HMRC: The Control and Facilitation of Imports - Public Accounts Committee Contents

Examination of Witnesses (Questions 1-19)


9 MARCH 2009

  Q1 Chairman: Good afternoon. Welcome to the Committee of Public Accounts where today we are considering the Comptroller and Auditor General's Report on The Control and Facilitation of Imports. We welcome back to our Committee Ms Leslie Strathie who is the Chief Executive of HM Revenue and Customs. I think it would be easier if you introduce your team.

  Ms Strathie: Thank you, Chairman; good afternoon. On my left I have Ms Melanie Dawes who is the Director General for Business Tax; Mr Doug Tweddle who is the Director for Customs and International; on my right is Brodie Clark who is the Head of the UK Border Force.

  Q2  Chairman: If we look at the summary of our Report on controlling imports and we read paragraphs seven, eight and nine on page five and paragraphs 12 and 13 on page six these are a useful summary of how you do control imports—this is imports of things of course rather than people; we were looking at people last week, today we are looking at things—what we see there is a rather fragmented regime. I am sure you would agree with that. We have complex rules, errors in documentary checks, fewer and fewer trader audits and you do not know how many imports are checked centrally. Are these the hallmarks of a well-run organisation, Ms Strathie?

  Ms Strathie: No, I do not think they are but I do not think that is quite how I would put it. We have come a long way since the Report was written and much has changed, including the transfer in day to day working of many of our functions to the new UK Border Agency. The checks that you refer to are a small element of the entire checking regime that is carried out. Those are the checks identified by the CHIEF system and in relation to physical checks at the border. They do not include all the pre-checks and post-checks and all of the audits that are carried on inland. Would you like me to expand on those points?

  Q3  Chairman: No, I think actually we can go into detail one by one. I always assumed that goods coming into the UK were much more rigorously checked then goods going to the rest of the EU but if we look at paragraphs 2.16 and 2.18 that there is quite a low rate of examination. Apparently we examine 2% to 3% of goods and the EU averages 9.1%. I find this rather worrying, Ms Strathie. Are we seen in the UK as a safe haven for imported guns or other prohibited goods?

  Ms Strathie: First and foremost we need to say that this is about control and facilitation of imports coming from non-EU into the EU and the UK. That is the first distinction. In addition to the physical examinations carried out by the UKBA using shipping information, we have a large number of documentary examinations carried out as well. The other thing that is worth mentioning is that there is no direct comparison between the Member States because we do not all carry out the same functions.

  Q4  Chairman: We have the figure of 9.1% as the European average; is that right?

  Ms Strathie: Right in terms of numbers—we accept those—but in terms of comparing apples and pears it is not right. Different functions are carried out in different Member States by their equivalent organisations. These checks here are simply the ones HMRC and now UKBA are responsible for.

  Q5  Chairman: If we read paragraph 2.17 you have this CHIEF system; what does CHIEF stand for?

  Mr Tweddle: Customs Handling of Import and Export Freight.

  Q6  Chairman: It is driven by some sort of central IT system which seems to be more successful.

  Mr Tweddle: CHIEF is a centralised IT system which all imports into the UK from outside the EU are electronically reported to.

  Q7  Chairman: You do not use CHIEF for everything and the rate of irregularities identified on imports selected by detection officers is a lot less than for the CHIEF-based examinations. Why do you not use CHIEF more often?

  Mr Tweddle: CHIEF works on the freight declarations where each of the 22 million freight declarations has quite a lot of detailed information inputted into the computer system and you are able to use the computer to identify things which do not look right. That is why we get a high proportion of irregularities. On the detection side we have officers working at the ports and airports, working on much less refined information and they are looking at things like manifests and they are getting information from the shipping lines and they are not able to target so precisely. Inevitably what they are looking at is going to be less successful.

  Q8  Chairman: There seem to be a large number of errors. Looking at paragraph 2.6 on page 14 it says, "In February 2008, a review of 430 cleared documents showed that 18% of checks had an error". Does that mean that quite a lot of stuff is getting into this country that we do not know about, is there something wrong with it?

  Ms Strathie: The errors referred to are administrative errors.

  Q9  Chairman: So that does not mean that goods are coming into this country that we do not know about.

  Ms Strathie: No.

  Q10  Chairman: It then says, "and did not meet the clearance standard" so it is not just administrative errors, they did not meet the clearance standard apparently.

  Mr Tweddle: We have looked at this closely, Mr Leigh, and we can give an assurance that nothing is being allowed into the country which should not have been because of the errors which were subsequently detected.

  Q11  Chairman: How can you be so confident of that?

  Mr Tweddle: We have done an analysis of what the errors were and they were essentially recording things after the goods declaration had been made. It was the way we process the goods declaration rather than the nature of the goods declaration itself. I think we can also give the Committee an assurance that we have worked very hard to improve the quality levels which are operating at our centralised clearance hub in Salford and we are now very close to meeting the targets which the NAO suggested we should be achieving.

