4.17 pm

The Minister of State, Department for Education (Sarah Teather): I thank my hon. Friend the Member for Beverley and Holderness (Mr Stuart), the whole Select Committee and, indeed, the previous Chair of the Select Committee, the hon. Member for Huddersfield (Mr Sheerman), for the important report that we are debating today, and for giving the House the opportunity to discuss the future of Sure Start children’s centres.

The report has been timely and helpful as the Government develop their approach to early years. The debate has on the whole been very good and constructive, with focused speeches about the future direction of policy, but the report demonstrates the extent of the all-party support for children’s centres as vital hubs of excellence in delivering integrated services to families, particularly those who most need support and advice. I have listened with interest to Members, and I shall try to address as many issues and concerns as I possibly can, as well as picking up on the key areas of our response to the Select Committee report. I am mindful, however, that I now have very little time left in which to speak.

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The start of the debate was particularly important, because the right hon. Member for Birkenhead (Mr Field) reminded us why we are debating the matter. Early years are the foundation for life. High-quality early intervention has the potential to turn around life chances, and poor experiences in early years, such as those to which the hon. Member for South Northamptonshire (Andrea Leadsom) referred, can actually change the physical nature of the brain. The failure to develop relationships of attachment can affect a child for ever, not just in the first few years of life. That is precisely why the Government have prioritised spending in this area, as the hon. Member for West Suffolk (Matthew Hancock) discussed.

I was struck by the comments of the hon. Member for Washington and Sunderland West (Mrs Hodgson) about the importance of Sure Start in providing other support for families, not just for children. Let me be clear about this from the start. The coalition Government see Sure Start as vital to their work on social mobility: it is a key priority. Sure Start has proved itself to be a programme that has the capacity to be life-changing, and we want to build on its success. The Chair of the Select Committee said that he hoped we were not going to rip everything up. That is exactly what we are not doing. We are building on the good aspects of Sure Start, but, as the right hon. Member for Birkenhead said, trying to develop it to ensure that we focus, particularly with more evidence-based programmes, on the families and children who need our support most. We believe that the best way to do this is through greater local decision making and accountability, more involvement of organisations that have proven expertise in service delivery, and, specifically, more use of evidence-based programmes.

Our response to the Committee’s report clearly states that, in our view, the main purpose of children’s centres is to ensure that families get help when they need it and to tackle issues early to prevent costly problems from emerging later. We want children’s centres to provide the foundation for stronger early joined-up working offering universal services for all families and targeted services focused on the neediest of those families.

Several hon. Members spoke about the need for evaluations, so let me pick up on a few of those points. The Government have commissioned an evaluation of Sure Start children’s centres in England that runs until 2016 alongside the national evaluation of Sure Start, which is evaluating a wide range of children’s centres. A report on the cost-effectiveness of the earlier Sure Start local programmes will be published later this year. I hope that that will be very useful information, for which the Chair of the Select Committee, in particular, asked.

The introduction of payment by results will incentivise better local evaluation of the impact of centres on children’s outcomes. In response to the hon. Member for Liverpool, Walton (Steve Rotheram) and the Opposition spokesperson, I point out that when we begin trialling payment by results, some additional money will be going in to help us to do that. We will then learn from those trials to find the most effective way to roll out payment by results in future to ensure that we can incentivise children’s outcomes.

Mrs Hodgson: Will the Minister give way?

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Sarah Teather: I am afraid that I cannot answer the hon. Lady’s question at the moment.

Children’s centres are a priority for us, so we have ensured that there is enough money in the system to maintain the network of Sure Start children’s centres through the early intervention grant, or EIG. The spending review announced that funding for Sure Start children’s centres would be maintained in cash terms, including new investment from the Department of Health for 4,200 health visitors to work alongside outreach and family support workers. I understand that many in the sector are concerned about the removal of ring-fencing. However, this is not about a lack of priority for the sector; on the contrary, it is a recognition of its growing strength and maturity.

The removal of the ring fence is not taking place in a vacuum. Across the piece, this Government are removing ring fences in many areas because we believe that the right way to make decisions is to trust people on the ground to decide how best to prioritise funding. In that way, we get much better decision making.

Mr Graham Stuart: Will the Minister give way?

Bill Esterson rose—

Sarah Teather: I give way first to the Chair of the Select Committee and then to the hon. Gentleman.

Mr Stuart: The Minister said that the budget will be protected in cash terms, including the funding from the Department of Health for 4,200 health visitors. Will she spell out precisely what sums are coming from where and when they will be appearing in the budget?

Sarah Teather: I do not want to spell out exactly which bits of the EIG go to what, because I want local authorities to make decisions on the ground about the best ways to do that. As the hon. Gentleman says, the money for health visitors comes from the Department of Health. I will write to him to provide some information about that, because I do not have it here with me. However, I do not want to—

Bill Esterson rose—

Sarah Teather: I will give way in a moment; let me answer one point at a time. The hon. Gentleman should not get too excited.

I do not want to spell out the details, particularly because when finances are tight there is an even bigger onus on us to ensure that we provide flexibility for local decision making. I do not think that we will get better decisions if I try to drive all this from Whitehall. We will get better decisions if local authorities can look at their provision and work out how they can best rationalise it based on local need.

Bill Esterson: I say to the Minister that I do get excited about protecting services on which families in my constituency depend. She made the point about local decision making, but there is a difference between making decisions on how to deliver the detail of services and deciding whether to deliver those services. That is the crucial issue in relation to ring-fencing. I call on her again to reconsider the decision on ring-fencing so that councils have to deliver services, even if they can decide how to deliver them.

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Sarah Teather: I will not reconsider the decision on ring-fencing because I believe that it is the correct decision. As I was trying to say before I took the interventions, this is not taking place in a vacuum. Payment by results will ensure that we focus much more on outcomes. As the hon. Member for West Suffolk powerfully put it, the problem with ring-fencing is that it focuses on inputs. I do not think that it is inputs that generate outcomes. We have to try to drive behaviour to focus on the outcomes.

Matthew Hancock: Does the Minister accept that in my area of Suffolk the removal of the ring fence has allowed the council to work up much more innovative solutions and to integrate different services? It can provide better solutions by bringing the delivery of services closer together, as the right hon. Member for Birkenhead (Mr Field) said, and get better value for money. I therefore strongly applaud the Minister’s decision not to put the ring fence back in place.

Sarah Teather: I absolutely agree. The point is that local authorities ought to have the freedom to decide whether they want to integrate these services with their youth provision. I want them to make better use of what are often fantastic assets, which are not always fully utilised. If we provide flexibility for local authorities, they will have the opportunity to do that.

Mr Sheerman: On a related point, a thread that runs through all the reports of the previous Select Committee is the importance of the professional qualification for early years professionals, and of paying and training those professionals well. There is some unhappiness at the moment because it seems that the early years qualification will be brushed aside. Will the Minister reassure us that that is not the case?

Sarah Teather: I am not sure that I understand the hon. Gentleman’s point. We are in the process of co-producing a policy statement with the Department of Health and the sector on the vision for early years and on how we will drive forward a number of changes. In particular, it will deal with quality, which I spoke about this morning at the 4Children conference. The questions include whether the existing qualifications are fit for purpose, whether we should change them and whether we should ensure that there is a greater focus on child development. We are considering those matters at the moment and we will publish the policy statement later this year. Quality is key, which is why we have asked the National College for Leadership of Schools and Children’s Services to focus on the quality of leadership in children’s centres. Children’s centres have the potential to drive forward quality, not just in their centre, but in much of the early years provision in their area. They have a great deal of potential.

I only have about four minutes left, which will make it difficult to respond to all the questions that have come up. I want to deal with one point that was raised by Labour Members, and in particular by the hon. Member for Liverpool, Wavertree (Luciana Berger). She made a number of allegations about cuts being made in proportion to need. I simply dispute her point. In fact, we used the previous Government’s funding formula to allocate most of the money in the EIG. As she will be aware, the formula

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“is based on the under 5 population, weighted to reflect deprivation (based on Working Tax Credits data), rurality and the Education area cost adjustment.


“Some of the EIG has been allocated according to a youth formula. This is based on population numbers, educational attainment at Key Stage 2 and 3 and GCSE, numbers of young people not in education, employment or training…and the Education area cost adjustment.”

It simply is not fair to say that we have chosen to target cuts at areas with the greatest need—that is quite offensive. I appreciate that some hon. Members have made speeches today in order to defend councils of their own political colour, which I can understand. I also acknowledge that things are extremely difficult for many councils at the moment. I am not saying that it is easy to run a council, any more than it is easy to run the country at the moment, given the parlous state of our finances.

Many local authorities are making sensible decisions—to cluster Sure Start children’s centres and to merge back-office functions, for example. They are looking innovatively at how they can bring services together to make the best use of the assets available. We have heard from a number of hon. Members whose local authorities are managing to prioritise not only children’s centre buildings but the services that are being provided in them, to ensure that they always focus on children’s outcomes, which is absolutely vital.

The hon. Member for Hammersmith (Mr Slaughter) asked some specific questions about what the Government are doing. I have made it clear to local authorities that this issue is a priority—so much so that they have been complaining that I have placed a moral ring fence around children’s centres. We have made it clear in the guidance that local authorities have a duty to consult properly, and we have drawn their attention to the fact that, if they are using an asset for a purpose for which it is not funded, the Department is obliged to consider whether to claw back some of the money involved. I am sure that the hon. Gentleman is using all those arguments in his discussions with his local council.

I was hoping to say a little about the vision for Sure Start children’s centres but, unfortunately, everyone else has spoken for so long that I have only about a minute left. Flexibility is key, and targeting the neediest families is an absolute priority for the Government, as is focusing on evidence-based programmes and making use of the reports produced for us by the right hon. Member for Birkenhead and the hon. Member for Nottingham North (Mr Allen). We also want services to be brought together much more effectively, which is why we are working so closely with the Department of Health on our vision for children’s centres. I am pleased that we shall have so many more health visitors on track. Many of them will be placed in Sure Start children’s centres, and all of them will have strong links with their local centres. That is vital. Evidence shows that if health services are closely involved, the neediest families can be reached.

I was hoping to go on to speak about mutuals and the voluntary sector, but it is now 4.32, and I have to sit down. If hon. Members would like to hear more from me in future, they might want to restrain their speeches just a little. This has been an extremely useful debate, however, and I want to thank all hon. Members for their contributions.

Question deferred (Standing Order No. 54(4).

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HM Revenue and Customs

[Relevant documents: The uncorrected oral evidence taken by the Treasury Sub-committee on 19 January, HC 731-i, and 8 February, HC 731-ii; the oral evidence taken by the Treasury Committee on 15 September 2010, HC 479; the Seventh Report from the Treasury Committee, Session 2009-10, Administration and Expenditure of the Chancellor’s Departments, 2008-09, HC 156, and the Government response, Cm 7917; and the Eighth Report from the Treasury Committee, Session 2006-07, The Efficiency Programme in the Chancellor’s Departments, HC 483, and the Government response, First Special Report from the Treasury Committee, Session 2007-08, HC 62. ]

Motion made, and Question proposed,

That, for the year ending with 31 March 2011, for expenditure by HM Revenue and Customs—

(1) further resources, not exceeding £303,044,000, be authorised for use as set out in Spring Supplementary Estimates 2010-11, HC 790,

(2) a further sum, not exceeding £547,861,000, be granted to Her Majesty out of the Consolidated Fund to meet the costs as so set out, and

(3) limits as so set out be set on appropriations in aid.—(James Duddridge .)

4.33 pm

Mr Andrew Tyrie (Chichester) (Con): I am glad that the request of the Select Committee on the Treasury to hold this debate on HMRC’s estimates has been accepted. I am conscious that I am speaking on behalf of a large number of colleagues from right across the House, many of whom cannot be here today, who have spoken to me about the problems that their constituents are experiencing with HMRC. I am also speaking on behalf of hundreds of thousands of taxpayers who have encountered difficulties and feel that they have nowhere to turn. I am delighted that the Chairman of the Treasury Sub-Committee, the hon. Member for Leeds East (Mr Mudie), will follow me in the debate. He has done an excellent job in focusing the Sub-Committee on these problems and, in so doing, has built on the work done by the Sub-Committee in the previous Parliament under the chairmanship of my hon. Friend the Member for Sevenoaks (Michael Fallon). I should like to take this opportunity to thank my hon. Friend for his hard work.

