Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80-99)


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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