Select Committee on Treasury Minutes of Evidence

Memorandum submitted by the Chartered Institute of Taxation


  1.  The Chartered Institute of Taxation (CIOT) called for a merger of HM Customs & Excise (C&E) and the Inland Revenue (IR) for many years. We saw considerable scope for efficiency gains which would benefits taxpayers at all levels. We therefore supported the proposal to merge the organisations into what is now HM Revenue & Customs (HMRC), subject only to concerns about the need to "hive off" the aspects of C&E's work that were more concerned with policing the UK's borders than managing the tax system.

  2.  Whether or not the merger has been a success it is, in our view, too early to say. We were always aware that the merger would cause disruption in the short to medium term. There would inevitably be teething problems. To us, that seemed a price worth paying. We continue to hold that view, and believe that progress has been good, albeit with plenty more work to be done to achieve the full benefits to the UK of the merger. In the parlance, there is much still to play for.

  3.  However, we do have concerns about the current position of HMRC and their progress. We see them as an organisation that is under considerable pressure. Whilst pressure to deliver is inevitable and correct for a tax authority, there are at times signs of the pressures becoming excessive. HMRC need to be able to give a proper service to the UK's taxpayers, tax credit claimants, employers and businesses generally: they should not be forced into cutting corners in any direction through pressures to deliver targets, shortages of staff or other reasons.


  4.  The merger has already delivered successes by facilitating proper coordination between the previously separate direct and indirect tax systems. A good example is the integrated approach to debt management policy: a business in difficulty with its tax bills can now negotiate settlement with a single authority, and agree how to regularise its position across all taxes. Previously, whilst the IR would discuss and negotiate, C&E would rarely do so over VAT and, in any event, there would be two separate negotiations. The integrated system would not have happened without the merger, and it has helped a good number of businesses.

  5.  Single control visits to businesses are becoming established, helpful for business efficiency.

  6.  There are some good examples of fresh thinking emerging in many areas of taxation. It seems unlikely that the Varney Report would have emerged from the pre-merger organisations in anything like the same way that it did do.


  7.  There are, inevitably, many areas where a start has been made but much remains to be done. Joint investigations are proving successful in many ways, but at times do expose the differing powers and practices of the IR and C&E. We support the reviews that are under way to harmonise the powers and safeguards, and are well involved with the consultative groups.

  8.  More needs to be done to harmonise definitions—examples would be groups (of companies) and cars—across all the taxes. This would be a good way of encouraging "joined-up thinking" across all the taxes, something we are beginning to see more of.

  9.  There does seem to us to be, at times, an aura of projects being pushed forward on a "political" basis—that they must be seen to deliver a merged product. Whilst this can be helpful—the progress on the "whole business relationship" is good—it has driven the major powers review down a rather less effective path. We have made many submissions and consistently argued that the indirect taxes should have their administration harmonised—an Indirect Taxes Management Act would make eminent sense—and there is, similarly, scope for more harmonisation across the direct taxes. But to push forward a new taxes management act that brings together income tax, corporation tax and VAT, whilst leaving aside other indirect taxes, tax credits and NICs, does not seem to us sensible. We have a strong feeling that the inclusion of VAT in this (admittedly much needed) move towards a new management act is the result of a determination to show that the two halves of the organisation could work together, rather than a product of logic.


  10.  The move of significant tax policy resources to the Treasury as part of the merger was something we supported. The Treasury needed a greater tax policy focus. However, we were concerned at the time about two aspects:

    —  The interface between HMRC's tax policy work and that of the Treasury's: would there be overlap or underlap?

    —  Whether the Treasury's tax policy work would link properly to operations: would tax policy decisions in the Treasury be properly informed by what happens in practice?

  We have concerns with both these aspects. That said, the overall result seems good, but whether we are seeing fully joined-up/coordinated tax policymaking is a moot point. There is scope for further progress here, particularly in ensuring practical experience is taken into account.

  11.  We do wonder if there are too many projects—too many initiatives—at the moment. Naturally we make this comment with some caution: there are rarely initiatives that we do not support in terms of areas needing examination. However, the organisation is under strain, and sometimes we wonder if projects are being undertaken to show action, rather than in an expectation of being able to complete and deliver in a proper timescale.

  12.  On the people front, we have two major areas of concern. The first is that we are seeing too many examples of people being moved within the organisation at minimal notice, often well before a successor is identified. To a degree, moves are inevitable in a merged organisation, and people have always moved within the civil service with benefits on all sides. But there do seem to be too many instances of scarce expertise being moved away, to the detriment of taxpayers, agents and (we would have thought) HMRC.

  13.  The second people issue that concerns us is the pressure to reduce headcount. Clearly, efficiency gains were expected through the merger; those translate into reduced headcounts in many cases. But we feel that headcount reductions are being pushed forward too quickly, before it is fully clear that the organisation can deliver with the reduced numbers. We would have thought it better to use the extra people to help deliver results and then reduce headcount if it is really no longer needed and not redeployable.

  14.  We have signalled concerns over the state of the UK's tax law repeatedly in recent years (see, for example, our paper "Taxed by Law, Untaxed by Concession", April 2005). This is not particularly an issue resulting from the HMRC merger, but there are too many examples of legislation being made to work by HMRC interpretation rather than sorting out the rules properly through full consultation.


  15.  We have some suggestions for areas that the Sub-Committee might probe a little. These are issues that do raise some concerns, but are in many ways areas where we are willing to be convinced that the position is satisfactory.

  16.  The management structure of HMRC has always struck us as over-engineered. At times, we have found it difficult to be sure who is responsible for issues; at times there can be a surprising number of people concerned with an issue. Is it really working?

  17.  Perhaps linked to the last point and some of the people issues we have mentioned, we wonder about the general morale within the organisation. Do people feel properly supported at all levels?

  18.  The general move towards e-enabling as much as possible of HMRC's interactions with taxpayers and agents makes a good deal of sense. But is it being driven forward with proper understanding for those who are unlikely to be in a position to e-file (or whatever) in the foreseeable future? Is there proper planning for all taxpayers in this regard—especially the smallest businesses, the low paid and the generally unrepresented? Is there also a risk that reliance on large IT systems which have not always been up to the mark (eg NIRS2, tax credits) will mean increasingly scarce human resources will be diverted to sorting out problems (eg tax credits)? Indeed, are systems tested properly and lessons learnt from previous exercises?

  19.  Whilst there is an admirable amount of information on the HMRC website, we are concerned when taxpayers are assumed to know something because "it is on our website". Our Low Incomes Tax Reform Group reports a number of instances of taxpayer problems caused by this stance. Are information flows to taxpayers properly thought through?

  20.  The plans for rationalising HMRC's property usage, which seem likely to lead to many closures in "local" offices, may well deliver cost savings. But will this maintain a proper balance between the needs of organisational efficiency and taxpayers generally? How will those who rely on a face-to-face service be dealt with in future?

  We would be pleased to amplify our comments further if that would be of assistance to the Sub-Committee.

January 2007

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