“Ten years ago the Inland Revenue had the reputation of being one of the best run Departments in Whitehall. Today HMRC’s reputation is in tatters as one disaster has followed another.”

Those are not my words but the considered conclusions of the Chartered Institute of Taxation in written evidence to the Treasury Committee. I have a stack of similar evidence from other qualified bodies and people, and they are all variations on the same theme—HMRC is close to being a failing institution in some areas.

Andrea Leadsom (South Northamptonshire) (Con): Does my hon. Friend agree that the Treasury Committee has heard much evidence from representatives of businesses who say that dealing with HMRC is now costing enterprises significantly more of their profit and income? Matters that used to take a few hours now seem to take literally months to resolve.

Mr Tyrie: I agree completely, and the next sentence of what I intended to say was to be along the lines of asking what the situation means for small business men.

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They are not experts in tax, they just want to get on with their job. We must constantly bear in mind the fact that when HMRC gets things wrong, its mistake can be a catastrophe for the taxpayer on the other end of the experience.

I want to tell the story of one such business man who has written to me, who wants to remain anonymous. His business was the subject of an HMRC investigation, and when it found no irregularities, it started an investigation into his personal tax affairs. As he says in his letter to me, “They investigated everything”, even challenging a gift of £15 to a nephew. He had the impression that the local tax office felt it had to find something, having invested so much time in his case. All that went on for five years—it was like being on trial for five years. Finally, a very senior manager at HMRC saw sense and transferred the case to another tax office, and a week later that small business man had an apology.

However, like so many similar cases, it is not a matter of “all’s well that ends well”. The collateral damage has been huge. That business man’s accountant estimates that his business has lost £7 million in the time and effort of handling the case, and on top of that the stress involved in such an experience would have been crippling for many people. It is not just that individual who has lost out but all those who depend on his business for their livelihood and all those who might have had jobs in it had it been able to concentrate on expansion rather than fending off HMRC. One case does not prove anything, but the sheer scale of complaints now pouring into MPs’ postbags suggests something.

Mr Ian Liddell-Grainger (Bridgwater and West Somerset) (Con): Is my hon. Friend aware that HMRC is going to write off all open cases from 2007-08, which equate to just under £1 billion? It wants to sort out the overpayments, which of course affect the person whom he mentioned. The problem is that, under the four-year rule it is not sure how it can do so. Can he help me on that point?

Mr Tyrie: My hon. Friend makes a point that I was intending to make, and he makes it very fully. Because I want to give other people the opportunity to speak, I will not elaborate on it.

I wish to say a further word about HMRC as an institution. It has a very difficult job. Nobody likes the taxman, and it is easy to kick HMRC. I have no doubt that most people there are struggling to protect the revenue fairly and trying hard to do a reasonable job. Doing that job requires a strong sense of collegiality and loyalty to the ethic of the institution. When I was an adviser in the Treasury in the ’80s, I had a lot of contact with people in both the Inland Revenue and Customs and Excise, and I thought that they were the salt of the earth. They were immensely dedicated to their jobs and civil servants of the best sort. One had no doubt that they were a highly motivated group of people, or that morale was high.

What about now? The Cabinet Secretary runs an annual staff survey, which has been going on for many years. It shows that HMRC has the lowest morale of any Government Department. Some 25% of staff want to leave as soon as possible or within a year, and only 15% believe that the department motivates them to do their best. Only 12% say that the department is well managed, and the survey goes on with a similar litany.

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There is some good news, which relates to what I said a moment ago. The job content is still considered interesting by three quarters of staff, and more than three quarters say that they can rely on their colleagues. There is still some collegiality. Even that will not last unless we start to put right what has gone wrong. HMRC will become dysfunctional unless action is taken to bring to an end the string of disasters that has befallen it.

Let me give some examples. Last September, the Government were forced to announce that up to 6 million taxpayers were to receive letters informing them that they had paid the wrong amount of tax through PAYE. That had been caused largely by the introduction of a new computer system, which was simply not up and running in time, and it provoked a powerful Public Accounts Committee report, which detailed the failures. There was the matter of the incorrect PAYE notices in January 2010. That provoked even more critical treatment in the PAC report. Then there are the phone call response times—try ringing HMRC. The National Audit Office found that in 2008-09 only 57% of call attempts were answered. That disastrous performance declined even further for a time, before recovering recently. I could give other examples.

What is the root cause of the problems? Some clues probably come from that survey of staff morale. It shows that the collapse of morale appears to have coincided with the merger. I know that the survey on morale began in that form only at the time of the merger, but it charts a decline from then. I believe that the merger was probably a mistake, and I said, from the Front Bench at the time, that merging two institutions with such different cultures was unlikely to be worth the candle. However, now that the merger has occurred, I am equally clear that unscrambling it would also be risky.

In any case, the department is reorganising itself. It is moving from a regional structure, with customer contact based on local offices, to a centralised model. We have heard that before. The experience of the banks with that centralised model, whereby they got rid of Captain Mainwaring, was distinctly mixed. However, the die is cast on the move to a centralised model and, in HMRC’s case, the performance of the new centralised model is not entirely disastrous. Its figures suggest that overall customer satisfaction was 73% in September 2010.

The key question must be whether that reorganisation can be completed while cutting so many more staff. The hon. Member for Leeds East will consider that issue. I hope that it will be completed, but it would be the triumph of hope over experience, if we consider the history of other Whitehall Departments and their reorganisations.

Of course, the large firms with which HMRC engages will not feel the effects of the reorganisation. They will continue to receive a good service. They provide most of the tax yield, and I understand why HMRC devotes so many resources to focusing on them. However, I worry greatly about the small firms—those least able to absorb the turbulence whenever HMRC reorganises itself. I worry particularly that, while HMRC may make savings, it will merely shift the burden of administration to taxpayers and their accountants in small businesses. The effect on the whole economy will not be neutral. It

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is not a matter of £1 spent in HMRC transferred to the private sector—it may be worse than that, eroding overall business efficiency and bringing downward pressure on GDP.

In a recent evidence session, I asked the Institute of Directors and the main bodies representing the accountants to start to estimate a full compliance cost for firms that deal with HMRC. It has never been done before and it is not easy work. However, we must have at least some core figures to enable us to monitor over time the full compliance burden placed on firms by HMRC. There is no point—absolutely no point—in creating a leaner HMRC at the price of massive compliance costs in the private sector. My challenge to the institutions that represent the private sector is to find that true cost of compliance. I also want to allude to some challenges for the department and the Government.

First, all the evidence that the Treasury Committee has seen suggests that HMRC needs to communicate better with taxpayers—it must find ways of giving clearer and more accurate answers to reasonable queries, and to give those answers quickly. Secondly, it is vital that staff have the training and experience that they need to work with taxpayers. There is no earthly point in a call-centre culture that is based entirely on read-outs from computer scripts.

Thirdly, we need to consider incentives as well as penalties as a means of encouraging the right amount of tax to be paid. Some argue that HMRC should consider a general disclosure facility to encourage the disclosure of previously undeclared tax. We need to reflect on that. There is a risk with amnesties, which is the road down which that proposal goes, but it needs to be looked at.

Fourthly, we must accept that with PAYE coming under increasing pressure as more people develop a variety of sources of income rather than rely on employment from a single source, further changes to PAYE will inevitably be necessary, as well as the coming introduction of real-time information. Those changes must be made extremely carefully if we are not to have yet another major road crash, such as we have seen in the past few years.

I should like to end by offering one crucial, big challenge to the Government. Much that is wrong with how HMRC operates is not its fault, and nor is it the fault of taxpayers. Rather, it is the fault of us—legislators. Successive Governments have put ever more complex legislation on the statute book. In 2009, a leading legal database found that the UK had the longest tax code in the world. That is a charter for accountants and for evasion opportunities. Length means more complexity, and complexity means higher costs for all of us. In evidence to the Treasury Committee, the IOD told us that KPMG estimated the total cost to the UK economy of running the tax system at 0.4% of GDP. I wager that that is an underestimation, as I alluded to a moment ago.

My challenge to the Government is that we must have tax reform. I was struck by a point made in a discussion paper in the Mirrlees review on tax administration, which begins:

“Most of modern tax theory…completely ignores administration and enforcement. The policy formation process is not much better, too often addressing implementation only after reform has been determined”.

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Of course, administration should be an integral part of the decision-making process, but in recent years, tax policy formulation has been travelling in the opposite direction. The 2004 O’Donnell report resulted in most decisions on tax policy being taken in the Treasury, with implementation done by HMRC. It is widely held that the policy-making function in HMRC has gradually been downgraded, but we must reverse that. I urge the Government to return to a situation in which there is much greater creative tension between HMRC and the Treasury on policy formulation. If we do not do so, there will be more episodes in which the implementation of policy—delivery—mysteriously turns out to have an unexpectedly high cost or to be unacceptably complex.

In that respect, I very much welcome the creation of the Office of Tax Simplification. However, that will not be enough. We must have better policy and a simpler tax system that gives greater certainty and stability. I hope that the forthcoming Budget will point the way on that. Business and the self-employed in particular are crying out for such measures. We need a series of tax-reforming and simplifying Budgets. In the long run, everyone will gain: HMRC will have a better system to manage, taxpayers will have something that they can understand and the UK economy will have a tax system that creates opportunities for better long-run performance.

The tax system loses the respect of taxpayers, however grudging, when it becomes as complex as the one that it looks as if we are developing. Once we have arrived at that point, the country has a big problem. We will be on the slippery slope towards wide-scale evasion and an erosion of the tax base. I will not name the EU countries that are on that slippery slope, but there are quite a number, and we all know which they are. It is partly with that in mind that the Treasury Committee has launched an inquiry into the principles of tax policy that are needed for such reform. We will be reporting shortly. If we in the UK get those principles right, many of the problems that we have heard about today will diminish, and a more prosperous economy and stable society can result.

4.50 pm

Mr George Mudie (Leeds East) (Lab): I thank the hon. Member for Chichester (Mr Tyrie) for his kind remarks. When Lord McFall left the Treasury Committee, no one thought its work could be kept at the same level, but I think that it has improved—that is, if one can improve on Lord McFall’s performance. As Chairman, the hon. Gentleman has already gained the respect—even the fear, I think—of witnesses appearing before the Committee, which is a good sign. He also serves a useful purpose for me, because when I go on one of my northern, regional rants, he will translate it for the southern gentlemen before us, and I sometimes get an answer.

As expected, the hon. Gentleman has dealt with this issue on a policy level that I could not match. I take a more pragmatic view towards the department, because although there is an argument for having a look at policy—tax definitely needs simplifying—we should not necessarily do things at that level to suit a vehicle that is dysfunctional; rather, we should ensure that the vehicle is functional. At the moment, I fear that the department is in a disappointing state. To give some background, we on the Treasury Committee, and on the Treasury Sub-

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Committee under the hon. Member for Sevenoaks (Michael Fallon), see HMRC every year, and we have had one or two inquiries over the years. In 2006, the Committee published a report on the efficiency programme. We identified concerns that reductions in the headcount were leading to falling service standards, and we made certain recommendations. We have returned to that issue in our current inquiry—we are halfway through it—into the same subject as this debate, and we have sadly discovered that nothing has been done along those lines. Indeed, in our 2009 review of administration and expenditure in the Chancellor’s Department, we noted

“a 7% increase in total recorded customer complaints”.

We asked HMRC to square that with its submission that strong progress had been made.

Mr Liddell-Grainger: The latest figure from HMRC is that complaints have gone up by 33% in the last two years, so the hon. Gentleman’s figures are a bit light.

Mr Mudie: They probably are, but the report that I am quoting is a couple of years old.

The other thing that we highlighted—the hon. Member for Chichester referred to this—were the dire results for HMRC of a cross-government staff survey. We expressed deep concern about employee engagement at HMRC and its effect on performance, along with the severely low morale, which has been referred to. What that amounts to is this. The problem could be a passing phenomenon, but it is not. It has been consistent for a number of years and it has to be faced up to. What are the reasons for it? We cannot move away from that dismal performance without accepting that severe staff cuts in the department are a major—if not the major—contributory factor. The work force has gone down by 30% since 2005. There might be some excuse in that the merging of two departments—Customs and Excise and the Inland Revenue—provides scope for rationalisation, but not for losing 30% of the staff. There is worry that with the spending review, another £2 billion might be taken out—or £3 billion, with £900 million going back. In addition to seeing those 30,000 jobs, another £2 billion is to be taken out of its resources, and we cannot anticipate a better performance in the years ahead.

