Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 100-113)


24 JANUARY 2007

  Q100  Peter Viggers: The Committee has a separate session on tax credits on 14 March, when, unfortunately, I have to be in Ukraine on parliamentary business, so I must ask the indulgence of the Committee just to put to you a point on tax credits. My constituency post and my constituency surgeries continue to reflect the fact that there is a large number of people whom the computer simply cannot handle. Cases are being handled manually, then the manual system cannot handle it either. The computer clicks over to indicate overpayment, people are pestered, people are assured that their overpayments are correct and then get demands for it to come back. What do your statistics show, Minister, in terms of whether you are improving in terms of customer service in view of tax credits?

  Dawn Primarolo: I should have anticipated that, and I apologise for not. I am sorry you cannot be here in March; I would have brought some of the statistics that show the improving, and continually improving satisfaction of the tax credit claimants, the efficiency and the turn-round times and the accuracy increasing, the fact that we managed the renewal period in a shorter period more efficiently. Yes, there are historic cases with regard to overpayment, and some current, which we are working on, but I have to say to you, from the time when the Committee did its first inquiry the accuracy, quality and responsiveness of the system has considerably improved, as has people's attitude to it. As the Minister responsible for dealing with the post and the PQs and not unknown as the Minister for tax credits, I have to say to you that there is a steady stabilisation in that area. I am sorry that you are not able to be here in March, but if there are specific things that you would like to ask me in writing, Mr Viggers, I will be more than happy to answer.

  Q101  Peter Viggers: All the letters I write to you are answered by somebody else. It is pointed out that there are too many cases for you to look at them personally.

  Dawn Primarolo: I do not think that is quite true. Then we might come on to the splitting of the merger between accountabilities and when I should be answerable and when somebody in the department should be answerable, which is what we are beginning to see, but if you are not satisfied, Mr Viggers, then you can ask me to deal with your letters.

  Q102  Peter Viggers: Thank you; I will. The department has carried out three separate consultations on its review of the powers, deterrents and safeguards since March 2005. Are you concerned at the time being taken to complete the review?

  Dawn Primarolo: No, I am not, because I think it is important to get it right and for there to be confidence in the consultation so that people are satisfied. Representative Bodies outside the department are very, very concerned that the powers that the department has are proportionate, effective, that there are the necessary safeguards and that the penalties associated with those powers are reflecting the principles that they want to see, which is where somebody has genuinely made a mistake, that there is a different response and whether there should be a penalty at all compared to when perhaps somebody has made a mistake because they did not pay as much attention as they should have as opposed to somebody who is deliberately withholding or falsifying information. All the work and the consultation that we have done on that shows us that we should proceed with care and with full consultation, and I have a time-line which I am satisfied is a reasonable time-line and I hope our consultees will agree with that.

  Q103  Peter Viggers: Can you outline to us what parliamentary scrutiny there will be of any changes in the legislation?

  Dawn Primarolo: Yes, there will be draft clauses, and some are already out for consideration as we move through different parts of that. Where appropriate, it will be in a Finance Bill. Where it needs another legislative vehicle because of restrictions on the Finance Bill, it will be there and it will be scrutinised by Parliament. Nothing will be changed without it being scrutinised by Parliament.

  Q104  Kerry McCarthy: Can I ask about the impact of the merger on staff morale at HMRC. There have been a number of strikes over the last year; there is another one that might be happening at the end of the month. Do you think the merger is a factor?

  Dawn Primarolo: Obviously I am very disappointed that there is to be a strike on 31 January, but I am a little perplexed about it, to be honest, because the union balloted on a number of reasons why a strike should take place. I realise it was a Civil Service-wide ballot, but in HMRC all those matters are settled, they are not outstanding. So I am in this rather peculiar position where normally if you want to avert a strike, I would say to my managers, "Go back and see if you can sort out the concerns", but they are not there. We have got a three-year pay deal; it is the second of the three-year pay deals. The union has recommended it. We do not contract out. We have given them an undertaking we will not outsource and contract out. We have got a fair pay structure which has been agreed with them as part of the merger. We have no compulsory redundancies, and we have given an undertaking on that and we review it regularly with them, and the same on compulsory transfers. What I do understand, and I think anybody with any sense would, is that a department in such massive change makes people feel, rightly so, insecure, and my approach is to try and make as much information available and to put as much out to consultation, including things like what the structure of the network will look like post 2008 so that we can draw as much as possible on everybody's expertise. I was in an office yesterday and I spent the whole afternoon there speaking to staff about the processes and what they were doing, and I spend a lot of time, where I can, going out listening to what staff say, mergers do that, which was one of the big debates about merger or not; and when the Committee considered it (I think it was in 2000) it recommended merger, but I came along as the Minister and said, "I am not very keen on this because I am worried about the instabilities that just the sheer presence of merger causes." So, I think it has got to be managed properly and we have got to know why our staff feel like this and try and manage it better. It is about consultations.

