Examination of Witnesses (Questions 80-99)
RT HON
DAWN PRIMAROLO
MP, MR MIKE
HANSON AND
MR PETER
SHORT
24 JANUARY 2007
Q80 Chairman: I understand that.
Dawn Primarolo: I am sorry, this
is a long answer, I do apologise. I think, though, it is quite
right that when we reach the end of this period, because we are
only two years in, that we would need to reflect, as you say,
on phases where we had reached thus far, and I would be keen,
if we possibly could, to try and tease out to a greater extent
what was directly merger and what was development of the department.
Q81 Chairman: If you cannot tease
it out at the moment, and I understand why you cannot because
some of these costs are interrelated, how do you identify that
the merger is proceeding satisfactorily?
Dawn Primarolo: I think, firstly,
if we look at where the department is on all of its other requirements,
whether it be on the net reduction of staff—for instance,
I know the Committee was very keen on this, because we put a figure
of approximately 3,200, on possible merger savings. I pushed the
department very hard on that and the information that I have is
that by 2008, where we would expect to get the big saving—HR,
finance, things like that—we would expect to save up to
3,000 jobs approximately. It is not 3,200, but we are trying to
quantify that. That becomes difficult as we move on, because we
have also got our Gershon savings, we are also relocating staff
and we have targets for that apropos Lyons, and we now have been
notified that for the next spending round we have a budget reducing
year-on-year and we have very, very challenging targets on efficiency
and productivity. So increasingly it is difficult, but I understand
that the Committee would want that, and, as I have said, as we
move to the end of this financial year, I certainly want to press
the department a little more on how we give a more satisfactory
answer.
Q82 Mr Newmark: Following on on the
merger, and it is a delight to see you again, Paymaster General,
how will ministers know when the merger has been successfully
achieved? Specifically what benchmarks are you looking for and
what will a newly merged HMRC look like?
Dawn Primarolo: I am sorry to
keep going back to this, but I do absolutely agree, particularly
with the recommendations of the Committee in 2004. The point the
Committee made was that there are significant risks with a move
of this size, particularly with upheavals, and what is very important
is that the department stays focused on its prime functions—collecting
tax and delivering a coherent service to taxpayers. On the collecting
of tax we have seen an increase in the tax take. If we look at
the other requirements from the department—
Q83 Mr Newmark: Excuse me, but increasing
the tax take may have nothing to do with the success of the merger
or the efficiencies within the organisation, it is just the ability
of the Chancellor to winkle more money out of people?
Dawn Primarolo: I am sure that
is how you might see it, Mr Newmark, and we have had these discussions
before in Finance Bill, but I do not agree. Let us look at it
another way. Let us look at the achievements of the merger so
far: productivity increased, sickness leave decreasing, revenue
increasing. We are already some 60% odd towards our target on
our efficiency savings, which is the net 12,500 figure, which
includes the savings from merger. We have already saved on our
estate where we have been able to rationalise where we had two
departments in one location. We have now got the centralised finance
system, which we will be able to continue to develop, that was
recommended by O'Donnell, which then has a saving for us and further
savings for procurement, which we are already developing. We have
a unified IT project with all the points that it gives us to move
forward on our legacy project. We have the STRIDE project, which
is for communication in the department, one of the largest roll-outs.
The department has done all of this, continued to collect tax,
made improvements on self-assessment, made improvements on productivity,
it has got less people progressively working in the department
and it is managing massive organisational change. I actually think
that shows a stable department that is managing the risks.
Q84 Mr Newmark: I appreciate that
we are looking at a glass of milk and your perspective is half
full. I am looking at it half empty, and when I look at the HMRC's
Annual Report on performance against the PSA targets, it is not
a great picture, to be honest, and it shows that, at least under
SR2004, which is the direction Mr Gray led me to before, we are
on course for three of those targets but there is slippage in
another three and four have not been assessed. Do you think that
is particularly good, or not good, or what do you attribute to
those problems?
Dawn Primarolo: Let us deal with
why some of them are not assessed yet. One of them will be self-assessment.
Q85 Mr Newmark: I would rather focus
on what has happened.
Dawn Primarolo: No, because the
implication of three not assessed—
Q86 Mr Newmark: Four.
Dawn Primarolo: —suggests
that it is because something has not been done in the department.