Tony Cunningham (Workington) (Lab): I am hearing rumours that some people threatened with redundancy are earning £20,000 to £25,000 a year, yet the work they do saves the Treasury hundreds of thousands of pounds a year. Surely that does not make any sense either?

Mr Mudie: That is a well-accepted fact. To be fair, the £900 million is an acceptance of what my hon. Friend says. Theoretically or on paper, this money is going back to bring in £7 billion-worth of tax that has not been collected for one reason or another. I would like the Minister to deal with the phasing of that £7 billion. As usual with the Treasury, this can be read any way. I know that we culminate with this £7 billion, but what are the targets for the years ahead?

The computer has also contributed to demoralisation in the Department. It is not just the computer, but the man in Whitehall who thinks that the computer is the answer, because pressing a button produces something

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and it does not argue back. As we have discovered elsewhere in government, that simply does not work under any circumstances. The Revenue saw the computer as an answer to its problems with the budget cuts and thought that the staff could be taken out. They were removed before the computer was up and running, before it became operational and proved to be defective. That is why we had the debacle at Christmas 18 months ago of millions of taxpayers receiving an unexpected and largely unwelcome envelope. I grant that some might have been welcome, but they were mostly unwelcome.

The 30,000 jobs are gone, but I have yet to mention the merger. It was particularly important for staff morale, because at the same time this brilliant Department—I suppose it was the Treasury—brought in McKinsey to do its thinking, and it ended up adopting a French model of “départements”. There were 36 such departments inside the organisation, which meant no joining together of the two departments with their great traditions and ethos, and no welding together of the best bits from both. Instead, the departments were broken up—everybody was broken up—and there were no lines of accountability or anything like that. It was a complete shambles. Steps have been taken to put that right, but some of the damage persists, which is another contributory factor. That is what has happened. It is not possible to take out 30,000 people, have a merger or reorganisation, load in additional work and duties and expect it all to work. It is not working; something has to be done about it.

The hon. Member for Chichester touched on the issue of taxpayers. When the new computer came in, as usual somebody in Whitehall said, “It is wonderful to have this computer in London, so we can shut some offices”—and they gaily did so. On paper that meant saving staff, costs and so forth. The trouble is that tax is a very complicated issue. The best of us—I say this because I am among them—simply cannot handle tax and the details relating to it. Two or three years ago I decided that my accountant was too expensive, and took over the job of filling in the forms myself. In the first year, I received £300 back; in the second year I was charged £1,500. Now I am back with my accountant.

The difficulties involved in dealing with tax are a fact of life. The closure of tax offices has been a disaster, along with the cuts in working hours and days. We have reached a stage in public life, at both local authority and national levels, when call centres may seem to be the answer but are really—I suspect—a way of placing a brick wall between the decision-makers and the public. They can be helpful when dealing with ordinary questions, but are often unhelpful when it comes to detailed matters such as tax. That is especially true when they are talking to the elderly and those for whom English is a second language. I am reminded of confused.com: call centres are unhelpful to anyone who is confused.

Guto Bebb (Aberconwy) (Con): The closure of tax offices is an important issue in north Wales. I hate to be parochial, but I represent an area in which about 20% of the working population are self-employed. The need for self-employment is paramount in north Wales, because the economy is so fragile that unless we create our own job opportunities, we cannot work at all. Unfortunately, over the past few years we have seen the downgrading of

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the Porthmadog, Bangor and Colwyn Bay tax offices. The 20% of the working population who are self-employed must now travel to Wrexham and even over the border to be served, which is a big problem. As the hon. Gentleman has pointed out, when a small business is forced to use an accountant because it is unable to talk to—

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. We must have short interventions.

Mr Mudie: I am sorry that you stopped the hon. Gentleman, Mr Deputy Speaker, because his was a better speech than mine. I do not think that he needed to use the word “parochial”, or even to apologise if he thought that he was being parochial. In fact, he was being regional. Here in London, it is assumed that any region above Watford can be written off. The hon. Gentleman has made an extremely valid point.

I know that my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), who is sitting behind me, is a strong supporter of tax office staff. However, I agree with the Chairman of the Select Committee about the number of telephone calls that are not answered. At one stage, the figure was 43%. One of the professional witnesses who gave evidence to the Committee said that an HMRC tax manager had been in his office and observed that it took 12 minutes for a call to be answered and seven minutes simply to change a tax code. That simple transaction took 20 minutes. That is a witness’s statement, and a very good one. I am sure that the Minister has read all the evidence given to the Committee, and has noted that that particular witness described his experiences brilliantly.

Mr Liddell-Grainger: The hon. Gentleman is well aware that the two companies charged with this task by the Government, Capgemini and Accenture, have been at it for a decade. The system that they were asked to use a decade ago is not the system that they use now and is not capable of doing the job, although it is starting to throw up problems that we saw a couple of years ago. Does the hon. Gentleman agree that both companies’ contracts should be upgraded to a level that is appropriate to the 21st century?

Mr Mudie: That is an interesting point.

I am using up time rapidly, but let me mention in passing another feature of call centres. Telephoning 0845 numbers can be very expensive for pensioners—indeed, for everyone. The fact that people have to hold on for so long does not help, but in any case it is not the right way to decide complex matters. It is best for people to deal with those face to face. The best people in the whole business are the agents, as they are the professionals. They take the frustration and get angry about it—and they have given good evidence. The ordinary individuals are in the worst position, however. The professionals get used to things and can get on with other tasks, yet, as the professionals said, those who are not represented get the worst deal, and with office closures, cutting hours, and relying increasingly on telephone calls, e-mails and letters, the whole system knocks out a fair number of the population. That is what is happening. Plenty of Members want to speak, and they will spell out their constituents’ experiences.

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Does the system need to be improved and will it be improved? I do not think it will, first because it goes against the grain—I will explain that. Sadly, every time witnesses from HMRC have appeared before us, they have been in a state of denial. If someone has a problem, there is no chance of their dealing with it unless they own up to it and accept it. I sympathise with them in a way, however. The hon. Member for Chichester said we are to blame and that is true; we are to blame, in particular the Ministers. It is hard for a civil servant to go before a Select Committee and say, “Yeah, I admit it; we can’t do this because we don’t have the people.”

We look for loyalty and a straight bat from civil servants, but the way we are doing things is not generally the best way to get a real dialogue. Therefore, when we have them before us in a couple of weeks, I am not sure that Dame Lesley will do anything other than give us the Geoff Boycott treatment, or even do a Pietersen and knock us out of the ground a couple of times. Because she and the management are in this state of denial, I cannot see things happening unless the Minister takes some steps. I really do think this comes down to staff and resources. Unless they are in place, we cannot load new jobs on.

Finally, let me describe a few points that should push the Minister to want to have a fresh look at resources. One of them is to do with what the Chairman of the Select Committee said about the integrity and reputation of the system, and real tax compliance in this country. If we frustrate and ignore people, and make it difficult for them to get explanations, one way or another, non-compliance will grow. There will be increasing disrespect for the system and the people in it, and a growing feeling that they are not here to help. The tax inspectors and staff are adamant that they are here to help however, and that has always been my experience at that level—when we can get to speak to someone, they are helpful.

If something is not done and we treat people in this way, they will respond in a manner that I think is natural, which is to say, “Get on with it”—I almost said “Sod it”—and “I am not complying.”

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. We cannot say “Sod it.” I am sure the hon. Gentleman will withdraw that.

Mr Mudie: Well, I did withdraw it; I said I will not use the phrase “Sod it.”

I have made points about management being in denial and non-compliance. The next point is more current. We live in a time of austerity. It is a hard time and people’s wages and homes are being affected, yet the public are reading about Barclays paying £190 million on billions of pounds of profit, and about Vodafone being willing to pay £3 billion or £4 billion and having that available to pay to the Inland Revenue, but the Inland Revenue accepting £1.3 billion. This big multinational company is getting away with paying that amount of tax at a time when we are closing vital public services. We see Mr Green paying his wife through Monaco. In last Sunday’s papers, we read about a man with reputed wealth of £47 million being forced by someone he sacked to confess that he pays no tax at all because of the trust his father set up. Such stories are starting to resonate among ordinary people.

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The Governor of the Bank of England came before the Treasury Committee yesterday, and at one stage in the evidence session he accepted that the anger we have witnessed in the past couple of years is nothing compared to what might happen when we see the real cuts, which are starting now. Last year, we talked a lot about cuts, but they amounted to only £6 billion. However, in Leeds recently, people invaded the council chamber when the budget was being fixed. There were people outside in wheelchairs whose benefits were being cut. Cuts were made to housing benefit. Students and trade unionists were also there. Some 1,000 jobs there are to go.

I genuinely say to the Government that a dangerous situation is brewing. A very affluent lady in America said, “Tax? That’s just for the little people.” That belief is starting to take hold in this country, as a lot of evidence shows. We need to get the tax people working properly. The tax gap is reckoned to be between £40 billion and £120 billion. We would not have these cuts if everybody paid their tax in a responsible fashion. That issue needs to be tackled, yet right now thousands of tax staff are being given their cards, when they could be dealing with it.

I want to finish by being helpful to the Minister. Another computer program is wending its way through the Department that has a crucial bearing on the Minister’s future. It deals with real-time initiatives and has very strict deadlines. It is for not only the Treasury but the Department for Work and Pensions, and it is a crucial factor in delivering the universal credit. I know that Treasury Ministers are very anxious to get universal credit in. To judge by past performance with computer systems, I wish the Minister luck. However, let me mark his card in this debate: all the signs from the Department are that, unless he gets a real grip and has a serious word with the Chancellor, that deadline will not be met. We are talking about not just one Whitehall Department negotiating a contract, but two, and when you put two Departments together, that leads, I fear, to trouble.

As an old friend of the Minister—we have worked together on the Treasury Committee and on other matters—I would not like that contract to be lost on his watch, and that is the third, and perhaps most compelling reason why he should do something about this problem.

5.14 pm

Ian Swales (Redcar) (LD): I speak as a member of the Public Accounts Committee, which has held a number of hearings with Her Majesty’s Revenue and Customs over the past few months. HMRC collects about £440 billion, but its estimate of the tax gap—the amount it thinks it could collect compared with what it actually collects—is £42 billion. Others, notably public sector trade unions, have produced even more ambitious estimates of that gap, putting it as high as £120 billion, although a lot of those numbers are more controversial. To put those figures in context, the entire cost of running HMRC is less than £4 billion.

As we have heard, huge systems changes and headcount reductions have taken place in recent years, and they have led to poor morale. As my hon. Friend the Member for Chichester (Mr Tyrie) said, HMRC came a lamentable 96th out of 96 on staff morale in the previous civil service staff survey. It also came 95th, 95th and

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94th on “Leadership and Management of Change”, “Understanding My Work” and “Learning and Development” respectively. Those are shocking statistics.

I recently visited an HMRC office close to me to meet groups of staff, and their comments confirmed the survey’s findings. Despite being generally low paid and having their job security and pensions under threat, they did not even mention those issues. They talked not only about pride in the service, and their experience and professionalism, but about their frustration at the chaos they could see all around them and, above all, about the “process as seen” mentality. It means that they have mindlessly to process data they know to be wrong. Examples of that can be as simple as not being able to use data from a P60 where they have been omitted from a tax return, which leads to erroneous tax bills or refunds. In the private sector the mantra “Get it right first time” has been around for at least 30 years.

In the same staff survey, damning verdicts were given under almost every heading, as we have heard. Only 13% of staff gave a positive response to the statement, “I feel HMRC as a whole is managed well”, and only 12% agreed with the statement, “Overall I have confidence in the decisions made by HMRC’s senior managers”. Despite those shocking results, the results on other headings still showed that the staff have the appetite and drive to do a good job, so they remain a very good resource for sorting the situation out. It appears that rock-bottom morale and a lack of faith in the management is blighting the department, but that the majority of staff are still interested, engaged and proud of their work.

As has been well reported in the media and in this place, the changes in HMRC have led to chaotic services being provided to clients, and the huge burden of work has led to a higher level of write-offs. For example, just increasing the threshold for claims from £50 to £300 for the past two years has led to the loss of £160 million in revenue. Moreover, each year local caseworkers refer some 4,000 cases of suspected serious evasion to specialised teams for investigation, but the centralised referral system has not been used consistently across the department, despite being mandatory. In 2008-09 just 20% of referrals were taken up by investigation teams, with the rest being returned to the originating officer to pursue.

