Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20-39)


22 NOVEMBER 2006

  Q20  Jim Cousins: Just let us be clear about this. Nationally there are between 4,500 and 5,000 people on fixed-term appointments.

  Mr Gray: Indeed there are.

  Q21  Jim Cousins: Of whom about 600 are in Newcastle.

  Mr Gray: Yes.

  Q22  Jim Cousins: Are they additional to the 12,500 reductions by 2008 or included within it?

  Mr Gray: I think they are included within it but in a sense if we could talk about what are the total number of staff—

  Q23  Jim Cousins: I am sorry, Mr Gray, can I be clear about this. You think they are included. I have asked you very specifically, are they included within it?

  Mr Gray: They are included within it. We need to make a reduction of 12,500 jobs. It is then a secondary decision what is the composition of that reduction between reductions of full-time members of staff and fixed-term appointments. What it means is that in this initial period up to March 2008, where we have already reduced our staff by around 7,500 out of the overall 12,500, we need over this next 18 months or so to make a further reduction of about 5,000. We have the flexibility to do that by whatever mixture of reductions of full-time staff or fixed-term appointments seems appropriate, but the fact that we have such a large number of people still on fixed-term appointments means that it is open to us to make a substantial proportion of the further reduction through that route, if that is what we conclude is the right thing to do.

  Q24  Jim Cousins: So the situation that we are in now is that you are in fact aiming to achieve 25,000 job reductions by 2011, and so far you have achieved 7,500?

  Mr Gray: That is right. If I could just qualify "aiming to reduce by 25,000", there is a difference between the two separate 12,500 figures. Up to 2008 I have an explicit target laid down by the Chancellor that as well as making financial savings I am required to meet a specific head count target equal to 12,500. My purpose in quoting in the intranet message you have referred to the same figure of 12,500 over the following three years is that I do not have an explicit manpower target to hit. We have a target to yield a 5% annual real reduction in our costs, but in communicating to staff the direction in which we were moving I thought it was the right and I thought it was an open, honest thing to do to give an indication that I thought that was likely to be of the same order of reduction. In the event, as we refine our plans that staff reduction figure could be different. The key thing is I need to hit the financial targets that I have been set.

  Q25  Jim Cousins: Presumably your Ministers would be aware of the fact that you had posted this message on the intranet.

  Mr Gray: Indeed they were, explicitly.

  Q26  Jim Cousins: So Ministers are aware of the fact that your working basis as of now is to achieve a reduction of 25,000 posts by 2011, of which so far 7,500 have been achieved?

  Mr Gray: It is my working assumption that if we are able to make even bigger reductions in our non-staff costs over that subsequent three-year period than I currently estimate we are able to, that may well be mean the staff reduction contribution could be less. As I say, I thought it was right to be open and transparent with my staff about the likely overall size.

  Q27  Jim Cousins: In fact, the Spring Departmental Report tells us that the expected savings have not really been achieved and that so far the staff reductions that have been declared have achieved a saving of roughly £8,000 per post rather than the £29,000 per post that would be necessary by 2008.

  Mr Gray: Sorry, can you point me to the point in the report. Could you give me the reference in the report to which you are referring?

  Q28  Jim Cousins: The figure in the Departmental Report gives net savings expected of £363 million, that is on the basis of the 12,500, and it tells us that so far as of March 2006 the savings are £35 million.

  Mr Gray: Yes.

  Q29  Jim Cousins: Now that is a £8,000 per post saving as opposed to the £29,000 per post target. What is the reason for the discrepancy?

  Mr Gray: I will ask Mr Jones to add something in a minute, but the key point to make is obviously at the time of the Spring Report we only had figures available up to March 2006. We now know the position up to September 2006 and we have been able to make substantial further process.

  Mr Jones: If I can add on the question of the discrepancy you mentioned, Mr Cousins, when we calculate the saving that has been achieved to April 2006 we do that on the basis of course that staff have left at various points through the year so they do not contribute a full year's worth of savings. By the time we get through to 2008, of course, the measure then has changed and all staff reductions will have contributed at least a full year's worth of savings, so that is why the ratio looks lower than you would expect.

  Q30  Jim Cousins: Let us be clear about this; you are saying that if you took full year effects the savings would be £29,000 per post?

  Mr Jones: Yes, that is right, and if you think about that in terms of our average salary cost per member of staff, that is about the right figure.

  Q31  Jim Cousins: It is not the right figure of course for people who work in Newcastle. Their average salary seems to be a lot lower than £29,000.

  Mr Jones: Bear in mind that when we talk about average salary we add on to that the employer's national insurance and the pension contributions.

  Q32  Jim Cousins: What about the loss of income that comes from not having these boots on the ground?

  Mr Gray: Posts on the ground?

  Q33  Jim Cousins: I used the phrase "boots on the ground". We are in a somewhat militarised verbal terminology here in Westminster, yes posts on the ground.

  Mr Gray: So you are asking me about the impact on the local economy?