It is about the timing when data becomes available. If we look
at the combined outturns of the two ex-departments, I agree with
you that when we get to the end of this period we want to see
better results than that, but given everything that the department
is doing—and we will see when we get the final outturns
how well they have done—they are still significant. If you
were looking at a department that had not financed merger from
its own costs, had not undertaken all these huge changes, had
not delivered a better service to taxpayers in a number of areas,
which I can go through if you would like me to, I think you would
be entitled to be far more critical of where they are at the moment.
I am critical, and I am pushing the department, but we are not
there yet. Let us wait and see what turns out.
Q87 Mr Newmark: I know we are not
there yet, and the chart certainly shows that. I will not push
that. How closely has the department kept you informed of the
costs of the merger as the merger has progressed? Has the Regulatory
Impact Assessment for the Commissioners for Revenue and Customs
noted that further costs might arise from changes to join up services
and are you anticipating further costs with all of this?
Dawn Primarolo: I think, with
respect, that returns to the point that, for instance, if we take
the development of STRIDE, some of the development costs are associated
with merger, but then it goes on to have a much wider implication
and resonance in the department, so it is about apportioning.
I think what the department is trying to do and what we have tried
to do in dealing with the issues for today's hearing is to identify
costs where we can and savings where we can, and I think two years
into such a massive project, I take what the Committee is saying,
you want more information, but I think where we are now is as
good as we are going to get at this point.
Q88 Mr Newmark: So you have been
kept informed on these costs as they have moved on, and you are
satisfied they are pretty much on target. You are not expecting
anything extraordinary to happen in the next 18 months to two
years?
Dawn Primarolo: Absolutely. On
the information I have from the department at the present time,
yes.
Q89 Mr Newmark: That is a very good
political answer.
Dawn Primarolo: I have not got
a crystal ball and I do not read all the accounts of the department
every single day. I have rather a lot of other things to do.
Chairman: There is a lot of ground to
cover. I know it is important stuff, but can I plead for shorter
answers, and shorter questions too!
Q90 Mr Gauke: Paymaster General,
you referred earlier to the 2004 Report of this Committee, and
one of the points raised in that was that customer service must
remain the department's first priority during the merger process.
What we know about the 2002 PSA targets and what we have heard
today about 2005 and 2006 is that, at best, things stood still
and maybe there was some slippage when it comes to customer service.
What steps did you take to ensure that customer service remained
the department's first priority during the merger process?
Dawn Primarolo: There are two
focuses that are my prime concerns. The first one is that we maintain
our revenue, the second is that we are progressing with regard
to improving the service, whether that be through the consultation
on the Powers Review, whether it be through the Varney Report
on relationships within business, whether it be an improvement
of the self-assessment, the changing of various forms which have
saved business time and a considerable amount of money. Looking
particularly, you might remember the assessment that was done
of the compliance costs, how much it cost to comply with obligations
to the department and having a structure to take that forward.
The most important and the hardest thing to do, which will be
the absolute test, I think, of the merger, is to structure the
department so that it makes sense to the taxpayer rather than
having a department that makes sense to the department and the
taxpayer has to navigate around it. That was the challenge of
the merger and that is what we are trying to move towards. So
I think that focus has been maintained and we can see some signs
of improvement, but it is early days. We are going to need to
do a lot more.
Q91 Mr Gauke: Do you think customer
service is better now as a consequence of the merger? If the merger
had not happened, would the level of customer service be better
or worse?
Dawn Primarolo: That is almost
impossible for me to answer. I can look at what people are saying
now in their survey responses to us, whether it be by the fact
that our compliance teams are refocused in localities on business
rather than divided into tax, the way that we have changed our
inquiry centres, lots of very positive feedback about using an
appointments system but still having an urgent way of getting
into the department. So the feedback is that we are going in the
right direction, and we have seen some improvement on the surveys,
but there is more to do, absolutely no doubt about it.
Q92 Mr Gauke: One of the concerns
that has been raised has been by the Chartered Institute of Taxation,
saying the department is an organisation under pressure, the reason
being that there are too many initiatives. Do you recognise that
picture and are you doing anything to alleviate that pressure?