The department does not analyse the reasons for rejection, which would help to judge the quality of referrals, nor does it know the result of returning those cases to the originating officer. Not only does that lead to caseworkers becoming disillusioned by the low rate at which referrals are taken up, but it has a serious knock-on effect on the tax gap. The average time taken to complete dealing with a case of serious fraud in 2009-10 was 25 months, whereas the internal target is 18 months. Some 75% of cases exceeded that target, and a substantial number took more than three years to deal with. Of course some cases are more complex than others and will take a lot longer to investigate, but it is clear that the department needs to improve the speed and efficiency of investigations in future, to increase the number of cases and bring in more revenue. Inefficiency is clearly causing revenue to be lost.

New structures, such as the penalty regime in force for tax returns relating to the past two years, have been blighted by recurring top-down problems. The new

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regime was designed to set tougher penalty rates for deliberate errors. It is obviously good practice that such penalties should be recovered promptly, but the department does not routinely monitor whether they have been collected. An analysis revealed that it could not trace payments for 27% of the outstanding tax due on completed civil investigations of fraud. Of the £58 million that could be traced, only 84% had actually been collected. The Treasury is therefore losing tax not only through evasion and legal avoidance but through systematic inefficiency in HMRC. This lends credence to the statistic mentioned earlier that only 13% of staff feel they are managed well. Given that the total cost of HMRC is less than 1% of what it collects, it should not be treated like a normal spending department—judged partly, at the moment, by its ability to slash costs.

Mr David Ruffley (Bury St Edmunds) (Con): Given his experience on the Public Accounts Committee, what is my hon. Friend’s view of HMRC’s claim that it made £1.1 billion-worth of pure efficiency savings between 2005 and 2009-10 without any negative impact on performance? Is that a credible claim?

Ian Swales: I can express a personal opinion, which relates to what I was just saying: we should not judge efficiency savings at HMRC without reference to the tax that is collected. We cannot judge it simply according to headcount reductions and those sorts of changes.

Mr Liddell-Grainger: Is my hon. Friend aware that 194 million national insurance accounts are not rectifiable even though they are scanned twice a year? HMRC does not even know how much money is in those accounts. Does he think that that is equally a problem, in that the morale has gone because people do not understand what is going on within the system?

Ian Swales: Judging by the evidence that the PAC received, there seems to be a lack of control over the trail of cases. All the changes have resulted in less focus on individual companies and taxpayers. I certainly recognise that sort of story.

There should be a constant watch in HMRC on the business case for investment in it. I welcomed the announcement of £900 million in extra funds to address avoidance, but I remind the House that it is targeted at collecting £7 billion, although the tax gap is £42 billion even according to HMRC’s estimates. How have we arrived at the figure of £900 million, and how do we know it is the right amount? As a taxpayer, I would be happy to invest any extra money that could be proved to produce a positive return.

The department has recognised that it has lacked detailed information on the costs and returns of different types of enforcement activity. At present it does not know the costs of, or returns on, civil investigations, or the point at which further investment in a particular type of activity would produce diminishing returns. It is therefore very difficult for it to decide how best to deploy its resources. Its management and senior officials need to show strong leadership and pay close attention to the morale of staff if those problems are to be overcome. The headcount at HMRC should not be reduced further until efficient new systems and ways of working are properly established. The department urgently needs to manage its resources effectively to optimise the

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tax take. The current system is obviously not working effectively for people either inside or outside HMRC. At a time such as this, when everyone across the country is having to tighten their belt, it is unacceptable that HMRC is failing to collect such a large amount of money through inefficiency and mismanagement. I urge the department and the Government to put this right.

5.23 pm

Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): We are discussing the administration of Her Majesty’s Revenue and Customs, and I should declare a constituency interest because Cumbernauld HMRC is one of the largest tax offices in the country. It is a strategic site, and the largest employer in my constituency. As this debate shows, HMRC is equally important for the Government, who must collect tax more effectively if they are to be successful in their economic and financial objectives.

I should like to address a few issues regarding HMRC’s effectiveness, many of which were touched on in the thoughtful contributions of the hon. Member for Chichester (Mr Tyrie), my hon. Friend the hon. Member for Leeds East (Mr Mudie) and, most recently, the hon. Member for Redcar (Ian Swales). In my view, two things are necessary if HMRC is to be as effective as possible. First, it must be properly resourced, and I endorse the final words of the hon. Member for Redcar about the wisdom of getting HMRC sorted out before moving to a programme of further cost cutting.

Secondly—this relates to observations that have already been made—HMRC must have well-organised and highly motivated staff. I am concerned that that will not be the case in the future, not only because of the cuts that the Government are making in HMRC’s budget, but because of how they are being implemented. Together, the cuts and their implementation are having serious effects on the morale of HMRC staff in Cumbernauld and elsewhere. Simply put, HMRC staff know that cuts are being made, but do not know yet where they will fall.

HMRC received a tough settlement in the comprehensive spending review. The settlement mandates overall resource savings of 15% and efficiency savings of 25%. Those cuts were announced in October, as Members in all parts of the House are well aware, but we have yet to receive any confirmation from the Government of how HMRC is to be restructured.

Kelvin Hopkins (Luton North) (Lab): Is it not the case that every additional tax officer collects many times their own salary, and that if we want to collect more revenue and make HMRC a more profitable organisation, we need more staff, not fewer?

Gregg McClymont: My hon. Friend makes a good point. There is a problem of short-term savings at the cost of long-term benefits—what we might call a false economy. I shall come to that.

We have not had any confirmation from the Government of how HMRC is to be restructured. We do not know which services to the public will go, or which services will be changed. We do not know yet which jobs will go. Before Christmas I asked the Treasury Whip about the future of HMRC jobs in Cumbernauld in a Back-Bench debate. The Treasury Whip suggested to me that the

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Cumbernauld jobs were safe. I understand that as it is a strategic site, its situation is different from that of some of the smaller call centres and the like. I urged the Treasury Whip to share the information that proved this to be the case: it has not yet been forthcoming, for good reason.

Subsequent questions for written answer revealed that the Government cannot give any such undertaking until HMRC publishes its business plan. It is better for HMRC to take its time and get its business plan right than to get it wrong in a rush, but that has consequences. It seems that the business plan will not appear before April. The delay and the mixed messages do not make tax officers’ jobs any easier. Clearly, the increased anxiety can damage morale.

We have heard about the situation from the hon. Member for Chichester and others. It is not surprising in those circumstances, and also given the nature of the job, that in a recent survey only 11% of HMRC employees felt that change in the organisation was well managed. HMRC employees in Cumbernauld are now just as uncertain about their future as they were when the programme of cuts was first announced in October. Such uncertainty has an impact on staff morale, and thus on productivity and performance. More fundamentally—this goes to the point raised in an intervention by my hon. Friend the Member for Luton North (Kelvin Hopkins)—I suspect that the cuts to HMRC’s budget may well prove to be a false economy. Short-term savings at HMRC could reduce the Government’s ability to maximize tax revenue in the long run.

Jim Shannon (Strangford) (DUP): The hon. Gentleman, like many others in the Chamber, was at the presentation to Members of Parliament by HMRC staff last year. At that presentation, HMRC staff indicated that they were aware of revenue that the tax bodies were not collecting. Their message was clear: more staff, more tax revenue; fewer staff, less tax revenue. Does the hon. Gentleman agree that the Government should consider the false “savings” that they will make in this year, against the tax income that they could generate instead?

Gregg McClymont: I thank the hon. Gentleman for that observation. Clearly, this is a complex issue and there will be reasonable arguments on both sides, but it seems to me that it is a job in which morale is particularly important. I intend to refer later to the psychology of being a tax officer, which pertains to his point about raising more revenue.

Mr Andrew Love (Edmonton) (Lab/Co-op): I want to make an observation based on a recent conversation I had with a tax expert. When the Government looked at the overall staffing reductions in HMRC as a consequence of the spending review, it became absolutely clear to all that the gaps in their ability to raise taxes were such that they would need to put something back, and that is the explanation for the £900 million.

Gregg McClymont: I thank my hon. Friend for that information. As a member of the Treasury Committee, he is well known for his interest and expertise in this area. What he said sounds not only plausible, but likely.

I am suggesting that short-term savings in HMRC could reduce the Government’s ability to maximise tax revenue in the long run. They reduce the likelihood that

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HMRC will be able to attract and retain the talent necessary to administer complex systems and crack down on fraud, and the hon. Member for Chichester and my hon. Friend the Member for Leeds East alluded to that aspect of the argument. It seems to me that there is a danger not only that revenue will be lost to the Government, as has been made clear in previous contributions, but that reducing services to the public means that the costs will be passed on to the public and to businesses, particularly small businesses. If HMRC is harder to contact or slower to rectify errors, costs for the public and business will increase. The hon. Member for Chichester eloquently set out the dangers for small businesses of this process of HMRC reform or cutbacks, or whatever we call it. It is clear to me that those costs will disproportionately harm those with the least resources.

Mr Liddell-Grainger: Is the hon. Gentleman aware that the Revenue has just been fined £1.6 million for sloppy data handling and processing? When people asked why that had been a problem, they were told that it was too expensive to find out what the problem was. The hon. Gentleman is right. Is the problem due to a lack of skills, a lack of training or a lack of people? It must be one of the three, or perhaps all three.

Gregg McClymont: The hon. Gentleman makes a good point. My suspicion is that it will be a combination of all three. I will come to the skilling aspect, which it seems to me is important alongside the issue of number. If the costs are passed on to taxpayers, I suggest that they will fall disproportionately on those with the least resources—small businesses and poorer taxpayers.

To allude to a point made by my hon. Friend the Member for Leeds East, pensioners and other vulnerable groups will have to pay to phone 0845 numbers and will struggle to get through. Beyond the financial cost, there is the psychological anxiety caused by respectable working men and women having to worry that the taxman feels that they are not following the law. The psychological burden on vulnerable groups is worth considering alongside the burdens on businesses and other organisations.

I will focus for a moment on small businesses, although I will not take long as the hon. Member for Chichester somewhat shot my fox on this point. It is clearly okay for the big boys in business and the big organisations that can afford the finest tax accountants money can buy, but for small businesses every minute spent on administration, doing a tax return or conversing with HMRC is a minute less spent running their businesses. Usually, small businesses have much less slack to operate with. As the saying goes, “Time is money”, and any shifting of the burden back on to the taxpayer is likely to be deleterious in the extreme to small businesses and vulnerable groups.

Several Members have referred to efficiency and effectiveness, and that brings me back to staff morale, because staff motivation is particularly important in such a profession—the efficient and effective collection of taxes on behalf of the taxpayer. Inevitably, many of the savings that the Government wish to make will be made through redundancies and restructuring, but the

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Government approach that package of restructuring and redundancies in the context of an HMRC where staff motivation and industrial relations are already fairly poor.

The figures from the capability review that the Cabinet Office published in 2009 have been quoted, and, as we know, HMRC was the subject of heavy criticism. The review found that only one quarter of HMRC staff, compared with 61% of senior civil servants, were proud to work for the department. Perhaps senior civil servants are not the best comparator for HMRC staff, but 25% satisfaction is not very impressive. The survey also found that only 11% of staff—the hon. Member for Chichester said 12%; I am prepared to meet him halfway and say 11.5%—and 17% of senior civil servants felt that change was well managed in HMRC.

I worry that the combination of low staff morale, which the Government inherited but are contributing to, and further funding cuts might be a perfect storm that leads to more problems at HMRC. After all, if we think about it for a moment, we find that enforcing the payment of tax is not necessarily an easy job. No one likes paying tax, and HMRC staff—disproportionately, I suspect—deal with people who are particularly unhappy about the tax return with which they have been presented.

Staff in my constituency would have been greatly reassured and better able to serve the public if HMRC and the Government had worked together sooner to develop an implementation plan for cost savings, so anything that could be done to reduce the anxiety that they have felt for a reasonably lengthy period would be very welcome. It would reduce the worrying gap between the announcement of cuts and people’s knowledge of where they will fall. Anxiety among staff—particularly given the job that they do—is bound to undermine their effectiveness in serving the taxpayer and the public more widely. Given the importance to our country of effective tax collection, I urge the Government to do everything they can to reduce that anxiety.

