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

Examination of Witnesses (Questions 100-119)


9 MARCH 2009

  Q100  Chairman: Perhaps I should be a questioner at Civil Service College for up and coming civil servants. When you are asked the question "What is the weakest link in your department?" do you tell the truth? The whole truth? What helps your careers best?

  Ms Strathie: Absolutely the truth.

  Q101  Mr Mitchell: I would like to start my questions with an every day story of Grimsby folk which casts a curious light on the operations of your department. This is a firm called Icelandic which supplies fish to another Icelandic firm called Cold Water which employs 700 people in Grimsby. It is a reputable firm, a big business. In 2004 they decided—this is one of these curious things in the fish trade which I never try to understand—to process their fish (primary processing) in China because it was cheaper. Naturally to find out and abide by the rules they took the advice of a top man locally who told them that all that was necessary, because this was imported duty free from Norway, was an EUR1 certificate. Trade begins and it works well. In November 2006 two customs officers come on a routine visit, they went through the papers and said that they were not quite sure but they thought the company might have to apply for outward processing relief on the fish they had been importing on EUR1 certificates. They said they would check and come back. They did not come back but they suggested that the company should pay duty on the Norwegian fish which is normally imported free and of course they kept the money back as a safety precaution. Then the company began to pay the duty. By the time they had paid over a quarter of a million quid they applied for relief, claim form C285 as the customs officers indicated they should. They are then told, amazingly, that they could not have the money back because they should have known at the start of the trade that it had to be done on an outward processing relief accreditation. They handed over the money; they cannot get it back. Then later on in the saga there was a visit from HMRC. They go through three years of records and issue a demand for a total duty of £600,000 which, with the quarter of a million, comes up to nearly a million pounds of back duty. This is absolutely barmy. Your department does not know what it is doing. Here we have four sets of opinions on what the company has to do. It checked right at the start to make sure it was all right. There are four sets of opinion, all different and a bill for a million quid on a company which threatens its survival. This is totally unacceptable. Does this indicate the state of organisation and education in your department?

  Ms Strathie: As I understand it this case is subject of a tribunal. I can understand why you would say the things that you have said about it, but my understanding is that there is nothing we can do after the error has been made.

  Q102  Mr Mitchell: Which was based on your advice.

  Ms Strathie: I do not know that, Mr Mitchell.

  Q103  Mr Mitchell: There is evidence in the Report that firms are being misadvised on what they can and cannot import and what they have to do.

  Ms Strathie: I simply know that if the company records the error it is not within our gift to change it. This is subject to challenge and it is subject to tribunal.

  Mr Tweddle: I am aware of this case, Mr Mitchell, and we have looked very closely at what occurred. It is a complicated exchange. We want to make the case for the HMRC side because when it comes up to the tribunal—

  Q104  Mr Mitchell: It was on the advice of the HMRC throughout and that advice has varied throughout.

  Mr Tweddle: I do not think it is appropriate to go into the details but I think that advice was not given in any formal way

  Q105  Mr Mitchell: It was. They went along to the top man and asked what they should do. They were told. Then come two inspectors on a routine visit who told them differently. Then comes a letter from the department giving different advice again. Then they finally get a bill for a million quid.

  Mr Tweddle: I think if you look into the case, Mr Mitchell, there was rather more contact than you have been made aware of.

  Q106  Mr Mitchell: Is your department understaffed or staffed by under-trained people? I see from the Report that the year starting 2005 to 2008 audits on the largest traders are down by 51%; the returns you make from them—the revenue extracted from them—is down by 67% and the small and medium traders it is down by 42%. You must be understaffed.

  Ms Dawes: On the large business side I was explaining before that we are actually doing fewer audits but we are doing them across the whole set of customs regimes. We are building in compliance for the future; we are building in more checks for what companies will do in the future.

  Q107  Mr Mitchell: Are you doing fewer audits because you are understaffed?

  Ms Dawes: No, I do not believe we are. This is a question about how we prioritise our resources and how we choose to do audits rather than a lack of resources in question.

  Q108  Mr Mitchell: If your staff are well trained and adequate in numbers and have sufficient understanding, why are 18%—according to the Report—of the checks for documentation process in error?

  Ms Dawes: As Mr Tweddle was saying earlier, that 18% certainly was not acceptable. This was a very new part of the department; this was the hub when it was first put together. We have taken steps to improve that so that 82% quality is now over 90% and in fact it is nearly at 95% which is the recommendation that the NAO put to us. It was not an acceptable standard but it is something that we are addressing.

  Q109  Mr Mitchell: It says also at paragraph 2.6 that staff had difficulties in interpreting what documentation is required. This is your staff. They cannot tell importers what documentation they need.

  Ms Dawes: Some of those staff were new to customs work and it is very complicated as I think the discussions have already got across very well. We have improved the training. We do now have an absolute minimum of five days continuous professional development for all our tax specialist staff at HMRC.

  Q110  Mr Mitchell: Are those mistakes errors on the documentation process because you are trying to compress it all into two hours? Is it a case of more haste makes less speed or what?

  Ms Dawes: No, we do not think so. Most of these were quite minor clerical errors. They are still not acceptable but they were things like getting the date and time wrong rather than the more fundamental question of whether the right documents were there. We are meeting the two hour turnaround time. We have 94.5% in January and we do not believe that that is something that we should change. We think we can do that and we can maintain the quality. We are more or less at those standards now and we are committed to maintaining them.

