Administration and expenditure of the Chancellor's departments, 2007-08 - Treasury Contents

Examination ofWitnesses (Question Numbers 500-519)


26 NOVEMBER 2008

  Q500  Mr Love: I certainly accept that. However, as a minister who will no doubt be better aware than I am, there are certain PSA targets which are much more firmly in the public mind than others. The ones you quoted from HMRC I do not expect the ordinary person in the street would be able to quote them but quite a lot of people can quote the halving of child poverty by 2010 and its eradication by 2020. While I accept the figures that you have given, and they were given at the time of the Budget, that we would reduce it by half a million as result of the measures taken in the Budget, we are still a long way from reducing it by half likely in 2010. How confident are you that in the changed economic circumstances it will be possible for us to even approach that target?

  Mr Timms: It is certainly true that there is more to be done to achieve the 2010 target. As you know, and the Chancellor mentioned this in the Pre-Budget Report speech, we are committed to introducing legislation for the 2020 target and we will be consulting on the form of that legislation and the content of it over the coming months. As I said earlier, I do not think it is completely clear what, as yet, the effects of the changes in the economy are going to be on the proportion of children growing up below 60% of median income. We may see an impact on median income because of what is happening in the economy at the moment. At this stage it is a little too early to say precisely what the effects on the child poverty statistics measured in terms of relative income are going to be.

  Q501  Mr Love: This is a rather unfair question because it is a London member asking another London member but in terms of regional inequality the actual target we are setting ourselves is about growth rates going forward and the differential in growth rates for different regions. Whether or not London and the South East have much greater impact in terms of the current recession we are going through, it is still very likely that they will grow at a faster rate than other regions of the country. We have had little real impact in the level of growth of different regions. I know it is unequal and an unreasonable question but how do we improve the growth rates in some of our lower growing regions in the country?

  Mr Timms: As you know, we have had an ambitious, and I would argue, effective programme of regional development ever since we set up the RDAs a decade or so ago. We have seen very substantial benefits to regional economies from the measures we have put in place. Just on the point of London, I would just make the point that the growth of the London economy has, as you have indicated, been very healthy but London employment, and the employment rate amongst Londoners, has not moved very much. There is more work there still to be done but the framework of the regional policy that we have put in place has been a sound one and an effective one.

  Angela Eagle: I wanted to point out how we are taking that forwards with some of the changes with multi-area agreements, with sub-regional developments, our working with local authorities, asking them to take a duty of taking care of economic development in their areas more explicitly on the institutional side. On the other side, the Government is working to try to assist and encourage greater levels of entrepreneurship in regions. Some of the measures we took in the Budget last year, for example particularly focusing on female entrepreneurship, if we could have women creating businesses at the same percentage as they do in America we would have nearly a million more small and medium-sized enterprises. There are a range of interventions that the Government is making explicitly with developing the focus on economic development at both regional and local level that we hope will produce a positive result.

  Q502  Mr Love: Ian, you can respond but I will add something to it. A couple of years ago we lost European structural funding which had quite a heavy impact in some of the regions. Is there a need for the Government, because of the shift to the East effectively when all the new countries came in, to look at that again?

  Ian Pearson: We still do have European structural funding. There is European regional development funding available in the regions. It is right, as you say, to point out that with the accession countries a lot of the structural funds that have been allocated by the European Union have gone in that direction but there is still a programme, during this current financial perspective to 2013, from the European Union. I do not want to stray too far from the brief of the Committee this morning but in terms of direct response, if you look at Regional Development Agencies and the regional level of government I want to offer a couple of reflections. The RDAs are doing a good job. Ten years into existence they have found their feet. There were issues early on with RDAs but now they are making an effective contribution at a regional level. A lot of them, like my own West Midlands region, have set targets about closing the output gap with the rest of the UK, in particular the South East as you mentioned. It is important to recognise that a lot of what we do as a Government is to pass legislation and to have budgets that get implemented at a regional and sub-regional level. I do not think the level of scrutiny, particularly in terms of performance management, at a regional level has been strong ever when it comes to government. It is one of the reasons I think regional ministers and regional select committees are an important innovation. I find it very surprising that some people do not really accept that. It is at a regional and sub-regional level that a lot of this money that comes from government does get spent and it should be accountable. I would hope that Select Committees like this would want to strongly support regional ministers and regional Select Committees as a way of ensuring that taxpayers' money is being spent in the best possible way.

  Mr Love: I will say Amen to that!

  Q503  Chairman: Mr Timms, the Revenue and Customs Annual Report disclosed that they had lost a quantity of Class A drugs held at their own lock-up. Have you found them yet?

  Mr Timms: Not that I know of.

  Q504  Chairman: Can you tell us how much went missing? This is the loss at Coventry.

  Mr Timms: I do not think that is a figure I have in front of me.