My final observation touches on several contributions to the debate. As I have suggested, tax collection is not always an easy or, at times, pleasant job. People do not generally like paying tax, and in a profession such as tax collection, esprit de corps—a sense of public service and duty—is especially important. Previous Governments were not blameless in this respect, but this Government must be careful that, in the quest for short-term savings, they do not further damage the thread of professionalism, duty and pride in the job, without which an efficient tax collection system is unlikely to be possible.

Jesse Norman (Hereford and South Herefordshire) (Con): The hon. Gentleman is absolutely right about the importance of morale at HMRC. As we discovered from testimony to the Treasury Committee, which Members discussed earlier, HMRC has gone from being a flagship Government department to almost dysfunctional on some metrics. One area in which it is dysfunctional is morale. Does he share my view that the nature of the cuts that have been made over the past decade and the very poorly handled merger with Customs and Excise have been most to blame for the crisis of morale at HMRC and the decline in its reputation?

Gregg McClymont: I thank the hon. Gentleman for his observations. I was very interested in what the hon. Member for Chichester said about the merger. I come

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to that subject with little background knowledge, and I intend to do some reading on it, because at face value it seems to be a plausible reason for some of the problems that HMRC now faces.

Mr Love: Taking on board the point just made by the hon. Member for Hertfordshire, should that not be a further argument that now is not the time to be asking for further reductions in manpower? Because of the difficulties of the merger and the problems that it created, we should be trying to retain the expertise that already exists in HMRC.

Gregg McClymont: My hon. Friend makes a powerful point. If we do indeed have an organisation that is dysfunctional, to use the hon. Gentleman’s term, there is clearly a question about whether the way to approach managing such an organisation is to engage in severe cutbacks.

Jesse Norman: I have a simple point of information for the House, which is that my constituency is Hereford and South Herefordshire, not Hertfordshire. Although Hertfordshire is undoubtedly a place of great glories—sadly, with due deference to my hon. Friend the Exchequer Secretary, only very slightly secondary to the qualities of my own constituency—the two should certainly not be confused.

Gregg McClymont: Now that the hon. Gentleman has provided that important point of information, I will conclude with a final observation that pertains to his previous intervention and that of my hon. Friend the Member for Edmonton (Mr Love).

Only with a cadre of well-paid, trained and skilled staff who enjoy a status commensurate with the important job they do will a more effective, efficient and productive HMRC become possible, and those staff have to be the foundation stone as we go forward through this decade. Does the Minister think we have that cadre as things stand?

Mr Ruffley: The return from the autumn survey of civil service staff at HMRC says that 14% think that the organisation inspires them to do their best in the job and 12% that it motivates them to help to achieve its objectives. Can the hon. Gentleman say, from his constituency experience in Cumbernauld, whether any work has been done with the senior management there? It seems on the basis of these figures that there is a problem with motivating and inspiring the work force.

Gregg McClymont: I thank the hon. Gentleman for that intervention. I am not able to give him a definitive answer, but I have met the senior management at Cumbernauld, who struck me as dedicated and professional, and its work force.

We need to take a—I hesitate to use the word “holistic”—panoramic view of the functions of HMRC. One can always make reforms and efficiencies, which, compartmentalised, seem to save money, but in fact, in the broadest possible context, will be a false economy and a short-term saving at the cost of a long-term sense of professionalism. I suspect that someone doing the

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job of tax collector needs a sense of pride in their job because at times there will be ups and downs during the course of the day.

5.44 pm

Priti Patel (Witham) (Con): I welcome the opportunity to discuss the work of Her Majesty’s Revenue and Customs. I pay tribute to the Treasury Committee for its work in scrutinising that organisation and for the many helpful inquiries it undertakes.

I have a particular interest in the administration and effectiveness of HMRC, because it is clear to me and to many residents and businesses in my constituency that it is a failing organisation that all too often treats people and businesses in the most appalling fashion. I have endeavoured to raise these points before in the House, but have had the misfortune to be unsuccessful in the ballot for Adjournment debates. I am pleased that I can now put these matters on the record in the House. I should add that I am immensely grateful to the Exchequer Secretary, who has faced a deluge of correspondence from me regarding the numerous cases in which my constituents have felt harshly treated by HMRC. I thank him for meeting me earlier this year to discuss the numerous complaints and concerns about the administration and processes of HMRC.

We are all aware of the highly publicised issues associated with HMRC, which range from problems with PAYE and tax credits to lost child benefit discs. Many hon. Members have touched on those areas. As constituency MPs, we see at first hand in our surgeries and in the letters we receive the distress and sheer misery that these mistakes and errors cause. I am exasperated by the extent and seriousness of the cases, and by the level of distress among the constituents who have come to me. Such constituents usually come to us in desperation, after experiencing tremendous difficulties in communicating with HMRC and in getting answers from it. They are the human victims of HMRC. I will draw to the House’s attention some of the cases that I have come across in my 10-month tenure as a Member of Parliament.

First, my constituent Mr Philip Wright has an ongoing dispute with HMRC that dates back to 1999, in the days of the Inland Revenue. It relates to employment and tax status in the construction industry—a notoriously complex matter. Six years later, in 2005, the case was heard before Colchester general commissioners, who ruled in Mr Wright’s favour. Despite that, HMRC refused to let the matter rest and appealed on the grounds that the general commissioners had misdirected themselves. The case has since gone from one tribunal to another, including a sitting two years ago at which neither Mr Wright nor his representative could be present. There have been suggestions of irregularity in the process, and HMRC appears to be making it as difficult as possible for Mr Wright.

It is now 2011 and the case is still ongoing. The cost to HMRC of pursuing the case his spiralled out of control and has gone well above the claim that it has against my constituent. I saw Mr Wright on Saturday in my surgery and the stress of the case has clearly had a devastating impact on his health and emotional well-being. I urge senior HMRC officials who are paying attention to this debate to reflect on this case.

Another distressing case in which HMRC has gone after a local business in a thoroughly disproportionate

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way came to my attention just this week. A firm in Witham sent its VAT payments to HMRC two weeks late because there was a delay in it receiving a payment from a customer. Instead of exercising a dose of common sense, HMRC is pursuing the firm for a surcharge of almost £5,500 on a VAT bill of about £36,000. Of course there are rules about paying taxes, but at a time when so many businesses are struggling, it seems thoroughly inflexible of HMRC to target such small businesses, especially when they have paid their taxes in full. I get the impression that officials are waiting like vultures to target their prey when they are at their weakest. The effect on businesses of that approach, as many hon. Members have said, is to put jobs and prosperity at risk. A £5,500 surcharge might seem like small pickings for HMRC, but for most businesses in my constituency, where 80% of the local jobs are in SMEs, such a sum could enable somebody to be employed or a financial investment made in the business. The instruments of government should be helping business and the private sector, not causing such unnecessary burdens and distress. I have written to HMRC this week about these cases, and I hope that, among the 70,000 people it employs, there are enough who will have enough common sense to do the right thing.

I have come across other cases in which businesses have suffered at the hands of HMRC. One business that was applying for VAT exemption encountered nothing but excessive delays. Another case, which landed on my desk in June last year, alarms me no end. A local business received what I would describe as a generic letter from HMRC on 1 June, stating that the business was £64,000 in arrears. The letter stated that that sum had to be repaid by 14 June, even though it arrived only on 1 June. That is a significant sum of money. During that 14-day window, my constituent made a number of attempts to contact HMRC about the issue, but no one would return any calls. It was not until I intervened that HMRC finally replied. Its inability to return calls, its automated actions and its generic letters cannot be justified. It would be a shock to anyone’s system to receive a notification of that nature.

Mr Love: I want to take up the point made by the hon. Member for Chichester (Mr Tyrie) about the shift in compliance costs from HMRC not only to small businesses but to individuals and large businesses. As that shift is already catalogued as having happened in recent years, does the hon. Lady think that the implications of the comprehensive spending review are that small businesses will have to meet even greater compliance costs in future?

Priti Patel: I do not, actually. Many other measures came out of the comprehensive spending review and last year’s Budget that will help small businesses to further their interests and, we hope, grow their businesses as well.

I come from a small business background—my parents have a small business—and I am stunned by the attitude and the bureaucracy associated with HMRC. Its lack of accountability is also deeply disturbing for all our constituents. I have had constituents in my surgery who have been reduced to tears when describing their own personal experiences and the distress that HMRC has

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caused them. In one case, a couple who had separated were having endless complications with their tax credit awards, and the wife was receiving demands from HMRC for the repayment of overpaid credits. In another, problems were caused by HMRC’s delay in processing the correct levels of tax credit for a constituent because—surprise, surprise!—HMRC had made mistakes with the information that it held on her, and my constituent subsequently had to supply it with a great deal of additional paperwork and ID. That involved a lengthy and inconvenient process.

I should like to draw the House’s attention to another tax credit case. It concerns a couple who received overpayments as a result of HMRC’s mistakes. HMRC even gave my constituents a reward of £35 in recognition of that. However, the errors mean that that family are now being pursued for a range of repayments and are undergoing another lengthy and bureaucratic process, even though they have done nothing wrong. Make no mistake, HMRC is effectively still persecuting them and treating them like criminals.

In all those cases, and many others, my constituents have endeavoured to do the right thing, and there has been no evidence of any attempt to avoid paying taxes or to mislead HMRC. However, due to an overly complicated tax system and what seems to be endemic incompetence at HMRC, my constituents, and, as we have heard today, many others, have suffered. My constituents feel that HMRC, with the full force of the state behind it, is effectively bullying them and persecuting the disadvantaged, the weak and the powerless, and that it fails to realise the worry, stress, anxiety and misery that its errors cause the businesses and individuals who are threatened. Those unreasonable actions defy common sense and undermine how HMRC operates and the tax system.

Charlie Elphicke (Dover) (Con): When my hon. Friend takes up cases with HMRC, does she find that they are suddenly sorted out extraordinarily quickly?

Priti Patel: I wish that the answer was yes, but unfortunately it is no. As with all large organisations, I am staggered by how long it takes to get a response. I am the one chasing up cases on behalf of constituents months after a complaint has been made.

That brings me on to accountability. Despite the fact that I have taken up every single constituency case directly with HMRC’s chief executive, she has yet to respond personally on any case I have written to her about. It seems that there is a lack of transparency in HMRC. I should also point out that it has an organogram that reaches about 45 pages, which tells me that it is a substantial bureaucracy, but there seems to be no manager for common sense in the organisation. I urge it to start seeing common sense.

In my view, that bureaucracy adds weight to my constituents’ impression that HMRC is an unwieldy, unaccountable organisation that seems effectively to be a law unto itself and never to take responsibility for its errors. I have concluded that that is its practice because it does not feel it has to do so. All too often, officials seem to hide behind complex rules and leave businesses and families having to pursue lengthy appeal processes, whether through the adjudicator, the tribunal, the ombudsman or the courts. Clearly, that puts those who feel that they have suffered an injustice at a significant

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disadvantage. In many cases, people do not want to go through a lengthy and perhaps costly process to seek a resolution. When they do pursue a matter, those who are unable to seek legal help are left to pitch up with their own amateur efforts against the professional force that is HMRC’s bureaucracy.

I make those criticisms and comments not to attack or damage HMRC but because I want it to make drastic improvements in the service it provides to the British taxpayer. I draw my remarks to a conclusion by congratulating the Treasury Committee on its ongoing and important investigations into HMRC. I praise the Exchequer Secretary for the attention he has given my constituents’ cases, and I wish him luck and all the best in the challenge ahead of him.

5.58 pm

John McDonnell (Hayes and Harlington) (Lab): I congratulate the hon. Member for Witham (Priti Patel) on her creativity in using an estimates debate to get so many constituency cases addressed. Following her critique of HMRC, I say to her that the buck stops here in Parliament.

I am not a member of the honourable fellowship of the Public Accounts Committee or the Treasury Committee. I was a member of a Select Committee back in 1997, I believe, when the Labour Whips, in a fleeting moment of jocularity, put me on the Deregulation Committee. I sought to change it to the Reregulation Committee, and we parted company soon after. I believe that my hon. Friend the Member for Leeds East (Mr Mudie) was in the Whips Office at that time, but I do not bear grudges.

