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

Examination ofWitnesses (Question Numbers 520-539)


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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