Examination of Witnesses (Questions 60-79)
HM REVENUE AND
CUSTOMS
7 NOVEMBER 2007
Q60 Dr Pugh: Or breaching confidentiality.
Mr Gray: I appreciate the point
behind your question that some of our communications at the moment—and
I imagine this probably was a system-generated communication rather
than a handcrafted letter—
Q61 Dr Pugh: It was remarkably unenlightening.
Mr Gray: Some of our communications
are rather out of date, using rather out-of-date software. We
have not got around to making the improvements which we need to
make.
Q62 Dr Pugh: In the NAO Report it
says that the reading age of the population is substantially below
that required to read the form. In your defence I thought you
do need to get these forms accurate: you cannot express yourself
in a vigorously colloquial way if it leads to inaccuracy and so
there is a trade-off between simplification and accuracy. Could
you realistically make the forms more simple, or is the easier
task improving the reading age of the population?
Mr Gray: Happily I am not responsible
for that latter leg. Again I think there is a balance, Dr Pugh.
It is clear we can do better on the clarity of our forms and we
can get things nearer to being plain right without running the
risk of them becoming plain wrong or plain inaccurate. We are
putting a lot of effort into regularly reviewing the forms, seeing
whether we can pitch them at that lower reading age while keeping
them accurate. I think there is a limit to that process. Depending
on the inherent design of the piece of tax law we are talking
about, there is a risk that we need to be mindful that we could
try to produce stuff in such plain English that it tipped to the
inaccurate side rather than the accurate side.
Q63 Dr Pugh: In terms of the advice
people get offered, tax offices, by and large, are being not decommissioned
but broken down into different sorts of units—I think it
is called the Lean system, is it not?—whereby an individual
section of a tax form is analysed by one person for tax, the particular
section time and time again and maybe not the whole form, and
when people phone up with complex tax problems or problems that
have not been solved in the normal way by the forms it is possible
that different bits of their document may need to be referred
to but different bits of their document have been processed in
different ways. Is that going to complicate the whole process?
Is there some assessment of the Lean process whether it does deliver
better problem solving as well as more efficient processing?
Mr Gray: Certainly in all the
Lean activities we are introducing we are building in evaluation
to make sure it is taking us in the right direction. I am not
unduly concerned about the potential dilemma you are posing. The
whole point about introducing more efficient mechanisms is to
try to get the whole end-to-end process both more effective as
well as more efficient. That is what is driving us. When somebody
has a query on their form, if they phone up they will typically
come through to a contact centre agent. They are not the people
who are doing the process; that is done in the back-office function.
Q64 Dr Pugh: Will that contact agent
be specifically trained? I did look at it in the context of the
phone numbers on you website today and I did phone a few—a
mystery shopping exercise—and found that they were indeed
answered fairly promptly.
Mr Gray: You were answered!
Q65 Dr Pugh: I was answered fairly
early on in the process. The problem you have, though, concerns
the level of expertise you are there plugging into. Is the person
I am talking to a specialist in the field which relates to that
contact number, say a pension enquiry or a self-employment enquiry?
Or are you these people the sort who get moved around all over
the place?
Mr Gray: It depends on the particular
helpline that you phoned up. We have a large number of helplines,
many of them are rather specialist. Not all of them are in the
operation that Nick Lodge runs; they are specialist bits of other
business units. There you will tend to get the technical specialist.
Q66 Dr Pugh: They are Inland Revenue
staff, not outsourced.
Mr Gray: Indeed they are.
Q67 Dr Pugh: Are there any plans
to outsource them?
Mr Gray: No. If you ring the general
contact centres you will get people not who are moved around all
over the place but trained contact centre agents, in the way Nick
Lodge was explaining earlier on. The balance we are trying to
strike there is to get the right amount of general training/access
to online guidance to deal with the 90% or so of calls we want
to be handled by that first point of contact, but with the appropriate
hand-off to more technical specialists.
Q68 Mr Touhig: Mr Gray, the Chairman
and Mr Mitchell referred to paragraph 3.3, page 17, where we are
told that 3.3 million taxpayers or around one third of those filing
self assessed income tax returns understated their tax liability
by a total of £2.8 billion in the 2001-02 tax year"—and
your Department thinks that was an underestimate. How much of
that do you expect to get?