I attended the debate on the legislation that founded HMRC. The House was relatively empty, and I believe that I was one of the few Members who tabled amendments on Report. At that time, a number of us were concerned about whether the merger was appropriate. We were also concerned about a trend that started immediately when the merger happened, when 3,000 job cuts were announced. Soon after that, 12,000 more were announced. I do not know of any organisation—public or private—that could have survived the treatment that HMRC received in recent years, including recent months.

When the merger happened, there were 104,000 staff. Since then, there have been 30,000 job cuts. We are now down to 75,000 staff. The £2 billion cuts as part of the comprehensive spending review amount to another 11,500 job cuts. I appreciate that the Government have put back £917 million to tackle tax evasion and avoidance, but cutting £2 billion and putting £900 million back seems like a ricochet policy rather than a planned approach to reform, as many Members have suggested.

I want to follow on from the points that the hon. Member for Chichester (Mr Tyrie) made. I chair the parliamentary PCS trade union group, an informal group of Members of all political parties. It enables us to meet the trade unionists who represent HMRC staff—the tax inspectors. Reference has been made to the briefings that have been given in recent months. That has educated us about the role that the staff play and what they have had to endure. It is not just the job cuts; 200 local tax offices have also been cut. We have now been told that there is a radical reduction in the opening hours of the walk-in tax inquiry centres. The point was made that, in some parts of the country, there are no local tax offices and vast gaps. The worst example is Wick in Scotland,

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where there is nothing in the vicinity and nowhere to transfer the redundant staff to ensure that they are retained in the service.

My hon. Friend the Member for Luton North (Kelvin Hopkins) made the point that for every tax official appointed, £685,000 is gained in tax income that is generated.

Ian Swales: Does the hon. Gentleman agree that a walk-in centre that is open only a couple of days a week and staffed by somebody who knows nothing about tax, and whose main role is to note details or direct people to telephones, is not a good walk-in centre?

John McDonnell: Yes. In recent years and from the time of the initial legislation, there has been almost a Dutch auction between Front Benchers competing to see who could cut more jobs from HMRC. We tried to point that out. My hon. Friend the Member for Leeds East gave a good example of how not to do a tax return. Some people need a face-to-face discussion about their tax affairs and that cannot be done through a call-centre mentality.

Some Members have pointed out that the evidence on call centres is fairly appalling. The pressure on call centres has mounted. Let me give some statistics for the record. Calls were up 20% from 2009-10 to 2010-11. Call attempts were up 100% from 2009-2010 to 2010-11. Engaged and busy tones played were up from seven to 35 minutes. One can see why that tune—“Greensleeves” or whatever it is—pushes some people right over the edge if they have to listen to it for 35 minutes. The current contact directorate performance prediction for 2010-11 is that only 40% to 50% of call attempts will be answered.

Kelvin Hopkins: I agree strongly with my hon. Friend. Together with the cuts in staffing, which have put extra pressure on staff, and de-professionalisation, will my hon. Friend mention the relatively low pay with which many tax office staff have to cope?

John McDonnell: We once prided ourselves on an effective and efficient tax delivery service through tax collection, and the job of tax inspector was one to which people aspired. We have undermined that through the de-professionalisation of the service, the way in which staff are treated and pay.

My hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) has direct experience, having met large numbers of his constituents who work in that tax office. The problem is not just the numbers of staff or how some of the services have been downgraded; it is the fact that the redundancy payments of people who are being laid off as a result of the recent cuts are being cut by up to two thirds. In addition, their pensions are now threatened by the change from the retail prices index to the consumer prices index.

Of course, that spells disaster for many people in planning their careers and their futures, so it is no wonder that the statistics on morale are so appalling—and morale is getting worse, not better. Staff were asked whether the changes were usually for the better, but fewer than one in 10 answered yes, meaning that they hold out no hope for the future.

Staff have been treated appallingly by management over a period too. Some Members were in the House when we debated the introduction of the lean system to

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HMRC, which was lifted straight from the Toyota car factories. That system produced the first strike in the history of HMRC in Scotland, because of how staff felt they were being treated. Hon. Members have learned that members of staff describe the imposition of the new attendance management system as draconian. One said that HMRC management seems to be

“more interested in finding ways to justify dismissing staff to get the numbers down as this is cheaper than redundancy rather than staff welfare and delivery of good customer service.”

The fact that professional staff have those sorts of opinions is an indication that something is wrong.

Staff are also concerned about elements of privatisation, such as the increasing role of private debt collection agencies in pursuing tax debts of under £10,000, and the conduct of private companies that do not have the expertise that HMRC has developed over the years in door-to-door collection. There are real concerns about not only office closures but the disbanding of whole HMRC business streams, which is reducing expertise and damaging service delivery.

Kelvin Hopkins: One feature of privatisation and the call centre culture is that it destroys the public service ethos. As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said earlier, the public service ethos is vital in an important job such as tax collection.

John McDonnell: I fully agree, and we have painted a picture this afternoon of the impact of a combination of job reductions, cuts in redundancy pay and the threats of cuts to pensions, which my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East described as a perfect storm. The message from those on the front line of tax collection is that HMRC is in a perilous situation. I hope from here on in that those voices will be heard and that we will consider a more systematic approach to HMRC reform.

Hon. Members have been told that access to face-to-face inquiry services has been significantly reduced, which is extremely worrying. Let me put on record what a number of tax inspectors have said about that. They say:

“Those offices that remain open”

after the 200 closures

“are having their enquiry centre opening hours significantly reduced. In some case these offices are due to be opened for only two or three days”—


“rather than the five days a week they currently open for.”

There is also concern about the disbanding of the complex personal return team in March 2009. Many thousands of the top UK taxpayers no longer have the services of a dedicated case owner and customer relationship manager. Thirty-five thousand taxpayers whose tax affairs were handled by that dedicated team—a highly trained, professional team—are now dealt with in the wider HMRC network. There is a view that the skills are therefore not available or not dedicated in the most effective way to increase tax revenues.

In conclusion, I have heard figures bandied about for how much tax is avoided or evaded, and therefore should be collected. They range from the internal estimate

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of £46 billion up to £120 billion. A number of us have worked with Richard Murphy and John Christensen of the Tax Justice Network over the past five to eight years to try to highlight the issue. Until recently it was not taken up or reported particularly effectively by the media, so I pay tribute to UK Uncut—a group of individuals who have come together spontaneously, taken information from the tax justice campaign and mobilised direct action, which, whatever Members think of it, has been incredibly effective in raising the issue up the political agenda. As a result of campaigning by the Tax Justice Network, UK Uncut and others, and as people are experiencing the cuts and moving from abstraction to reality in their communities, as my hon. Friend the Member for Leeds East said, they are now asking the question: why are we not collecting this tax? It is due not just to a lack of political will—although there is a tax reform issue that needs to be addressed—but to the way in which we have treated HMRC over the years, undermining its ability to collect those taxes.

Charlie Elphicke: I agree with the hon. Gentleman that everyone should pay their fair share of tax, but I strongly disagree with—indeed, I would condemn—any endorsement in this place of direct action that has the effect of shutting down businesses for a day, at a time when jobs and money are hard enough to come by for people in this country because of the Labour party’s recession.

John McDonnell: Jobs would be more protected if companies and rich people paid their taxes. If there is £120 billion out there that should be paid, then it should be paid, and if it takes direct action to force action on that, I support that direct action. Indeed, I have participated in it and will do so in future.

Now that the issue has become so pertinent to our constituents, to the country’s financial affairs and to trying to tackle the deficit, my view is that if we continue to hamstring HMRC in the way that it has been since 2005, we will undermine its ability to operate effectively. If we continue with the job cuts experienced in recent years, and with those as a result of the comprehensive spending review, we will destroy that public service ethos, as my hon. Friend the Member for Luton North said, undermining the organisation that we have been so proud of over the past two centuries for its effectiveness in ensuring a fair and just taxation system. I urge the Minister to put in place a consultative process, consulting the unions and the staff on a reform programme for HMRC, so that it can once again do its job effectively.

6.12 pm

Charlie Elphicke (Dover) (Con): This is an important debate, because the evidence shows that businesses and people do better when taxes are simple and certain. Anyone who knows anything about business will know that people in business have to plan. They have to know where they stand and what the tax regime will be. That regime has to be as simple as possible, so that people can understand it and get their heads round it. That is fundamental to the consistency of the rule of law and the framework that enables business to thrive.

It is the same for individuals. I could tell hon. Members about the number of people who come to my surgery who have been stressed out of their minds by demands for £2,000 in tax that they simply do not have. That kind

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of demand weighs on them, giving them the gravest possible concern and taking over their lives, as they wonder how they will manage to make ends meet. I tend to intervene in those cases, because I can write to Dame Lesley, although I have to say that my experience has not been entirely the same as that of my hon. Friend the Member for Witham (Priti Patel). I have found the Revenue quite helpful in giving people time to pay and helping them to understand that they can do so through their coding notice. Nevertheless, things should not be like that. We have heard time and again that the Revenue did not used to be like that. It is only in recent years that it has gone that way.

It is important that everyone in this country should pay their fair share of taxes, and that includes business. However, we also need to be careful not to make up phoney figures for the tax gap and make wild claims that it is £150 billion a year, when the Revenue itself has said clearly that it is no more than £40 billion.

I take issue with the hon. Member for Hayes and Harlington (John McDonnell), who is still in his place, when he says that it is somehow acceptable to have direct action campaigns against business for the amount of money that it might or might not owe. It is unacceptable to close down a business for a day and deny the people who work on the shop floor—people who are often not well paid—the chance to earn their living and go about their business in their ordinary way in their ordinary lives. It is wrong to do that, and in some cases taking part in such direct action campaigns amounts to a criminal offence, so I urge all Members not to take action that unlawfully impedes business, particularly if it is of a criminal nature.

I am a member not of the Treasury Committee or the Public Accounts Committee, but of the lowly Public Administration Committee, in which we look at paper clips and try to reflect on how administration can be improved. Looking at the careful and thoughtful work done by the Treasury Committee before the election, it is quite clear that the number of customer complaints has risen dramatically. It now stands at 87,179, so I ask where those complaints and problems are. That is how to deal with the issues arising. Call centre issues are important—the fact that we cannot eyeball someone or get our phone calls answered quickly. Complaints about office processing have risen by 38%, while complaints about online services have risen by an astonishing 181%. It is logical to focus on where the complaints arise and where the problems need to be dealt with.

Let me deal with the call centre issues. We know that 43% of phone calls were simply not answered in 2008-09—[Interruption.] That is a huge number of calls, as my hon. Friend the Member for Witham interjects from a sedentary position. We also know that 35% were not answered last year. That does not tell us how long it took to answer the calls that were answered. Oral evidence to the Treasury Committee suggested that it could be as long as 12 minutes—an extraordinary situation. One person providing evidence said that if he took 12 minutes to answer his phone calls, he would not be in business for long. There is clearly an issue about the efficiency and quality of call centres that needs to be looked at.

I do not condemn HMRC, as many of its officers and officials have worked very hard, but I do condemn the previous Government for using the expertise of these

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wretched consultants time and again to answer all their problems, instead of using the expertise that existed within two institutions with long, proud and successful histories.

I hope that the Exchequer Secretary who comes on deck at this moment will realise on the one hand that he is fortunate, as he cannot do any worse than his predecessors, but on the other hand that he faces a challenge and should take care not to sit on deck while the orchestra is playing and the water is flooding in through holes down below. I hope that he will be assiduous in looking at the issues and trying to sort out the administrative, policy and leadership issues in HMRC today—including the matter of political leadership.

I say that because the staff survey suggests that staff feel pretty wretched. We have heard that time and again, and no one seems to think that the HMRC is well managed. No one has much confidence in anyone and no one feels energised to go the extra mile. Most people do not have that much confidence in their line managers, but they have an awful lot more confidence in them than they do in the top leadership of the entire institution. It is pretty clear, then, that we need to focus on providing the political leadership and the organisational and managerial leadership to make HMRC a better place and, above all, to make it feel better about itself.

We also need to sort out the information technology. It is clear from the Treasury Committee report that, under the previous Government, IT was an unmitigated disaster. I have to describe the response from this Government, who had only just come to office, as Panglossian. It was one of the poorest responses that I have ever seen. I do not blame the Minister, because this was back in June when the Government had only just been formed, but I urge him to take much greater control. I hope that he will take the policy side of his Department by the scruff of the neck.