  Q505  Chairman: It is an entire paragraph in the Report so it sounds like it was a substantial amount of Class A drugs. Are you not aware of that?

  Mr Timms: I am aware of the paragraph in the Report but I am not aware of the quantity or the value. I am sure that is something we can provide you with.

  Q506  Chairman: This was last Christmas. What have you done since then to ensure that when HMRC seize drugs they remain secure?

  Mr Timms: HMRC will certainly have been seeking to learn the lessons from that episode. I do not have in front of me the specific measures that they have taken in response to that but I agree with you that it is a serious loss, it should not have happened and steps I know will have been taken to make sure it does not happen again.

  Q507  Chairman: You understand why we are asking you. You are the minister responsible for HMRC and it seemed quite a serious matter that drugs go missing in its own lock-ups.

  Mr Timms: I agree with you.

  Q508  Chairman: Perhaps you could let us have a note as to what has been done to improve security there.

  Mr Timms: I would be happy to do so.[3]

  Q509 Nick Ainger: We were told when we interviewed HMRC officials that in terms of the head count reduction in HMRC they were 3,000 ahead of target. You referred, in your opening remarks, to the unprecedented situation that we face globally and the downturn and its severity and so on. Are you going to review the head count reduction, as an employer of a substantial number of people, bearing in mind the unprecedented situation that we face?

  Mr Timms: If you mean are we going to back off the head count reduction or indeed the efficiency measures more generally, the answer to that is no. It is very important that we maximise efficiency across Government, including in HMRC. Indeed, of course, as you will have heard the Chancellor say earlier this week, across Government we want to look for additional efficiency savings to those that have already been announced and committed to by the end of the current spending review period. We have not worked out what that is going to mean for individual departments but I certainly do not think there will be the opportunity, and neither should there be, to reduce the commitment to improving efficiency in HMRC.

  Q510  Nick Ainger: Nicholas Macpherson told us that the Treasury was operating at its limits and that is before there is the next tranche of job losses. Are you satisfied that, in fact, the Treasury can maintain its efficiency with these additional job losses?

  Mr Timms: Yes, I believe it can. It is certainly a very substantial managerial challenge to undertake the level of efficiency reduction that is required while maintaining standards. Actually there are examples where through genuinely transforming the organisation, whether it is in HMRC or other parts of Government, it is possible both to achieve these efficiency goals, very demanding as they are, whilst also improving performance and raising the levels of performance. It is a very demanding challenge but I am confident that it will be achieved. There are certainly examples in HMRC where it is already, and examples elsewhere in Government as well, and I am confident we are going to be able to achieve that.

  Q511  Nick Ainger: In the 2004 Spending Review Final Report on the efficiency programme published this month, in relation to relocations under the Lyons Efficiency Programme, the Chancellor's department delivered only 2,987 relocations against their target of 5,050. These are relocations out of London into the regions of Britain. Your head count reduction programme and the HMRC tax office closure programme will actually reduce even further the number of jobs in the regions of Britain. How are you going to meet that target?

  Mr Timms: First of all, the target that was set in Spending Review 2004 for HMRC, including the Valuation Office Agency, was 1,950. The relocation savings actually achieved was 2,492, so HMRC exceeded the Lyons relocation target set for it in the 2004 Spending Review. The target for 2010 is 5,050 and that will be achieved as well.

  Q512  Nick Ainger: Looking at the figures in the report, page 11, it does say reported relocations by June 2008 just under 3,000. The target is a further 2,050 ahead of that. You have until the end of 2009 to achieve that so that is a very substantial number of relocations to be achieved in 13 months.

  Mr Timms: I am confident that it will be achieved. As I have said, in terms of the target set for March 2008 HMRC substantially overachieved by a margin of 28% and I am confident that the 2010 target will be achieved as well.

  Q513  Nick Ainger: Can we turn to staff morale because it is linked with these job losses particularly in HMRC. The staff survey shows that 70% of staff are dissatisfied with HMRC. What are you going to do to improve that performance?

  Mr Timms: That is a very fair point. There are odd pieces of data in the survey that I could point to which give a slightly rosier picture than the figure you have given but your characterisation of the overall picture on morale is a fair one. In my view one of the major difficulties that staff have to contend with has been the uncertainty over the workplace re-organisation. As you know, HMRC is committed to concluding the exercise by the end of this year or making the announcements about the final configuration of the HMRC estate by the end of this year. I think when there is certainty everywhere then that will be a very important milestone to pass from which it will be possible to rebuild staff morale. Other changes have happened as well. There is a new chief executive, a new chairman in place, and I think the organisation is now in a position to move forward. I am confident that one of the effects of that will be to improve morale but there is no getting away from the fact that at the moment the picture is a rather unhappy one as you rightly pointed out.

