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
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
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
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
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 heI think it is a hehas 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.