Commenting on the disaster of the call centres, the Government’s response was that

“six of the seven indicators have improved from baseline and therefore exceeds HMT’s definition of ‘strong progress’.”

The Government seemed to suggest that everything was just marvellous. They went on about how wonderful the call centre answering record was, and I do not think that that is acceptable. The Government do not seem to have been in touch with the reality of the situation.

When asked about the disaster of morale, the Government went into management-speak worthy of the former director-general of the BBC. They talked of creating

“a working environment which motivates and develops our people to give of their best and take pride”.

Whenever we hear mission statements of that kind, we have a sinking feeling that the consultants have crept in through the back door and started to charge a lot of money and ruin an organisation. I hope that the emphasis will change, and that the Government will instead say, “We are going to inspire people, and give them back their sense of pride and responsibility at ground-floor level.” That will enable those people to make real advances and exercise responsibility at every level, rather than returning to the dreadful tick-box culture that has grown up over the past 10 years.

As for IT, we know that it is a disaster. The Exchequer Secretary had to come to the House in the autumn and

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say that it was a disaster. I must say that he was very forthright and honest with the House, and dealt with the situation superbly. The earlier Panglossian response had been:

“The robustness of HMRC’s IT systems continues to improve, however the scale of the operation, and the amount of legacy systems, is such that this is a journey of continuous improvement and not overnight change.”

Nick de Bois (Enfield North) (Con): From “ghastly” to “poor”.

Charlie Elphicke: Indeed.

I believe that the Exchequer Secretary is a very fine Minister who will, in time, become one of the ablest Ministers to have graced this or any Government. Let me end my speech by urging him to grab this issue by the scruff of the neck. I urge him not to knock the officers of HMRC who work so hard but to inspire them, make them feel better about themselves, and allow them to take charge and do really well—to provide a great call centre service, a great online service, and the great service in general that HMRC used to provide before it was ruined, particularly in the last decade.

6.22 pm

Kelvin Hopkins (Luton North) (Lab): I shall speak very briefly.

I agree with much of what was said by the hon. Member for Dover (Charlie Elphicke). I especially agree with what he said about the need not to demoralise the staff of HMRC any further, but to put the blame where it truly lies—with the Treasury. My experience has led me to believe that the Treasury is the most stupid of all our Departments, and I say that advisedly.

I had my earliest experience of the Treasury and HMRC when I first entered Parliament and visited a local VAT office. There were splendid people there who were doing a good job, but they said, “We have not enough staff to collect all the tax.” They said, very modestly, “Every tax inspector collects at least five times his or her salary. What we really need is a few more inspectors.” I wrote to the Treasury, as one does, suggesting that because they were collecting more than their own salaries, employing more of them would bring in more revenue. I thought that that was a wonderful idea. The letter that I received from the Treasury, however, was one of the most vacuous, stupid letters that I have ever received from a Government Department. It said, “We are trying to reduce costs by minimising staff.” An eight-year-old child would have seen the illogicality of that. Obviously, cutting staff would cut revenue by far more than the salaries that would have been paid to those staff.

I have not changed my mind about the Treasury since then. I would add that managing the economy has not been one of its great successes either. I hope that one day I shall be challenged by the Treasury—by Ministers, or even by senior civil servants—to justify my accusation. That letter read like a thin press release rather than a proper, intelligent letter from a Department.

I subsequently raised the matter with union members. Along with my hon. Friend the Member for Hayes and Harlington (John McDonnell), I am a member of the union support group. They said that inspectors dealing

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with income tax and corporation tax raise sums that are many times greater than their salaries—five times is just a modest amount for VAT inspectors, and it is much more for other forms of taxation: the Vodafone scandal involved billions of pounds, for example. HMRC cannot collect enough tax simply because it does not have the resources to do so. It has been demoralised and de-professionalised. I have had many private conversations with senior tax officers, so I know what the problems are.

My next point might not be popular with my party colleagues. Against my better judgment, the previous Government arranged for HMRC to hand out benefits as well as collecting taxes. They gave it the job of handing out credits, but in my view benefits should be handed out by a Department specialising in that, namely the Department for Work and Pensions. No other country in Europe has three major Government Departments handing out means-tested benefits— I have checked that. Housing benefit is paid by the Department for Communities and Local Government, tax credits are paid by the Treasury and other benefits are paid through the DWP. Why not have one Department responsible for handling benefits, especially as each is means-tested, they all overlap and the people who receive them and therefore have to deal with these complex, means-tested benefits are often the elderly and people who might not be the most able? These benefits should be handled by sympathetic, professional staff who can deal with all of them in one place. Part of the problem is that the people who currently do this job have been landed with it.

These two tasks are completely incompatible. Taxation is collected on an annual basis; most taxes are paid yearly, and some of us fill in tax returns while for most PAYE, or pay-as-you-earn, is collected automatically. Benefits change throughout the year, however. Those who claim benefits are often people whose circumstances change almost by the week. They might be in and out of work and their pay rates change so they are either entitled to a credit or not. The situation is immensely complex, therefore. It was stupid to hand that responsibility to HMRC, and I opposed the move. I have stated before in the Chamber that we should have one Department responsible for handing out benefits and another responsible for collecting taxation. The two roles are completely incompatible. I stand by that position, and I hope that one day a Government will be more sensible and will start to unify the handing out of benefits in one Department.

I have met many tax staff, both senior tax officers and the basic back-room staff. All of them complain that they are demoralised and overworked, and that there are too few staff. The less senior staff are very poorly paid, too. If we are going to have a good HMRC for the long term, we must re-professionalise it, and provide enough staff and make sure they are properly paid, and we must take away the nonsense of them handing out benefits as well as collecting taxes.

My message is simple, and I hope it goes home and is thought about, even if it is not acted on immediately.

6.28 pm

Jesse Norman (Hereford and South Herefordshire) (Con): I speak in this important debate both as a member of the Treasury Committee and on behalf of my constituents.

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We have heard about the prestige of the Revenue historically, and about the effects of the merger with Customs and Excise, and the hon. Member for Luton North (Kelvin Hopkins) just talked about its transformation into a benefits agency, and made a good point on that.

Although there has been a lot of discussion of costs, this problem is not just about cost cutting. It is also about a failed model of public service delivery, which is at least as important. To illustrate that, let me describe the situation we have found in Hereford. The tax office in Hereford was closed a couple of years ago with the loss of 90 skilled jobs, despite local protests, with which I was closely involved. We are talking about a high-quality employer in a county that is not a high-wage part of the country. That was a grievous loss to the local economy, and in my view a rather unnecessary one, as I will argue.

My second point concerns a local company—I will not name it—working in the area of defence, a small enterprise exporting very successfully. That business presented some concerns about the coding of its exports to the Revenue, and was then appalled to have HMRC take up residence, conducting a kind of fishing expedition through its accounts, which resulted in the Revenue demanding a substantial payment for tax allegedly not received. In turn, that involved huge amounts of time being taken on, and attention being paid to, dealing with this complaint against a very small but rather successful business.

These two points illustrate the effect of the transfer of compliance costs, which has been widely noted, from the Revenue to the people and SMEs it deals with. We have had the loss of a local presence through the tax office, and its replacement by a call-centre mentality that is often incompetent and impossible for the public to deal with.

Guto Bebb: On IT systems and call centres, is my hon. Friend aware that the current system is not compliant with HMRC’s own Welsh language policy and is also contrary to the Welsh Language Act 1993? As a result, I have constituents who are unable to deal with the tax authorities through the medium of their own language because the offices have been closed, or because the call centre or online service is not available through the medium of Welsh.

Jesse Norman: I was not aware of that and I thank my hon. Friend for his remark. Of course, historically, Welsh speakers on the other side of the border were very welcome to come to Hereford to have these issues solved, but unfortunately that option does not exist now.

The point is that it is not simply an issue of the cost cutting that has taken place over the past 10 years; the whole model of public service delivery has relocated that service away from local people and back to call centres, as we have heard. That has happened under the influence of a mentality bred by the consulting firms. In particular, one picks out McKinsey, which did a substantial piece of work for HMRC some time ago. This, I am afraid, has been the method by which this mistaken conception of public service delivery has been promulgated. Services, instead of being brought closer to people, have been removed from them. A use of technology that could have assisted the ordinary man and woman and small businesses in dealing with their tax affairs has ended up impeding them, and that has been a terrible and costly shame.

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I would direct the current management of HMRC to what systems theory calls “failure demand”. Failure demand is not the cost of delivering a service, but the cost on the rest of the system when people fail to deliver a service. Failure demand in the Revenue has gone through the roof in the last decade, and the statistic we have heard about the length of time people spend on the telephone dealing with Revenue and Customs is a very precise quantification of this increase in failure demand. Essentially, instead of thinking of the costs on the system as a whole, the Revenue has been pushed into pursuing the lowest unit cost, which has encumbered the whole.

There is a parallel in the manufacturing industry. Historically, General Motors ran a production line and if a substandard car was on it, it would be removed from the line and the line was allowed to continue. The result was that these “lemons”, as they were called, built up over time and required a substantial amount of time to fix. However, the system itself never got any better because every time there was a problem, the lemon—the bad car—was removed from the production line. The Toyota approach was entirely different. Every time there was a problem with a car, the entire production line stopped. One can imagine the result: enormous pain for a time, followed by a dramatic improvement in quality and a dramatic fall in costs, because the system was no longer tolerant of failure.

At the moment, for the reasons we have described, HMRC has a system that is massively and very unhappily tolerant of failure. The Government are picking up this mess and will be seeking to make something of it over five years—I hope they will be doing so over 10 years. I encourage them to address not merely the issue of boosting the tax collection rates, but the failed model of public service delivery that underlies the Revenue and so many of our other public services. The Conservative party is committed to improving public services and this is a very good place to start.

Mr Deputy Speaker (Mr Nigel Evans): The wind-ups will begin at 6.40 pm.

6.35 pm

Mark Durkan (Foyle) (SDLP): I am pleased to follow the hon. Member for Hereford and South Herefordshire (Jesse Norman), who made some salient points, reflecting the insight that he has secured as a member of the Treasury Committee. I pay tribute to him and his colleagues on that Committee for the work they have done, which has helped to inform this debate, as have the many representations that we are all making.

I wish to highlight a couple of dimensions relating to HMRC’s performance and organisational structure as they particularly affect my constituency and my part of Northern Ireland. Before I do so, I wish to endorse a point made by other hon. Members by saying that I am not making these complaints to target or criticise HMRC staff, who are dealing with huge demands on them. They are trying to cope with a system that has been changed around them, and has been made much more inadequate and much more confusing for them. The system causes stress and anxiety to them, as well as to the many public customers with whom they are dealing.

For staff, the situation has been a bit like driving at night with people coming at them at full beam and as

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soon as they recover from one at full beam, someone else comes along. Changes have been made in the organisational structure, then in the management and then, as the hon. Member for Luton North (Kelvin Hopkins) said, in the staff work load. They have, probably rightly, had to deal with matters such as the minimum wage; child benefit issues have been absorbed on to the tax side, which has meant that issues have arisen for staff in Northern Ireland; and then they have had to deal with the whole issue of tax credits.

I particularly wish to discuss tax credits and the impact on Northern Ireland and, in particular, on my border constituency. Many people live on one side of the border and work on the other. No matter whether they live in the Irish Republic and work in Northern Ireland or vice versa, their circumstances may mean that they have to deal with the tax office for tax credits and, indeed, for child benefit. Under European Union rules, child benefit is paid according to where someone is employed, not according to where they or the child lives—it is a bizarre rule, but it is there and it adds to the complications. Rather than have tax credits in Northern Ireland administered in Northern Ireland, all that administrative work was taken over to England, perhaps for specialisation.

Included in that work were the issues relating to cross-border tax credits. Every case of every cross-border worker is treated as complex and goes to the complex cases unit in Washington. Other hon. Members have mentioned the difficulty of getting in touch with HMRC, but these people, be they in Donegal, Derry or other parts of Northern Ireland, have real difficulty getting in touch. When they manage to do so, or when their accountants or their employers’ people get in touch, they are told things such as, “Northern Ireland is not in the EU, so what are you talking to us about?” They are not even being told that Northern Ireland is not in the UK; they are being told that Northern Ireland is not in the EU.