  Q34  Jim Cousins: No, I am asking you about the loss of revenues, the loss of income that comes from having these people in position.

  Mr Gray: Our job is to make sure at the same time as we are making efficiency savings we are progressively increasing our effectiveness. In drawing up our plans what we are seeking to do is to make sure we hit both sides of that equation, and I am satisfied at this stage that we are pretty well-placed to be able to deliver the improved outcomes that ministers are looking for us to deliver as well as to do that at less cost.

  Q35  Mr Newmark: Just related to that, I have had some correspondence from one of my colleagues and one of the arguments with your restructuring is that whole areas within the UK are not going to be covered on a local basis. You will be losing offices who have local expertise and who know where the bad guys are, and the more you remove people with local expertise and regionalise them, you are going to be less effective in identifying the criminal elements or bad people who are not paying their taxes and as a result may not be able to collect as much revenue, I am just curious as to what your comment is on that.

  Mr Gray: I recognise the point you are making. What we are increasingly looking to do is to make sure that we have collective information and intelligence in the Department that pulls together our knowledge from all kind of sources, certainly from the experience of our front-line staff but increasingly getting that information joined up across the different products on which different customers are dealing with us, and increasingly moving to the position where we, frankly, do not rely on the fact that there is a certain amount of information in one individual's head, it is much more collected and codified within our information systems within the Department.

  Q36  Mr Newmark: In the meantime, unfortunately, the risk you face by effectively getting rid of lots of people who have local expertise is that you will not have gathered that information and therefore you effectively are having to reinvent the wheel as you are retraining people to try and cover those areas that other people were prepared to cover. I understand the pressure you have from the Exchequer to cut costs, I totally understand that, but that has to be balanced with having the local expertise in place to do the job that is necessary so you can collect the unpaid taxes that perhaps should be paid. Is that a reasonable argument or not?

  Mr Gray: It is a clear risk we face and it would be a major risk if we were about to do all this in some kind of "big bang" way on day X. What we were seeking to set out last week was the outline of a programme of change taking place over about five years and we will be progressively implementing changes over that period in order to manage exactly the sort of risk you talk about. When we consider whether or not to close or reduce the size of any particular office, that will be going through a whole process of impact assessments of all sorts of types in order to address the risk you have pointed to and a number of other risks as well.

  Q37  Mr Newmark: I am in possession of a note from Mr Doug Tweddle, who is the Director of Local Compliance, and he sets out some reductions: corporation tax enquiries, a cut of 153 posts, saving nearly £7 million but costing a yield of £23 million; a reduction of 40 posts in environmental and gambling tax, and there there are no targets for yield and therefore there are no estimates of what yield will be lost; in income tax for traders/self-employed people, 390 posts to go, making a saving of just under £17 million but foregoing a yield of £21 million. It is clearly spelt out.

  Mr Gray: Clearly in preparing our plans for the implications in terms of the workforce in various areas, we need to assess the impact of making reductions in particular areas to see what are the tradeoffs we need to strike. What we need to do is make sure we are hitting the overall targets for increasing yield. Were we to have limitless numbers of staff in the organisation, there is no doubt that we would be able to gather even more yield, but what I am seeking to balance here is hitting both the targets I have been set for reduction in the use of resources but consistent with overall balancing the risk across the product and hitting the overall target.

  Q38  Mr Newmark: Is it the case that there are one million unopened pieces of post relating to income tax?

  Mr Gray: I do not recognise that figure. The context one needs to think about in relation to self-assessment and pay as you earn, which is the context in which that figure has been quoted, is that we have well over 20 million items of post a year. I do not recognise the existence of there being one million outstanding at this point. One million items of post is equivalent to roughly 10 to 11 days' worth of throughput in that business. We have a target for clearing post within 15 days and hitting an 80% target for clearance within 15 days. We are almost exactly on that target. We have had in one or two particular areas some small backlogs. There are two areas of the business in which we have had about 40,000 items of post where not only have we not met the 15-day target but they are up to three months overdue. We have put in place programmes to redress that problem and by the end of this current month those two particular issues will have been covered and addressed.

  Q39  Mr Newmark: I have received some correspondence from one of my colleagues on the Conservative Treasury team from a constituent of his who is one of your officers based in the south and he—I think it is a he—has made following observation: "As risk teams are being disbanded nationally throughout HMRC, whole swathes of the country, notably London, East Anglia and the South East, will have no compliance coverage (?) whatsoever." The second point is that tax-free zones and tax holidays for the criminally minded will spring up and flourish, becoming the norm both regionally and nationally. The third point is that thousands of skilled and experienced personnel accustomed to collecting revenues worth many multiples of their salaries have been lost to HMRC's compliance community forever. The final point is minimal training of personnel and questionable experience will be available to the new compliance factories up to a maximum of six or eight, all scattered throughout the UK. I am curious as to your thoughts.

  Mr Gray: Let me say something and I might ask Mike to add something in a minute. You are building on the point you made earlier.

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