  Q105  Kerry McCarthy: Do you think if those factors, which you said were specific factors, on which the union carried out the ballot have all been checked off and are not a problem in HMRC it is more as a result of general unhappiness because of the change or the degree of uncertainty?

  Dawn Primarolo: It may well be, and I think our staff surveys are showing, as the progress through the merger and the changes occur, that they do feel very uncertain, and who would not, it is only human. I can only keep pressurising the management to manage that properly, and that is about keeping people informed about what the real choices are and keeping the union informed and part of the whole discussion for the future.

  Q106  Kerry McCarthy: To what extent do you then get involved in the discussions as to how the management should handle industrial action or the threat of industrial action? Have you given them any directions as to how to deal with things at the end of the month?

  Dawn Primarolo: The industrial relations between the department and the union are managed in that way. It is not really appropriate for me to interfere in that, although I would be asked for my views sometimes separately. In terms of what will happen on the 31st, yes, of course I have asked the department. I want to know what contingency plans are in place to manage our networks and our services through what is a very important deadline in the financial year and what we will need to do to assist taxpayers. Obviously there are discussions going on now with representative bodies about a whole range of things. We will do our best, but, in the end, if the staff do not come in to work, they do not come in to work.

  Q107  Jim Cousins: Paymaster, we have just heard from Paul Gray and his team that they are, for reasons I perfectly well understand, carrying large numbers of short-term fixed contract workers and large numbers of workers who have been identified as surplus or pre-surplus. You have mentioned the LEAN Programme. In Newcastle, when it was introduced, there was a crazy incident where workers had taped bits on their desk where they were supposed to put pieces of fruit (consultants came along and taped out marks on the desk where they were supposed to put pieces of fruit), except that because of the carrying of such large numbers of temporary workers there was hot-desking, and so some people had big arms and some people had little arms. This is not good for staff morale, is it?

  Dawn Primarolo: I do not know whether you actually saw that or whether somebody told you that was done, because that is not the policy of the department. I have read similar things in the paper myself: you cannot put a banana on your desk, or whatever. That is totally ridiculous and that is not done by the department. I naturally pursued it because I thought it was crazy and they had more important things to do, and I cannot find where that particularly went on. There has always been in the department a situation where more than one person might use a desk. That has always been the case and has been going on in the department for some time. The office I was in yesterday, 550 people work there through shifts from seven in the morning until 10 at night and I was randomly allowed to go and ask them, "Have you been told this preposterous thing?", and they said, "No." Stories get out about the department and all I can do is try and find out whether they are true. If they are true, they do not happen again, but this one, I would say to you, Mr Cousins, or anyone on the Treasury Select Committee, if you would like to go and see an office operating LEAN please do, and we can facilitate it, because it is not what some suggest it is.

  Q108  Jim Cousins: On the broader issues surrounding the HMRC, it is said the targets are challenging. The issue in front of the Committee is: are they perhaps too challenging? That is a serious issue, because for the first time VAT receipts are going down and there may be more problems like that ahead. We have just heard evidence from Paul Gray and his team that there is about £100 million a year in savings but then there is £60 million a year to offset that coming from the Treasury's modernisation fund and a fixed commitment of £500 million a year in transformation costs. Does this not indicate that maybe the targets that are being set in terms of cash reductions are just too severe?

  Dawn Primarolo: No, it does not, and you are looking at one-off payments to the department to help restructuring in particular areas compared to an annual saving. I think if we look at it across the board on the point you are making about the £60 million and the £100 million—

  Q109  Jim Cousins: Paul Gray agreed that £500 million cumulative could be compared to the £300 million from the modernisation fund over the same period of time.

  Dawn Primarolo: It could be, yes, but the question is do we want to restructure the department so that it gives a better service to taxpayers or do we not? Can I say on VAT receipts, they are not connected. The specific issue around MTIC fraud were external factors on the department—judgments in the ECJ on other countries' cases that took away our main defences—and we had to find other ways of doing that, and we did, in protecting the revenue. So they are not connected. It is a bad problem, it is being dealt with, but it was not connected with an issue of the department not having its eye on the ball, it was to do with external factors beyond their control.

