Examination of Witnesses (Questions 100-119)|
HM REVENUE AND
UK BORDER AGENCY
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 decidedthis
is one of these curious things in the fish trade which I never
try to understandto 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 themthe
revenue extracted from themis 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 Reportof 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
Ms Strathie: That has already started
and Mr Clark can probably tell you some of the numbers and the
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 changeswhen
the bill gets Royal Assent hopefully in Julyat that point
then all of our personnel will transfer to the UKBA
Q114 Mr Mitchell: Your personnel
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
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
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.