tackling the fraud. We are now looking to correct
it the other way by simplifying some of the procedures and also
getting better IT backup to carry out some of the fraud checks
so that we can do the checking more quickly. I would endorse what
Mr Gray said. We are improving but we are not there yet.
Q22 Mr Gauke: Can I ask about the
robustness of the online filing systems and processes? Do you
consider that what you have is sufficiently reliable? Are you
confident that online filing will serve the needs of all taxpayers,
particularly small businesses, the low paid and the generally
unrepresented?
Mr Gray: Overall yes, but we are
seeking obviously to oversee a very big increase in the rate of
online filing. We certainly did have some difficulties last year
in relation to employer PAYE returns where performance was not
as good as it should have been. That has very significantly improved
this year. In terms of self-assessment filing, which is a very
topical thing this month—
Q23 Mr Gauke: It is not going to
crash on Monday?
Mr Gray: There is no intention
it will crash on Monday. Last year, we oversaw a very significant
increase in the rate of SA online filing and managed that well.
I am confident that we are doing well this year and also seeing
a fairly significant increase in the proportion of people who
are using that channel.
Q24 Peter Viggers: You have carried
out three separate consultations on your review of the department's
powers, deterrents and safeguards since March 2005. Is the review
taking longer than originally planned and when do you expect it
to be concluded?
Mr Gray: It is possibly going
through more stages than we anticipated. We did not set out with
an absolutely precise timescale. We have had a number of rounds
on this, including further consultations that we issued both in
December and earlier this month around draft clauses, both for
penalties and criminal investigation powers. We have various plans
for further stages of the review during the course of 2007.
Mr Hartnett: From the outset,
we recognised that we could take this in tranches. Our current
thinking is this will probably run through, subject to ministers'
thinking, to the Finance Bill 2008, with maybe a very small residue
in 2009. The key framework we aim to put in place this year with
more next year and residual information powers and the like in
the year afterwards.
Q25 Peter Viggers: Are there some
things that you find you are incapable of doing because your effectiveness
is limited by the powers which you would like to see extended?
Mr Gray: We have the existing
powers that we inherited from the two former departments. What
we are looking to do, taking the whole package together, is to
get to a position where again we are getting a difficult balance
right, which is simultaneously to provide more support for people
who are trying to get their tax and other affairs right but are
maybe finding it difficult and need a bit more help from us, but
also to be in position to come down harder on those who are perhaps
less naturally inclined to be compliant. We are trying to develop
over time a risk-based approach that strikes that right balance
and in all of the main areas we are looking at what is the right
level of powers for an integrated tax and customs authority and
seeing in what direction does that imply moving from the former
inherited powers. There is one particular area that we have had
difficulty with and which it is proposed to introduce a new power
in Home Office legislation now coming before the House, which
is in relation to organised crime in the so-called RIPA powers,
but that would be one particular example. I think this has really
been an exercise about getting the powers right for a modern tax
administration.
Q26 Peter Viggers: The Tax Faculty
of the Institute of Chartered Accountants was quite sharp in its
comment that "the review appears to be heading in a direction
in which powers and penalties will be increased without any corresponding
protection of taxpayers' rights or HMRC taking greater steps to
better understand the reasons for poor compliance." How do
you comment on that?
Mr Gray: I do not agree. Again
Dave may want to add to that. We have been going through very
extensive consultation processes, partly a manifestation of the
time period you referred to in your earlier comment and, as I
said earlier, we are trying to strike an appropriate balance here
and I certainly did not recognise the description of this as one-way
traffic.
Mr Hartnett: Perhaps I can add
two or three things. One of the most important things for us to
have done recently is to support the Department for Constitutional
Affairs in bringing forward a bill which will give new appeal
procedures in relation to tax. We think those appeal procedures
are absolutely central to the safeguards that citizens and taxpayers
need. Another one which may seem slightly strange to you—currently,
although they do not use them, almost 20,000 people in Revenue
& Customs have a power of arrest. We need a power of arrest
in the tax authority going forward but we intend to reduce that
to less than 2,000 people who are very well trained indeed and
much better trained than people have been in the past, and the
next phase of work of our consultative committee (which is largely
drawn from the private sector with some from the Tax Faculty)
is about safeguards and how do we get the right safeguards in
place.