  Q110  Jim Cousins: In the annex to the Annual Report of Revenue and Customs there are large numbers of figures over crucial areas—I am looking at page 76 and 77—like the revenue loss from tobacco, not available, and so we go on. The same is true of alcohol. This must be extremely worrying. These are known areas where systematic fraud is going on and the department cannot produce figures.

  Dawn Primarolo: This comes back to the point in response to one of my questions about targets. Some of our targets can only be assessed when information is finally available and there is a time lag, and it is a question of when it is published in the year. It is not that we will not be able to give those figures, it was the particular timing. For instance, both the targets that you identified are to do with smuggling targets that require us to have information as to statistics from elsewhere to then measure whether or not our strategy in reducing the amount of tobacco and alcohol being smuggled and circulating is actually succeeding.

  Q111  Jim Cousins: Do you ever consider that the targets being set are perhaps too challenging?

  Dawn Primarolo: That is the dilemma for any government, to set a target that is challenging and improves the service in its efficiency whilst not making them unachievable. I have had this discussion with the Treasury Select Committee on previous annual reports when discussing some targets, for instance with regard to tax credits or child benefit, and the Committee saying to me, "Why do you not make them higher?" and I have said, "Because if I make them unattainable, then people do not even try to work towards the target and improvements." So that is the crucial decision that ministers, supported by the advice they get from the department and, for me, from the Treasury, have to balance, and we will see, when we get the results of our PSA targets, if they were too challenging and why they missed them.

  Q112  Ms Keeble: I wanted to come back again on the industrial action, because like, I am sure, most other Members, I have obviously had letters from the union to campaign letters. Mine have been from people employed in HMRC and list out the grievances, but these grievances have obviously been shared by employees in HMRC and they include reference to agency work, to redeployment of staff and to job losses, and so on. I wonder, therefore, if you could say whether you actually feel that some of the staff in HMRC do actually feel aggrieved or under pressure, bearing in mind also that they have had challenges around some of the work that they have had to do. It has been difficult and demanding work. I am not looking to encroach on the proper handling of industrial relations between the management and staff side, but I wondered, given that the morale is essential for the good performance of the department, if you are satisfied that the discussions and the management of industrial relations is going to (a) ensure there is continuity of service during any action or that the situation is going to be managed, and (b) that any action is not going to exacerbate issues around staff morale? I have actually tried to roll two questions into one because the Chairman asked me to be quick.

  Dawn Primarolo: I know, but the problem is what is real and what is not. If the management of the department are asked to negotiate and agree certain issues with the union, and do, and that is then agreed, and then it appears on a ballot paper that those are the issues so they are not happy, that obviously does raise a challenge for the department on what is happening here. If we look at, for instance, the 8,500 reduction that has already been completed, that has been done by natural wastage and by early retirement, by people who have chosen to retire early. If we look at our projections and what we are saying in terms of saying, "No, compulsory redundancy and revisit that in September 2007, it seems to me that what is important and what I have to ask managers, I agree, is the consultation on workforce change, which is very extensive, and it was discussed before we embarked on this process as well, including piloting some of the things like LEAN, whether we have got that right and whether we are getting enough information through. Of course, it is awful that there is a strike on the thirty-first and if staff are feeling aggrieved we have got to find out what it is about. As I said, I think there are issues around change. Change is difficult, it is difficult for anybody. It is how it is managed that is important, and we have got to be on top of that.

  Q113  Ms Keeble: What specifically would you expect to see the senior management do to improve the situation?

  Dawn Primarolo: We are in a bit of a dilemma here, because if we have got a "no redundancy" and a "no compulsory moves" and we have got the second of a three-year pay deal—so that is six years where it has been agreed—we have done the merger, we have done the grades, we are reducing, but it is by natural wastage and early retirement, we are managing as best we can by making everybody aware—MPs, stakeholders, unions, individual members of staff—what the workforce change project means in terms of refocusing how the department operates, then it has got to be done, and can only be done, by full consultation and confidence in the process. We have got to carry on trying to get that across, and we have asked how we can improve it and we have got to ask our staff how we can improve it, because clearly it is not quite right.

  Chairman: I am afraid we are well over time, so we are going to have to let you go and move on to the next session with the Valuation Office. Paymaster General, thank you very much indeed.

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