Session 2010-11
Publications on the internet

To be published as HC 731-i

House of commons



Treasury Sub-Committee

Administration and Effectiveness of HM Revenue and Customs

Wednesday 19 January 2011

Simon Boniface, Peter Lockhart, Graham Black and Terry Cook

Evidence heard in Public Questions 1 - 75



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Oral Evidence

Taken before the Treasury Sub-Committee

on Wednesday 19 January 2011

Members present:

Mr George Mudie (Chair)

Michael Fallon

Stewart Hosie

Mr Andrew Love

John Mann

Jesse Norman

John Thurso

Mr Andrew Tyrie


Examination of Witnesses

Witnesses: Simon Boniface, Deputy Group Secretary, Revenue and Customs Group Public and Commercial Services Union, Peter Lockhart, National Officer, Revenue and Customs Group Public and Commercial Services Union, Graham Black, President, Association of Revenue and Customs, and Terry Cook, past-President, Association of Revenue and Customs, gave evidence.

Q1 Chair: Good afternoon. Thank you for coming, and we will start off with Jesse Norman.

Q2 Jesse Norman: Thank you very much indeed, Mr Mudie. I want to focus on the overall issue of HMRC performance over the last few years. We have had a lot of written evidence that has suggested that the performance of the Revenue and Customs has declined over the last seven to 10 years, almost to the point of its being a dysfunctional organisation. Do you think that is correct? Why don’t we start with you, Mr Cook?

Terry Cook: I think the perception of the people who work in the organisation is that it is a difficult organisation to work in. For a lot of us who have been around for some time, the period after the merger of Customs and Inland Revenue was certainly a period where we felt things were wasted. Both organisations had very strong cultures with a lot of good features to them, and I personally do not feel that the new organisation has managed to forge an identity and a meaning for staff that adequately replaces that.

Q3 Jesse Norman: Has it managed to extract the benefits of either of the two previous cultures?

Terry Cook: People felt that, initially, our strong emphasis on effective tackling people’s noncompliance with their obligations was sometimes lost sight of. One of the good features about the settlement that the Department has reached with the Coalition Government this time, whereby we are being given money to go out and pursue some of those tax issues, is considered by people to be a welcome return to our core business. Clearly, we are here to assist our customers as well. We want to help people get things right. But for a variety of reasons people do not get things right and we feel our job is to tackle that on behalf of the country.

Jesse Norman: Would anyone else like to comment on that? I don’t think it’s necessary for everyone to make any comment.

Graham Black: You are right, the Department has struggled for the last five years, but I think that has to be seen in the context of the fact that when we merged there were around 99,000 people in HMRC. Today there are 67,000. We have lost a third of our staff over that period, I think a much larger proportion of loss than most other Government departments have had to cope with. So I think inevitably that has impacted performance and I think that is at the core of a lot of the problems we have had to face over the last few years.

Q4 Jesse Norman: I want to come on to that in a second, but can I just ask: has the change of the Revenue into a semi benefits agency through tax credits also changed the ethos or the management of the organisation?

Simon Boniface: No.

Q5 Jesse Norman: Anyone else? Final question, on the operational model: many MPs were expecting that the impact of the streamlining of the Revenue and the use of IT would be to allow more people to stay closer to the customer, rather than to promote centralisation. But it looks as though what we have seen has been the withdrawal of an awful lot of people from customer-facing duties and the creation of much more of the service factory-what should I say-call-centre model. Was that a mistake?

Simon Boniface: Shall I take this up, colleagues? I believe it was a mistake. I think we have strongly argued that the channel strategy-that is the old-fashioned term for it; the customer channel that is adopted by the Department for its customers-is the channel the Department wants to give the customer rather than the channel the customer wants. So, obviously, something that is centralised, something that is in their eyes cheaper to deliver than having a face-to-face public service in local offices is the service line that the Department has gone down, rather than necessarily understanding what it is the customer wants in terms of service. So we would strongly agree that they have moved too fast in that direction.

There is a case to be made for some degree of centralisation, but they should have retained more of the customer-facing service than they have, and of course they are still reducing opening hours and closing offices now, so that situation is getting worse.

Graham Black: We have lost something from losing a lot of our local regional presence but again-I hate to come back to it-to some extent that was a consequence of the fact that we had to lose tens of thousands of people. So I imagine it is impossible to carry on delivering the same thing in the same way when you are losing a third of your staff. So, yes, I think we would agree that there is definitely a big downside of moving out of local offices and having less of a regional structure, but some of that is a consequence of losing people as well as a decision in its own right.

Q6 Jesse Norman: Do you think the move to a more rule-driven approach to tax rather than the individual case being pre-eminent weakens the public belief in the Revenue? Because some people might say, "Well, if the Revenue can’t work with me and isn’t prepared to acknowledge my issues, why should I pay them the tax?"

