Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20-39)


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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