Dawn Primarolo: I think it really
depends on what they mean by pressure. If you mean that, rightly
so, on behalf of Parliament, with very tough and challenging PSA
targets plus efficiency targets that are increasing each year,
I expect the department on our behalf as MPs to be constantly
improving and moving forward, the answer is, "Yes".
I see a department that is being challenged, and rightly so, and
coping and managing with those challenges and risks and we need
to watch that carefully, but I have to push them. I have to push
the department, any minister has to do that, otherwise how do
you get improvement?
Q93 Mr Gauke: Can I ask one specific
area which you and I have discussed before, which is VAT registration.
You will remember on the Finance Bill I raised the issue of concerns
for delays there. Are you satisfied with the performance of HMRC
with regard to this area, accepting that there is an issue with
MTIC? Are you satisfied that the department got it right?
Dawn Primarolo: Now, in how they
are dealing with it?
Q94 Mr Gauke: Now and over the last
year.
Dawn Primarolo: I do actually
follow that very closely, and you would expect me to because of
the revenue at stake. Yes, I believe it is a difficult balance
to strike. The vast majority of repayments and verification applications
go through the system very, very quickly. What we have to do and
have an obligation to do is, where there is further investigation,
doing it as quickly as is possible and then giving the conclusion
to the business. Given the complexity and the pressure they are
under—I am giving a short answer here, Mr Fallon, I am happy
to give a longer one in more detail—I think that they are
responding to it proportionately, but, yes, I do keep an eye on
it because MPs write to me and other people complain to me about
it.
Q95 Mr Gauke: Indeed, people mention
it in the Finance Bill, and so on!
Dawn Primarolo: Indeed.
Q96 Mr Gauke: We have had HMRC senior
people here today and they recognise that the balance has not
necessarily always been right between tackling fraud and providing
customer service, and in the evidence that we have had this afternoon
they are not entirely satisfied with the performance, going back
a few months, at the time when we were discussing this previously.
As the Minister responsible for this department, were you looking
at this and saying, "Look, there is a problem here, VAT registrations
are taking too long. Do something about it"?
Dawn Primarolo: Yes, I have had
those conversations with the department, and we have had this
conversation, as you say, in the Finance Bill committees. The
hardest thing is to make sure that people do not get clogged up
in further verification (and it is a very small percentage) and,
even if they start in that process and they should not be, they
are lifted out as quickly as possible. I think, as the department
has built up more experience of this particular challenge, it
is more efficient at making sure that if a company is caught initially
it is removed quickly from the system.
Q97 Mr Gauke: But have they consistently
got the balance right?
Dawn Primarolo: All we can see
is that we have to constantly review whether that balance is right
against the risk to the taxpayer, and that is the balance we strike.
Q98 Mr Breed: Taking you back to
the Gershon savings that you were talking about, when those were
drawn up, and presumably agreed at 25,000 costs and split between
the three years at 12 and a half, would it be right to say that
they were predicated on what was seen to be the sort of level
of migrant worker entry into the country, which was estimated
by the Government to be considerably less than what has actually
happened? I am assuming that migrant workers do pay tax and everything
else. Presumably that is a fair amount of additional work that
you have got to do. Is that producing any pressures in itself,
bearing in mind that we have got rather larger numbers than we
had anticipated?
Dawn Primarolo: We have got more
people working, record levels of employment and economic activity.
Q99 Mr Breed: But that is going to
cause a lot of work. It is the workload that I am thinking about.
Dawn Primarolo: It is also about
how efficiently we undertake the processes. Again, I do not know
whether the Committee discussed this with Paul Gray, the question
of PACESETTER in terms of training our managers and LEAN in terms
of process in the department. The first target of the 12,500 net
was specifically set up by a combination of Gershon and merger
savings. What we know year on year coming into the next Spending
Review is that our budget will reduce by 5% each year, not 5%
over three years, and we have not directly said—although
some people have said if it was just staff where would it be—that
it equates to a certain number of staff. Obviously, the obligation
on the department and ministers is to be able to do its job as
cheaply, efficiently and effectively as possible, because it is
taxpayers' money and it is a very big budget to spend. No, those
pressures are not there, but naturally we would need to monitor
and see. We can see, just in simple processes, productivity up
by 10%, expected to be up by up to 15% by 2008 and between 2008
and 2011 another 15%. So improving productivity and quality heading
up to 40%, and that makes a big difference with the volume you
can deal with.
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