  Q111  Mr Mitchell: We have had a policy for 12 years now of keeping the pound over value so it subsidises imports and penalised exports and there you are facilitating them. There must be stuff pouring into this country, not only stock but people, drugs, whatever, that you are not detecting and which are not paying the adequate duty.

  Ms Dawes: We are trying to keep a balance all the time between facilitation and control. We do put an enormous amount of resource into the control side. We have around 4000 staff in our detection service and we have a lot of people working on compliance across the department. So we resource that quite heavily and it is a big priority for us, but we have to strike a balance. Of course a lot of imports into the UK are actually to facilitate further exports. A lot of the time this is companies who are bringing things in, they will then process them or use them in their own manufacturing, for example, before exporting later. So it is quite a integral part of the wider trade picture.

  Q112  Mr Mitchell: I am a bit mystified about one other thing in the Report and that is that the physical examinations are now going to be done not by your people but by the UK Border Agency, presumably looking for very different things to what your people are looking for. What effect is that going to have?

  Ms Strathie: That has already started and Mr Clark can probably tell you some of the numbers and the benefits.

  Q113  Mr Mitchell: It could keep out bomb parts and allow in all sorts of stuff at a lower rate of duty than it should be paying.

  Ms Strathie: I think when the law changes—when the bill gets Royal Assent hopefully in July—at that point then all of our personnel will transfer to the UKBA—

  Q114  Mr Mitchell: Your personnel will transfer.

  Ms Strathie: Yes, and they will then have the powers to collect revenues which they do not have at the moment. However, in reality all of our people are working to a much greater effect in an integrated service.

  Mr Clark: There are flexibilities that were not there before and so we have staff who can search vehicles for people and illegal goods whereas previously there were two different searches taking place.

  Q115  Mr Mitchell: This must lead to a situation in which the requirements of Customs and Excise take second place to the requirements of fighting terrorism.

  Mr Clark: Not at all. The priorities remain in terms of targets that UKBA has set either through the home secretary or through the chancellor in terms of seizures at the border. It is quite interesting to know that this past nine months has seen the number of successful seizures increase in nearly every respect on high risk type goods such as drugs and cigarettes, such as firearms coming into the country, and part of that is attributable to the broader spread arising from the flexibility of the new force.

  Q116  Nigel Griffiths: The Chairman, myself and Alan Williams are all former Trade and Industry ministers so we are used to discussing with business the need to facilitate trade. I notice in the Overall Conclusions at paragraph 21 that, "Overall it has performed well in facilitating trade, with speedy clearance of most imports". I also see that 12 trade associations and 23 companies attended workshops and I wondered how much they warned of interfering with a regime that is facilitating trade.

  Ms Strathie: Sorry, I do not quite understand.

  Q117  Nigel Griffiths: What came out of those workshops? We have a conclusion that on facilitating trade you are getting very good marks and on controlling imports whilst these do not look like bad marks there is certainly criticism in paragraph 22, page seven.

  Mr Tweddle: I think it is fair to say that the list we have on pages 28 and 29 are representing legitimate firms and legitimate trade associations. They welcome that we are seen as perhaps the most consultative customs service within the European Union and also the UK has high degrees of facilitation of legitimate trade. They do not say that we want you to have more checks and to control more because the people they represent and the firms that are bringing things in do not believe they need a high level of checking.

  Q118  Nigel Griffiths: Presumably they are as keen as everyone to weed out anyone who might undermine them through dishonest practice so their opinion on that counts. I note that the NAO says on page 6 at paragraph 11 that actually the 9.1% figure that has been the focus of questioning is problematic in making a direct comparison of data between EU countries. I also note that although there is an average examination where presumably we are being compared as one of the world's greatest trading countries with Malta with 400,000 population, Luxembourg with 500,000, Estonia with 1.2 million and Slovenia with two million, so how good is that as an average figure? I put this to the NAO: do we have an average figure for more comparable countries like France, Germany or Italy?

  Mr Burr: My understanding is that we do not.

  Ms Wheeler: The analysis we have is in figure nine on page 17 which gives you the sort of distribution which takes it from 0-0.99% through to 10-39.99%, so there is quite a range there. This is summarised information that we were able to obtain from the European Commission.

  Mr Burr: We do know that it is not comprehensive.

  Ms Wheeler: These are rates which the individual countries report themselves to the Commission.

  Q119  Nigel Griffiths: I can understand why there might be problems then. I think we all remember when one major country restricted the import of Japanese cars by bringing a couple of customs officers in one port and making sure that they all came through there. Getting back to one of the points that you made in respect of my question on the trade associations and others, there are 22 million import declarations I see from this and 280,000 documents to check. If we were to get up to the 9.1 level that would presumably require about two million checks. How much are we being lobbied by the most responsible of British importers and exporters to achieve those sorts of figures and how many staff would you need to do it?

  Mr Tweddle: We are not being lobbied at all to increase the number of checks. You are completely correct that the people we consult with actually do not want to see successful fraudsters undermining their businesses and we are seeking to development trade sources of information to improve our intelligence and risk targeting. I have to say that this is quite difficult because although businesses may think that there are strange things going on they are very rarely able to give evidence that we can use to improve our targeting.

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