Mr Gray: We get a significant
proportion of that through our compliance activity. I cannot give
you a precise number. We are certainly talking about many hundreds
of millions of pounds we get back but, whenever we identify through
those exercises that there has been an underpayment, we obviously
pursue the taxpayer.
Q69 Mr Touhig: How long do you think
that would take? We are talking about £2.8 billion here and
you think that is probably an underestimate.
Mr Gray: This is a regular process
that we are going through the whole time. With each annual exercise
we are doing compliance activity and compliance checks and seeking
to pick up underpayments. This particular exercise is looking
back at the year some years back, to try to give an accurate statistical
view of what the aggregate underpayment would have been if we
had not undertaken compliance activity.
Q70 Mr Touhig: Do you ever make a
provision for write off—that you are just not going to get
it in?
Mr Gray: In relation to income
tax, we are not making a specific provision in our accounts but
this is part of the so-called "tax gap"; that is, the
difference between the amount of tax that we assess should be
payable and the amount we are collecting. This is a characteristic
which all fiscal authorities face.
Q71 Mr Touhig: Could you perhaps
provide us with a note, looking back at that £2.8 billion,
as to how much you are getting and you reckon you have had back
in and how much you think you might have to provide for the tax
gap.[2]
Mr Gray: We will do our best.
Given the way in which that exercise was run, I am not sure we
can do it in relation to that particular calculation but, certainly,
on your general point of trying to give you an assessment, indeed,
we published in the Pre-Budget Report for the first time various
bits of data to try to indicate the rough scale of the tax gap.
Q72 Mr Touhig: It is a colossal amount,
£2.8 billion. If the exchequer loses £2.8 billion because
of wrong information supplied by taxpayers, should you not question
whether self assessment is the right way to be doing it?
Mr Gray: I do not think this is
an issue that is limited to the self-assessment system.
Q73 Mr Touhig: Before we had self
assessment did you have this kind of tax gap?
Mr Gray: I think there has always
been a significant tax gap.
Q74 Mr Touhig: Would you have any
information you could tell us about?
Mr Gray: We have regularly published
detailed information on our estimates of the tax gaps for indirect
taxes—indeed, this Committee has had hearings in the past
about the estimated gap on VAT, oils, spirits and so on. Precisely
estimating the tax gap on direct taxes is a much more difficult
technical exercise because there are not two bits of comparative
data that you can easily track and take the difference on. With
indirect tax, because we have from the ONS estimates of consumption
for the products that we are taxing and we obviously have our
data about the amount of tax we are collecting, we can fairly
readily, by subtraction, work out the gap, but on direct tax there
is not that kind of availability of data.
Q75 Mr Touhig: But this degree of
tax gap, £2.8 billion in 2001-02, does not cause you to think—and
I do not want to stray into policy here—that we ought to
be looking at another way rather than self assessment?
Mr Gray: No. This is not the result
of self assessment; it is the result of the general difficulty,
however you administer it, of fully collecting all the direct
tax that is due because not everybody goes out of their way to
make sure that they pay us what is due.
Q76 Mr Touhig: I see you are spending
£170 million in the next five years developing your website.
What exactly will you be spending that on? Have you trialled any
measures before you do it?
Mr Gray: The bulk of the £170
million is not on the website as such but on the provision of
online services. This is the ability for taxpayers of various
sorts to do their business with us online. All of this follows
the report Lord Carter did and the recommendation about the extent
of the speed with which we should be introducing online facilities.
Q77 Mr Touhig: Have you trialled
any of this? Is it appropriate to trial some of this? The Government's
record on IT systems is not brilliant, is it?
Mr Gray: We have indeed trialled
it. A number of our programmes are proceeding extremely successfully
on self assessment. We had a target to get the online take-up
to 35% by March 2008. We reached 35% a year early, and I am anticipating
we will be well over 40% in the current tax year, so we are progressively
rolling out these systems. I think they are operating generally
extremely well.
Q78 Mr Touhig: This is not going
to be a colossal waste of money in a few years time, with another
NAO Report, is it?
Mr Gray: No. I think we are seeing
in a great majority of these areas that we are very successfully
delivering good returns on those investments.
Q79 Mr Touhig: You closed the tax
credit system website in December 2005 after it was attacked by
criminals. We do not really have a great record with IT systems.
Mr Gray: We closed that online
facility not because there was a technical IT problem with it
working but because we reached the judgment that it was not sufficiently
secure against fraud and error. Therefore we are not going to
reopen it until we are satisfied we have put in place the—
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