Examination ofWitnesses (Question Numbers
520-539)
MR STEPHEN
TIMMS MP, ANGELA
EAGLE MP AND
IAN PEARSON
MP
26 NOVEMBER 2008
Q520 Jim Cousins: If we are optimistic
enough to assume you are right in thinking that what we are dealing
with is a communication problem inside the banks, something we
need to think about, it is very important that the Treasury, and
it can only be the Treasury and not HMRC, has the knowledge of
what is going on on the ground. Do you have the firepower both
in terms of numbers, experience and expertise to make sure that
is the case?
Ian Pearson: It is not just the
Treasury. Government as a whole, through BERR as a Department,
gets regular feedback from industry about lending practices, about
credit lines, about what is going on in the real economy and that
all gets fed into Government at different levels. I am confident
that we have a good understanding of what is going on out there
in terms of lending practices and that is why we are very much
challenging the banks to say that we understand that risks have
changed and we do not want to do anything that is going to stop
you operating in a normal commercial way but also, clearly, we
do not want banks to overreact to market conditions and take blanket
decisions which do not take account of individual company positions.
We want to ensure that banks continue to make available competitively
priced lending to viable businesses and it has to be the issue
for us for the future to make sure that happens. There is a lot
of noise in the system at the moment as you would expect in the
sort of economic situation we are in. There is a clear responsibility
on us as a Government to hold bank's feet to the fire and say
we want you to be acting reasonably in these difficult economic
circumstances and we are going to want to continue to do that.
Q521 Jim Cousins: You can assure
the Committee that you think you have the administrative firepower
to make sure that happens?
Ian Pearson: I can certainly say
to you that we understand what is going on. We have the resources
within our officials and the market intelligence that is out there
to be able to be quite clear as to the situation in the economy
at the moment, and to be in a position to have a serious dialogue
with the banks about their lending practices at the moment. That
is what we have been doing and it is what we will continue to
do.
Mr Timms: I would add that I know
the Permanent Secretary has told the Committee that the Treasury
does have the resources to address exactly the challenges you
have been discussing.
Q522 Jim Cousins: Can I ask the Financial
Secretary, following up the questions that were asked earlier,
does the increased efficiency savings target point to an increase
in the head count reduction to be achieved by HMRC and to an increase
in the closure of tax offices?
Mr Timms: Your question is about
the additional efficiency savings announced this week. We have
not yet worked through what the overall additional 5 billion figure,
on top of the 30 to which we have already committed, is going
to mean for individual departments. I would say that at this stage
I would not envisage additional office closures. The exercise
we have been working on, and the rationalisation of the estate,
has always had quite a long-term focus. It has been designed to
provide an estate configuration which meets HMRC's long-term business
needs. My initial reaction to your question would be I would not
expect there to be any additional closures beyond those that would
have been announced by the end of the year.
Q523 Jim Cousins: And head count
reductions?
Mr Timms: That is possible. I
do not think that can be ruled out at this stage but we have not
yet done the work to assess what are the implications for Government
departments.
Q524 Jim Cousins: We both acknowledge
that HMRC is an organisation which functions on many tens of thousands
of workers earning way less than the national average earnings,
two thirds of whom are women. If their morale is to be raised
and their performance is to be improved, and the Government is
going to be depend on both of those things, they must be able
to look to a future that contains more for them than the threat
of the sack and the squeeze on their real take-home pay.
Mr Timms: Yes, they must. That
is the reason why, in my view, it is very important that the estate
configuration announcements are made by the end of the year so
everybody knows where is the office they are going to be working
and that will be a very important step in raising morale. The
HMRC workforce does a great job. We have been able to make the
workforce head count reductions so far without any compulsory
redundancies. We will do everything we can to ensure that continues
to be the case in the period ahead including if there are going
to be additional efficiency requirements placed on the organisation.
As I said earlier in answering Mr Ainger, we are going to see
morale considerably improving over the next few years.
Angela Eagle: Can I say on the
extra 5 billion that the operational efficiency programme has
four strands and it has been identifying things like the fact
that there is a 50% difference in the price per kilowatt of energy
that different Government departments actually purchase. It is
about things like the potential for savings of collaborative procurement.
There is not going to be an extra head count requirement put in
but it is about things like that, better use of shared services,
collaborative procurement, driving the prices of the services
and suppliers' prices down by aggregating procurement so you can
get value from having bigger spending power. It is that kind of
thing, and there is no head count reduction attached to it, that
is going to be expected.
Chairman: We will return to some of those
particular issues during our sessions on the Pre-Budget Report
later on.
Q525 Mr Todd: It is a bit alarming
that that initiative is starting now.
Angela Eagle: It is not. It has
actually come from some of the work that has been done over time
which has demonstrated by increasing the capacity for collaborative
procurement, by doing a lot of work to make more transparent costs
that had been hidden in the past, that these things have come
to light. If you like, it is a deepening of the entire efficiency
programme which comes about because of the cumulative effect of
efficiency programmes over the last few years.