Q27 Peter Viggers: A completely different
point, the Chartered Institute of Taxation has expressed concern
that VAT as an indirect tax has been included in your proposals
for a new management act for direct taxes. Why have you adopted
this approach?
Mr Hartnett: Mr Viggers, we had
a lot representations over the last five years in the old departments
and now in the HMRC to bring some consistency of approach to the
period of claims, the forms required and the time limits for the
principal taxes, and that is what we are responding to in the
new management act. I think the particular institute you mention
has actually at times thought the new management act and integrated
approach a good idea and at other times a less good idea. I think
there are lots of views in this but overwhelmingly people think
the integrated approach is the best one.
Q28 Jim Cousins: First of all, Mr
Gray, I would like to acknowledge straightaway the fact that you
have been Acting Chairman for nearly five months and I do acknowledge
that that places you in a position of some difficulty. Can I ask
you, what is the commitment to a 5% cut in real terms each year
in cash terms?
Mr Gray: You mean in percentage
terms or amounts of money?
Q29 Jim Cousins: Amounts of money?
Mr Gray: Over the course of the
current three-year settlement, 2005 to 2008, the period I was
discussing with Mr Newmark, the target reduction is about £500
million in terms of administrative costs.
Q30 Jim Cousins: Each year?
Mr Gray: No, cumulatively over
that period on a base of a little over £4,000 million. The
figure going forward for the following three years, which is what
I think you are referring to—2008 to 2011—is likely
to be broadly that same order, about a further £500 million
cumulatively over the course of that period.
Q31 Jim Cousins: The transformation
programme you have told us is costing £500 million a year?
Mr Gray: Approximately, yes.
Q32 Jim Cousins: Where does that
sit alongside the figure that you have just given us, is it included
in that figure?
Mr Gray: Within our overall administrative
expenditure of about £4 billion a year, we need to accommodate
the cost of our investment programmes as well as our day-to-day
programmes. So within, roughly speaking, £4 billion a year
we are looking to devote about £500 million of that overall
budget to invest in new systems and processes in order to improve
both our effectiveness going forward, for example getting a much
better integrated view of the businesses and individuals that
we are dealing with so we can offer a better service for the compliant
and a more effective service in relation to the naturally non-compliant,
but also investing in those new systems and processes so that
we can do the job more effectively and at lower cost, so we are
investing in order to reinforce our ability to live within a reduced
overall budget in the future.
Q33 Jim Cousins: So alongside the
£500 million a year roughly in efficiency savings there is
£500 million—
Mr Gray: Sorry, it is not £500
million a year in efficiency savings, it is £500 million
cumulatively over three years.
Q34 Jim Cousins: So alongside the
£500 million year cumulatively in efficiency savings there
is £500 million a year on the transformation programme?
Mr Gray: Yes.
Q35 Jim Cousins: And that is partly
financed by £300 million from the Treasury to assist with
the transformation?
Mr Gray: Indeed, which is also
a cumulative figure over three years. Some of these figures are
cumulative over three years; the £500 million we are investing
is an annual figure.
Q36 Jim Cousins: Yes, so let us get
this straight: there is £500 million a year going on transformation,
£500 million cumulatively in efficiency savings but offset
by £300 million from the Treasury to support the programme?
Mr Gray: That is it.
Q37 Jim Cousins: I am grateful to
you. Just then to be clear about the staffing side of it, we established
the last time you were in front of the Committee—
Mr Gray: We had a good dialogue
on that last time if I recall.
Q38 Jim Cousins: We did have a dialogue
yes and I think we established you are aiming at 12,500 net reductions
in staff in the first three years—
Mr Gray: I have a target for that
period.
Q39 Jim Cousins: As a target, followed
by another 12,500 over the following three years amounting to
25,000 in all.
Mr Gray: The second installment
is not a precise target, it is my estimate of the likely reduction
in order to hit our financial target.
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