Peter Lockhart: I think there is a genuine concern about the removal of a physical tax presence from the local communities that they traditionally served. At one level that includes the closure of tax offices-again, that physical presence-and the fact that individual taxpayers, under whatever tax regime they may be subject to, are able to physically go into an inquiry centre and speak to a person about their tax concerns. It is not just our concern but the professional bodies seem to have a concern about that as well. So I think there has been a change of culture and ethos, which has not necessarily been thought through but is a kind of unfortunate consequence of the way that HMRC has reorganised itself.

Q7 Jesse Norman: So it would be your collective view, then, that it is not true-as the HMRC has claimed-that the £1.1 billion of savings they have had since 2005 have been achieved without overall negative impact on performance? That would be untrue?

Simon Boniface: I think we would confidently say that, yes.

Jesse Norman: Thank you very much.

Q8 Mr Tyrie: What you are describing is nothing less than a disaster both for the taxpayer nationally, who is trying to get his tax sorted out, and individually, who is trying to deal with the institution. Do you agree with that, Mr Cook?

Terry Cook: I am not sure whether disaster is too strong. Speaking as people who-

Mr Tyrie: Well, put in your own word.

Terry Cook: Thank you. From our point of view as ARC, the people who represent the staff who work in the organisation at the senior end of things, I think we would want to say that in recent years we have managed to achieve some really quite good things. We have introduced some changes to the law-the avoidance disclosure regime, for example, has been a huge step forward in the way we tackle avoidance. Perhaps belatedly, we tackled carousel fraud and have got a grip on that. We tackled MTIC and carousel fraud by putting trained, experienced, tax professional people on to it who were able to get a grip of it. I think the thread that probably will come through a lot of what we talk about this afternoon is that, at the end of the day, tax is a people business. There are numbers involved and, yes, we can make efficiencies through online filing and that sort of thing but, as your colleague said earlier, people want the confidence that their own individual circumstances will be taken into account. We deal with very complicated areas of fact, of law, the cutting edge of legislation. That really needs people and it really needs an investment in trained tax professionals.

Q9 Mr Tyrie: But your initial evidence is extremely forceful. You have come forward with a number of suggestions for areas in which things have gone well, but you have said the period after the merger was wasted, that the best of both cultures was lost-you are all nodding your heads in agreement here-and that a collective identity was not forged. I do not think the word "collective" was used, but I think what you more or less said was that a new identity was not forged adequately. This merger was put together on the basis of a plan by McKinsey, was it not? Is that not correct?

Terry Cook: That is as we understand it, yes.

Q10 Mr Tyrie: I do not know who wants to answer this question, but that turned out to be a disaster, is that right?

Graham Black: Yes, I think we would say it did turn out to be a disaster. We made a number of fundamental mistakes early on when the departments were merged. It fragmented the departments. Both departments had a very proud tradition. We had a very committed workforce. I worked for the Inland Revenue. People were very, very committed to the Revenue. I know Customs had an even stronger ethos than Inland Revenue had. We seemed to lose some of that by fragmenting according to a structure that broke us into 36 different boxes, and it has proved difficult to come back from that. I think there have been efforts to try and reverse that, but it is more difficult to come back from having lost it than it would have been if we had not lost that in the first place.

Q11 Mr Tyrie: So bringing in a consultant probably is not the solution, seeing as it is a consultant’s report that created the problem. I wondered what any of you feel is the answer. Do we need to forge a single new identity? Do we need to try and create some sort of federal structure to try and restore some of the best of the old cultures? What is the answer?

Peter Lockhart: I do think HMRC have struggled. They have had various iterations of their ambition, their vision, where they want to be, the five-year plan, and none of those things have engaged staff that work for HMRC. I think it is as disappointing for us as anybody else, that HMRC consistently fared the worst on the measures of staff morale and commitment to the leadership of HMRC. It does not do us any favours either.

Ever since HMRC was formed 30,000 staff have gone; there have been hundreds of office closures, constant reorganisation, and that has been the case for the whole period that HMRC has been in existence. So, on the one hand there has not been a clearly defined view of what HMRC is about, but in addition there have been inordinate constraints on the way that HMRC are expected to do much, much more with far less resource and that inevitably has had a long term impact.

Q12 Mr Tyrie: If I may say so, I asked you a question about the future and you confirmed the word that was initially qualified, which was the word "disaster" that I began with, because you are describing, if I may say so, another aspect of the disaster as a result of implementation of McKinsey. What I am looking for now is looking forward; I’m looking for suggestions. I’ll have another go and then I’ll give up for the time being. What proposals have any of you got for tackling this fundamental and deep problem of damage to the culture of these institutions, or this institution as now merged?

Simon Boniface: I think previous capability reviews have tried to address the issue to some extent in terms of accountability, and accountability in the organisation is clearly an issue. Clear lines of accountability and understanding who is responsible for what are important. The workforce needs to be re-engaged with the purpose of the organisation. Most of the individuals working there know what their individual purpose is but do they necessarily feel that they belong to HMRC the same way as they belonged to Inland Revenue and Customs and Excise? So I think a cultural change there is needed. Of course part of that is getting away from this command and control approach to management and empowering people to take responsibility for what they do and their place within the bounds of the organisation, valuing what they deliver and what that means for the taxpayer. I think if we can get some of that back then I think that will see us have a cultural shift. It will be a positive thing for the organisation and it will also have a positive impact on the effectiveness of the organisation as well.