  Q514  Nick Ainger: Have you recently met with the trade unions, PCS in particular who represent the vast majority of staff in HMRC?

  Mr Timms: No, I have not.

  Q515  Nick Ainger: Do you think it would be a good idea to start with that?

  Mr Timms: There are very regular discussions between PCS and the executives of HMRC. I have only been in this role for a few weeks and I have not yet had that opportunity but I think it is extremely important that HMRC continues to work very closely with its trade unions and I am certain that under its new leadership, as with its old, it will do so.

  Q516  Nick Ainger: In terms of the overall efficiency of HMRC, is not one of the problems that you face in the future not only tackling this morale problem, which obviously affects people's performance and maybe sickness levels and all that sort of the thing, but also the fact it would appear that many of the staff in the small tax offices are the most experienced staff that you have and they are going to be going. The quality of your overall workforce is actually reducing at a time when you want to see it radically improving. Is that not a structural problem that you have?

  Mr Timms: It is certainly true we have a large number of highly experienced and indeed expert staff in HMRC. Once the final decisions on the HMRC estate are announced then HMRC will work with all of the staff in the offices which are going to close to try and find alternative locations to which they are happy to move. There will be support for additional transport costs, and so on, and there will be a very careful interview with every single member of staff affected. I hope the consequence of that will be that the expert staff you are referring to will continue to work in the organisation. No doubt some will choose that they do not wish to and that will need to be addressed by HMRC. As you are relating to our earlier conversation, there is a continuing need to reduce overall numbers further and I think that is something we are going to be able to manage successfully. I am very optimistic that staff morale will improve quite sharply once there is certainty about the future of this configuration.

  Q517  Mr Brady: Are there any management or technical implications that arise for HMRC from the temporary VAT reduction?

  Mr Timms: There certainly have been some very short-term implications in that some hundreds of staff have been trained up to respond to questions from businesses in this period between the announcement and the implementation of the VAT fall next week and some of those staff will continue to be working on those phone lines after implementation of the reduction on Monday. In terms of a larger scale impact, no, I do not anticipate a substantial effect.

  Q518  Jim Cousins: We have just nationalised a good chunk of the commanding heights of the economy, and the commanding heights of the economy have responded to this by blowing a polite raspberry and putting up "business as usual" signs. Do you think the Treasury has the firepower in terms of numbers, expertise and experience to actually shift that?

  Mr Timms: This may be something that Ian will want to comment on but I just make the point that, as you know, we have committed to regular reporting on the extent to which banks are meeting the commitment that they have signed up to: to maintain lending to households and small businesses. Alongside that we have made a number of announcements in the PBR this week specifically around supporting people looking to buy homes and small businesses.

  Ian Pearson: What I want to say in response to you is we are very aware as a Government of the concerns that are out there and that are very clearly expressed by industry about some of the lending practices of the banks at the moment and that is why we have had numerous meetings. The Chancellor and Peter Mandelson have been involved in talking to the banks about their lending practices for the future. I think it is fair to say when it comes to the banking recapitalisation issues this is a process that is still going on. There has been clear conditionality attached to those banks which are taking advantage of the recapitalisation scheme that we have introduced as a Government and we do expect banks to continue to make available competitively priced lending both to the mortgage market and to small businesses. You will be aware of the announcements we made in the PBR, which we are not discussing this morning, which take our policy further in this area. We will continue to want to hold bank's feet to the fire to make sure they do the right thing by small businesses and by people who want mortgages for the future.

  Q519  Jim Cousins: Talking about holding people's feet to the fire is a very dramatic phrase. Personally speaking I am very New Labour so the last thing I would want to see are bodies swinging from lamp posts or feet being held to the fire, although in some respects the medieval Catholic Church is an inspiration! That is a very dramatic phrase but the reality stands in great contrast to that. The reality is nothing has changed and the drama of your language I am afraid does not mitigate the fact that nothing has changed. The conditionality has not been worked to. You have conceded yourself this morning that the performance indicators have not yet been worked out. Nothing has changed and the drama of the language only emphasises that point.

  Ian Pearson: I do not accept that nothing has changed. When you see some of the recent announcements only this week about RBS and how they are acting with regard to their small business clients, I think that shows things have changed. Also let me be very clear I do not think it is acceptable for bank chief executives to be saying one thing to Peter Mandelson, Alastair Darling and indeed the Prime Minister and then the lending practices down the line at regional and local level show no recognition of what those chief executives are saying to us. We cannot, as a Government, accept a situation where we are being told one thing and something completely different is happening. I think some of this is a communication issue within the banking system at the moment. We do need to make sure that we have responsive responsible bank lending and that is a key issue for us. We will continue to want to hold the banks accountable particularly those that, as I say, have taken advantage of the recapitalisation scheme to make sure that they continue to lend to small businesses at what is a very difficult time.

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