  Q12  Chairman: I was surprised to read in paragraph 2.21 on page 18 that you have halved the number of trader orders over the last three years. It says here: "The number of audits conducted by the Large Business Service from 2005-06 to 2007-2008 has decreased by 51%". Is that a good thing to do?

  Ms Dawes: That relates to the Large Business Service and yes we have changed our approach to audits of the largest customers and we are now doing fewer but more in depth audits. We are still able to do a completely comprehensive audit of all customs and international trade issues for those biggest customers every three years and every single customer has a named point of contact that they can speak to on a day by day basis for checking detailed information and so on.

  Q13  Chairman: Later on on this page we read about the Department's performance in assessing and monitoring risk. Surely if you are going to find out whether there is a new and emerging threat you should have more random inspections, should you not? It says on page 19, "The Department stopped random inspections of imports in 2001 as resource constraints and rising volumes of trade affected the statistical viability". What is wrong with occasional random inspections?

  Mr Tweddle: Perhaps I could answer that, Mr Leigh. As you will see from this Report import procedures are complex and the opportunities to find irregularities are wide. Our experience of random testing was that it was not producing worthwhile information which led to a more intelligent use of our resources. If I could expand a little further, there are 34 different prohibition and restriction regimes; there are 30 different customs regimes; there are 16,000 different tariff classifications. Doing a random check to try to inform your overall risk would just not be practical and you would have to actually check a very high proportion of the goods which are coming into the country. We think a process using structured risk targeting in particular areas is a much more sensible way of deploying our operational resources.

  Q14  Chairman: I am glad you mentioned the 16,000 different commodity codes; that is staggering. If you are a trader it is very complex keeping up with it. Paragraph 3.4 on page 26 says, "There are many changes being made to the importing process currently" so it seems that the traders are having some difficulty keeping up. There is an interesting figure which really sums up the problem. Figure 14 on page 21 reads: "Example of the complexity of identifying the correct commodity code. A trader applied to the Department for a commodity code for an Easter snow globe with a glass globe, a polyresin base, containing a depiction of bunnies and spring, and playing music. The Department considered that it could fall under the following areas of the Tariff: Chapter 39 on polyresin ornaments; Chapter 70 on glass; Chapter 95 on festive items; Chapter 92 on music boxes. The Department sent it to the EU for a decision." This is ridiculous; this is an Easter snow globe.

  Mr Tweddle: If I could respond, Mr Leigh, first of all I do not want to sound defensive but HMRC does not establish the commodity codes. Most of them have come from requests from business to have more precise identification of the goods which are involved in international trade. I am not quite old enough to remember, but if you go back to the customs tariff of the 1930s I think the number of commodity codes was not much more than a thousand but over the last 60 to 70 years, because of demands of business and the demands to have more accurate identification of particular commodities, you end up with this example. I must say, our colleagues in the NAO have chosen a particular difficult one of course over how you actually classify that. It can be quite important. Let me give another example. We have mobile phones which now have cameras on them and MP3s and global positioning systems and classifying what it is—is it a mobile phone, is it a GPS system, et cetera—is quite difficult and it does affect the duty rates which have been decided, so the classification can be very important. Also, when you come to things like preferential trade agreements and origin you need that precise level of classification.

  Q15  Chairman: Okay, you have convinced me that you have the Easter snow globe right. My last question relates to the general pressure on the UK Border Agency. We had a hearing last week on asylum and they are obviously under huge pressure with people, and I notice that the rate of examination at seaports is significantly lower than at airports. With all the problems of asylum and the rest of it, to what extent have you taken your eye of the goods because you are worried about people? By the way, I think it is very important to worry about people and I am not blaming you for it.

  Mr Clark: In terms of last week and this week I think the changes to the UK Border Agency have happened relatively recently in terms of customs and immigration coming together. That should and will increase the flexibility of the force at the border to deal more effectively with people and goods and work through an effective prioritisation process with good intelligence coming from both sides in terms of targeting the resource. Instead of 4000-plus staff at the border looking for goods, it will in effect mean 8000-plus staff there who will have the ability, the skills and the powers to look for both people and goods.

  Q16  Mr Williams: Ms Strathie, we have one of the lowest rates of examinations in Europe so it would not be unreasonable to assume that you focus on the areas of high risk. That would be a logical conclusion but not an appropriate conclusion because even then you only detect irregularities in 1% of this smallest number of examinations. How on earth do you reconcile those two facts?

  Mr Tweddle: Mr Williams, as the person responsible for the customs procedures maybe I could begin to answer that. First of all, if you look at some of the other more advanced customs administration—I am not ashamed to say that I think Britain does have an advanced customs administration—our figures are not out of step with countries like the Netherlands, Sweden or Denmark.

  Q17  Mr Williams: You mean they only identify 1% as well?

  Mr Tweddle: We do not have the information about—-

  Q18  Mr Williams: Then how can you say they are not out of step?

  Mr Tweddle: I am looking at the physical examinations which they have conducted.

  Q19  Mr Williams: That does not matter, does it? It is outcomes that matter.

  Mr Tweddle: If you actually look at the result of the checking that we do on the cargo declarations, we actually find a much higher proportion of irregularity. It is not just dependent on physical examination.

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