Q526 Mr Todd: I think co-purchasing
was part of this programme at its commencement, so discovery of
large variances in energy costs, perhaps surprising it has happened
so late.
Angela Eagle: It does demonstrate
that there is scope for further efficiency savings without affecting
the service delivered.
Q527 Mr Todd: I take that reassuring
message but stand by the criticism. I think, Stephen, you probably
caught the hospital pass of tax credit administration, am I right?
Mr Timms: You are correct.
Q528 Mr Todd: A large number of customers
were being handled manually because of failures within the IT
system of HMRC. What is the current position on that number? We
were told around 25,000 about 19 months ago.
Mr Timms: I do not think that
figure is one I have in front of me. As you know, we have established
the tax credit transformation programme to improve the services
that families receive and that has introduced a number of new
services. Certainly it is my impression in my surgery, and no
doubt other members of the Committee will have experienced the
same, that there has been a very considerable improvement in recent
months in the service that is provided to tax credit customers.
Q529 Mr Todd: Not, I have to say,
in the volume of queries that MPs tend to get. The quality of
response may be better.
Mr Timms: I am glad that quality
of response is improving. Certainly the number of overpayments
and the level of overpayments is very significantly down as a
result of the changes we have made.
Q530 Mr Todd: Will you give us a
note on the numbers that are currently manually being handled
as opposed to being handled within the system?
Mr Timms: I can certainly do that.[4]
Q531 Mr Todd: Where are you with the
IT supplier for this particular system? Do they have some responsibility
for continuing problems or was this system handed over to HMRC
and it is now yours to resolve and your liability?
Mr Timms: The original supplier
is no longer involved. There is a new supplier and the new supplier
is providing a good service.
Q532 Mr Todd: The original supplier,
if they bore any blame for poor design and that is quite a significant
qualification, is out of this frame.
Mr Timms: Yes.
Q533 Mr Todd: The change in COP26,
which this Committee has spent quite a lot of time querying in
the past, has received a broad welcome and certainly has had a
welcome in my office.
Mr Timms: And in mine.
Q534 Mr Todd: However, there remain
some areas of difficulty, one of which is over the recording of
phone calls where I think it has been disclosed that on some occasions
phone call records have not been complete. I have to say that
has certainly occurred in my office. How confident are HMRC of
the solidity of their evidence of communication? You will know
that COP26 is very specifically tied now to communication by the
customer to HMRC so the validity of that communication is absolutely
critical. What degree of confidence do you have? I must admit
that mine has been shaken by a couple of local cases.
Mr Timms: I think there are good
grounds for confidence. We replaced, from the end of January,
the reasonable belief test in COP26 on recovering overpayments.
The new test is a good deal clearer, setting out HMRC's responsibilities
and the customer's responsibilities for checking factual information
and that has been very helpful in making it much clearer.
Q535 Mr Todd: There is a critical
requirement to inform HMRC within 30 days and if one is not entirely
sure of the robustness of the telephone recording system—and
I have to say it is certainly not true they can always get through—then
that difficulty of demonstrating that communication is problematic.
Mr Timms: I agree. The confidence
over that is very important. This is not a concern that has been
raised with me previously but I will certainly have a look at
where we have got to.
Q536 Mr Todd: To give an example,
I very unusually had the entire file of a client sent to me which,
because they were extraordinarily assiduous, they had kept their
communication with HMRC and it was quite clear that not all of
the communications had been recorded within the HMRC file. I must
admit that was alarming, as was a catalogue from a customer's
telephone calls which showed large apparent hanging-on periods
which could not be properly explained. 11 minutes apparently hanging
on without a call being connected, which the customer recalled
as a conversation, indicates that this system is far from flawless.
I would welcome your personal attention to that.
Mr Timms: If you still have the
file, I would be happy to do so.
Q537 Mr Todd: If you have a very,
very large envelope on that particular one I am sure we can provide
you with it. What do you expect the impact to be from the change
to COP26 on the write-off of overpayments? Presumably this is
going to produce logically an increase in write-offs if there
is a softening of the policy.
Mr Timms: Overpayments are, as
you know, very substantially down. I think the most recent figure
I have is for 2006-07. They are now less than half the level they
were in 2003-04 and the trajectory is very encouraging. Clearly
there is still an issue here and I do not want to give the impression
to the Committee that I think the problem has been entirely resolved.
There is more we need to do but things are certainly moving in
the right direction.
Q538 Mr Todd: That is the overpayments
but the write-off, in other words where the implications of the
new policy indicate that HMRC must bite the bullet on the loss,
what is your estimate of the write-off that we can expect as a
result of the new policy?
Mr Timms: I do not have in front
of me an estimate for that. I think the Committee would agree
that the change in policy has been absolutely right and very helpful.
Q539 Mr Todd: It has a financial
consequence which we should be aware of. Could you write to us
with an estimate of the implications of that based on the experience
to date?
Mr Timms: I will be happy to provide
whatever information is available.[5]
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