These people also have to deal with the relevant officials of the Irish Republic, and the relevant department there is centralised in Letterkenny, only 20 miles from my house and from a tax office in Derry. Rather than all the liaison taking place between officials who are 20 miles apart and who can meet, the cases are dealt with on a completely remote basis, with an office in Letterkenny in the Irish Republic and an office in Washington in England. Can things be exchanged over the internet? No, they cannot, because data protection rules say that things have to be transmitted in documentary form, and letters get mis-sent. Letters that contain people’s details and that are meant to go to the Irish Republic end up going in envelopes that are fit only for UK delivery and so do not get delivered for months. Letters that are going to constituents in Northern Ireland, or to others in the Irish Republic who come to me, end up going completely astray too. There is a simple answer to that—make sure that if cross-border cases are not processed in Northern Ireland, there should at least be a liaison office or front office in Derry, in Northern Ireland, that people can go to where someone deals with their case and they are not left crying and in distress, which is how many people come to me when they have been referred by accountants who will no longer touch tax credit

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cases involving cross-border workers. Employers are very distressed for their workers as well, but there is a simple answer.

6.40 pm

Mr David Hanson (Delyn) (Lab): I thank right hon. and hon. Members across the Chamber for their contributions to the debate, particularly the Chairman of the Treasury Committee—the hon. Member for Chichester (Mr Tyrie)—and my hon. Friend the Member for Leeds East (Mr Mudie), who chairs the Sub-Committee. I begin by placing on the record the value of the work of Her Majesty’s Revenue and Customs. Clearly, it has faced significant challenges, which have been mentioned by hon. Members across the House, not least of which was the merger and the implications of bringing two big organisations together to deliver a large public service. However, as someone once said, we are where we are, and I want to look to the future and some of the challenges, rather than revisit old territory.

Between HMRC’s formation in April 2005 and March 2010, it collected £2,188 billion in tax and paid out £157 billion in benefits. That is a big operation by any standards, and its functions relating to tax credits, taxation, child benefit, child trust fund endowments, the national minimum wage, which my hon. Friend the Member for Foyle (Mark Durkan) has mentioned, and the supervision of a range of money laundering regulations are key issues that are impacting on the Government as a customer, in relation to raising taxation, and on members of the public as customers. I understand that, as the hon. Member for Witham (Priti Patel) has pointed out, there are many areas in which that interface causes severe frustration and difficulties in relation to customer service. The service to both the customer and the recipient, including the Government, needs to be improved in those areas.

A key thread of today’s debate has been the level of service, especially outward-facing service. We need to reconsider how to improve the response of the service to members of the public who engage with it. That includes not only phone responses, which the hon. Member for Redcar (Ian Swales) mentioned, letter responses and complaints procedures, but the whole issue of how the public interface with the service, how they use it to help them to pay their taxes in an effective way, and how difficulties are resolved. People should expect a level of public service and should know what that level of service is, and we in the House, both in opposition and in government, should look at how we can help to support that. There are real problems here, and if the Minister dealt with the strategy to help improve the service to the public, so that there was clarity and transparency about the issues that hon. Members have raised in connection with what the public should receive, I would welcome that.

HMRC’s main customer remains the Government. It is a tax-collecting agency and it needs to perform that function effectively and efficiently. It is important to maximise revenue flows and to improve compliance. One of the key issues in today’s debate has been how to raise those issues in a positive way to ensure that we take forward tax collection to maximise the available tax-take in a fair and effective way. To do that, we need a dedicated work force with good morale; hon. Members have touched on the changes and the fact that staff

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morale in the service has been low. To bring about those changes effective leadership is required from the Minister, which I am sure he will give, and from the staff who lead the organisation, focusing on HMRC’s core objectives of delivering services to the public and to the Government. A key issue in that regard, which was touched on by my hon. Friend the Member for Leeds East in particular, is that in a time of global recession and public spending challenges, we need to ensure there is fair and effective taxation and compliance in relation to the taxation issues in our community at large.

One of the key themes in today’s debate, which was reflected by my hon. Friends the Members for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) and for Hayes and Harlington (John McDonnell), is how we manage effective tax compliance and revenue collection at a time when, by the Minister’s own admission, he is reducing HMRC’s settlement by 15% overall as part of the efficiency savings that he seeks to make. Despite the fact that he is investing £917 million in tax collection and compliance, the £2 billion cut in the service causes concern.

My hon. Friend the Member for Luton North (Kelvin Hopkins), on a topic that he has raised in the Chamber on many occasions, drew attention to the fact that the PCS and the Association of Revenue and Customs believe that the compliance figure for each officer amounts to a yield of about £650,000. There are many opportunities for the Minister to enhance compliance in the future. Like my hon. Friends, I am concerned that the 25% potential efficiency savings and the £2 billion cut in the budget will result in job losses, which will equate to revenue losses and lower morale among the staff whom my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East represents, and staff elsewhere, as my hon. Friend the Member for Hayes and Harlington mentioned.

I want to hear from the Minister, in the time he has at his disposal, how he expects those efficiency savings of £2 billion to be made, over and above the £917 million that he has put in place to support revenue collection. I want to hear an answer to the question from my hon. Friend the Member for Leeds East: how much of the money that will be raised by the extra £917 million is to be collected before the 2013-14 deadline, given that the Minister said that he expects to raise an extra £7 billion by that time? I want to hear from him about the service that HMRC will provide. With that £2 billion reduction, I worry that service issues identified by the hon. Members for Witham, for Dover (Charlie Elphicke) and Hereford and South Herefordshire (Jesse Norman) will be exacerbated as a result of insufficient legal resources for litigation, lower response times, increased compliance costs and more difficulties in delivering the efficient service that we all seek.

The Minister needs to give the House an account of his future strategy for the effective collection of revenue by HMRC. We saw last year, with the PAYE debacle in which 1.4 million people were asked to make up an underpayment worth about £2 billion, that the service impacts on everybody’s life, as has been pointed out by Members speaking about their own constituency experiences. Mistakes that are made, from child tax credits to tax demands, cause stress and worry. The efficiency of the organisation is desirable not just because it is a public service, but because of its effect on people’s day-to-day life.

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I want to hear from the Minister how he expects to manage revenue collection and compliance over the next few years, and how he intends, with officials, to improve the service and sharpen its focus at a time of reduced resources. Those who work in the service care as much as we do about it, and about its future direction. The trade unions have emphasised to me the need to invest in training and support for tax professionals, the need to ensure that we have an effective deterrent against non-compliance, and the need for measures to reduce the tax gap and ensure that we provide a service to customers out there who are our constituents.

I think that we have a clear role to look at where we have come from and to focus HMRC on its core business, which is providing a service to the public and raising the revenue that we seek to spend. I simply put down as a marker for the Minister the fact that the Opposition will be watching carefully to see how his efficiency savings either hit or support that public service and revenue collection. HMRC’s role is key to helping us fund the public services that we all want, and it is his job to ensure that it does so in the most efficient way possible.

6.50 pm

The Exchequer Secretary to the Treasury (Mr David Gauke): We have had a valuable debate, and I congratulate my hon. Friend the Member for Chichester (Mr Tyrie), the Chair of the Treasury Committee. We have had the benefit of his expertise and that of other Committee members, including my old friend, the hon. Member for Leeds East (Mr Mudie) and my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman). We also heard from a member of the Public Accounts Committee, my hon. Friend the Member for Redcar (Ian Swales).

We have heard about the experiences of the constituents of my hon. Friend the Member for Witham (Priti Patel) and had the benefit of the considerable tax expertise of my hon. Friend the Member for Dover (Charlie Elphicke). We have heard about some of the difficulties of a border area from the hon. Member for Foyle (Mark Durkan) and also heard from the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), whose constituency has the largest tax office in the UK. We have also heard from the hon. Members for Luton North (Kelvin Hopkins) and for Hayes and Harlington (John McDonnell), who both have a long-standing interest in the matter.

There is clearly a consensus across the House that HMRC is a hugely important organisation that has a valuable role to play through the service it provides to taxpayers and tax credit claimants and its contribution in dealing with the difficulties in the public finances. We have heard articulated a widespread concern about a number of aspects of its performance. As the hon. Member for Leeds East pointed out, that has been a consistent concern for a number of years. We have heard a little about some of the causes of the problems. The hon. Member for Hayes and Harlington, among others, talked about the difficulties of the merger, and my hon. Friends the Members for Chichester and for Dover talked about tax complexity. The hon. Member for Luton North talked about the challenges created by the introduction of tax credits and HMRC’s responsibility in that area. Those issues have contributed to a number of the problems.

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In the time available, I will touch on the various issues that have been raised. A number of Members mentioned staff morale. The survey numbers are pretty shocking, as HMRC does very poorly on that. My hon. Friend the Member for Chichester referred to HMRC staff as the salt of the earth, and talked about their dedication. I visit a lot of HMRC offices and find that the staff are very dedicated and committed to their jobs. The problem is that they do not feel a strong connection with HMCR or the sense of loyalty and affection to the organisation that they might, but there is a desire to do their jobs very well.

There is sometimes a feeling that HMRC staff are kicked around a bit and that some of the criticism is unfair—happily, I can exclude all Members who have participated in the debate from that charge. To be balanced and fair to HMRC, we should acknowledge some of its successes. Just over a month ago, for example, they successfully dealt with a record number of self-assessments by the self-assessment deadline.

Nicholas Soames (Mid Sussex) (Con): I wholly support what the Minister is saying. It strikes me that what HMRC staff need most is to feel valued, because they do an extraordinarily important job for this country.

Mr Gauke: My hon. Friend is absolutely right, and it is right for us to put that point on the record.

On PAYE reform, there is no doubt that there were real problems with the introduction of the national insurance and PAYE service—NPS—computer system. The system does improve how PAYE works, but last year we saw significant problems with tax codes. So far this year we are more than halfway through the tax code process, and it seems to be going well, but these are still relatively early days. There has been a concern about the introduction of NPS, and a considerable concern about the end-of-year reconciliation process. PAYE has always involved an end-of-year reconciliation, but the numbers revealed in September were shocking. We have enormous sympathy with those who face an unexpected tax bill, and we want to do everything we can to ensure that they are treated fairly and sympathetically.

The fundamental problem is that the PAYE system has failed to keep up with changes in working patterns: people tend to move jobs more often, and they often have more than one source of income. We are taking steps to address that by introducing real-time information to the tax system, and we believe that that can address the real causes of the problem. I am aware of the concerns that the hon. Member for Leeds East raised about the timetable, and we are looking closely to ensure that we can deliver to it.

My hon. Friend the Member for Dover was entirely right to mention contact centres and their slow responses. The current service is not good enough, and in the long term we will solve that by getting things right first time and ensuring that the tax system is simpler so that people do not need to phone up. As a temporary measure, however, HMRC will employ between April and September—a particularly busy time for HMRC—1,000 additional contact centre advisers to ensure that we see an improvement in performance.

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Several Members raised the issue of the tax gap. The £42 billion figure that HMRC produced—the other figures that have been thrown around lack credibility—is a big number, and although it compares well internationally we are determined to do what we can to bring it down. The figure is made up of several factors, including the hidden economy, written-off debt and so on, and there will always be a tax gap, but we are determined to reduce it.

That brings me to the spending review. Let me be very clear: during the usual communications that take place between Opposition spokesmen and senior civil servants in the run-up to a general election, we said to HMRC, “If you have proposals for areas where additional expenditure could result in substantially increased yield, we want to look at them,” because all too often the previous Government did not listen or even attempt to address that matter.

We were very pleased when HMRC came up with proposals for spending £900 million over the course of the spending review period, and it believes that that could really deliver. I cannot supply the full profile, but by the end of that period HMRC should be raising an additional £7 billion as a consequence of strengthening its compliance capacity, increasing the number of people working in compliance and enforcement, and tackling tax evasion. That is an important step to take.

We have had a useful and valuable discussion within a wide-ranging and interesting debate about an incredibly important issue. Across the House, we recognise that HMRC is a very important organisation. It is right to focus its efforts, as the right hon. Member for Delyn (Mr Hanson) said, on collecting taxes and getting the yield in, and that is what we are doing.

We recognise that savings have to be delivered, that services have to be maintained, that performance must be improved and that revenues must be increased to help tackle our nation’s record deficit. We are determined that HMRC will deliver, and that by the end of the Parliament it will be a far better department, and one that is more efficient, cost-effective and better tailored to the needs of modern Britain.

Question deferred (Standing Order No. 54( 4 )).

7 pm

The Deputy Speaker put the deferred Questions (Standing Order No. 54(4)).