Terry Cook: But if I could come in, I think the striking thing about the staff survey is that if you cut the results by the level of the organisation, the results are really very similar. Even people at the higher end of the organisation, who ARC represents, have very similar feelings to everybody else right throughout the organisation, which I think is perhaps quite unusual. In the last year, ARC has done some work with its members. We have got groups of people together to try to get behind the results of the survey and we have come up with some ideas that we put to our management. We had-if I can just mention them quickly, it sounds a lot-nine quick things.

Chair: Will you send them to us? It would be very useful.

Terry Cook: I’d be very happy to do that.

Q13 Mr Tyrie: Why don’t you give us the most important one now, or you can list three briefly?

Terry Cook: Three? Okay. Well, Simon has already mentioned empowerment, so that’s one down.

Chair: What was that one?

Terry Cook: Empowerment.

Q14 Chair: Is that of the management or the staff?

Terry Cook: It goes right the way through I think; our senior managers feel sometimes as disempowered as people who work in other parts of the organisation. I think we want to be trusted. I think we want our organisation, our senior leaders, to talk to us, to involve us, to learn from us.

Q15 Mr Tyrie: I have one last question. It has been put to me by people close to it, that policy formulation has also been downgraded in HMRC, as a consequence of proximity to the Treasury, and that the best people are not necessarily ending up there in your central policy division. Is this a criticism that you recognise and should action be taken to deal with it?

Graham Black: I can’t say it is a criticism I recognise. I think there is a different relationship between Treasury and HMRC than there was 10 years ago. Many of the high-level policy functions now lie with Treasury rather than with HMRC, but we have a fairly regular flow of personnel from the Department into Treasury and back out again. So it is still seen as a very good move and we still seem to have very good people who have moved on to that. Obviously, policy aspects are still dealt with in HMRC, but there is now a greater interaction between HMRC and Treasury that, once upon a time, would have lain within the Department itself. So, there are two departments involved where perhaps there was one before, but we still have very good people involved.

Q16 Jesse Norman: I have a very quick supplementary. Chairman, do you think it might be possible for the Committee to request a copy of the McKinsey report? That is the first question. The second one, very quickly, we have talked about the impact of savings on employment. Could we just look at it on capital projects: do you feel that the efficiency of the organisation may have been impeded or undermined by cuts to the capital budgets that you would have been using?

Simon Boniface: That’s a good question. Possibly; it would be knowing what goes into the capital budget and what doesn’t, I suppose.

Graham Black: There has been quite a significant amount of capital investment in the Department in new IT systems, so I think we would have to recognise that that has been in place over the last few years. Whether that is as effective or not is probably not within our area of expertise.

Q17 Jesse Norman: Has that improved efficiency?

Graham Black: It clearly has. As to whether it improved things as much as we would have liked or as was expected, there is always a danger with IT projects that you expect them to achieve everything, so you make the savings and you take the staff out accordingly and then when the actual IT comes in it is not quite as good as that but you have already lost the staff.

Q18 Jesse Norman: On a scale of one to five, how does it rate relative to expectations?

Simon Boniface: Three.

Peter Lockhart: 2.5. Yes, fair to middling.

Q19 Chair: Terry, I am asking you because you are the only one I can really hear; but you’re all equally as wise. Terry, I’m still struggling to find out why the atmosphere has changed. Is it largely because of the savings that have been imposed since 2005, or is it personnel: changes at board level; changes at senior management level; a different way of doing things? That would be one, and that would be understandable. Secondly, it would be more understandable if they have had to make heavy cuts and do it quickly so they have lost the old way of being a team and explaining things, agreeing things. Or is it a combination of the two?

Terry Cook: As we said in our submission, we have had up until perhaps quite recently a very high turnover of senior staff. I think we stopped counting our chief people officers when it got to about five or six. That’s not a recipe for stability. I think the capability review recognised that and we’ve had a much more settled senior leadership since then.

There is an issue perhaps-without being at all critical of individual people-about whether we have enough people in our very senior ranks who have had a career or experience of tax administration. Clearly, HMRC is part of the Civil Service and it is an operational delivery organisation as much as anything else, but our business is tax in the same way as Tesco’s business is groceries, I suppose. Perhaps we would like a stronger senior cadre of tax professionals, but everything that has happened since the merger has been taking place against a background of cuts. The Poynter review of data security talked about staff being weary of change. Well, I think people are just weary of seeing change taking place against a background of cuts, cuts, cuts.

Chair: Terry, that’s fine. I think I’m moving into someone else’s area so that will be picked up, no doubt.

Q20 John Mann: I have a few questions. Please chip in if you disagree, but if there is agreement it would be helpful if one person answered and I’ll get through the wide range of them if I may, because I think that would be most helpful to the Committee. I wanted to start with the service to the general public. Has it worsened?

Peter Lockhart: I think our view is that it has worsened. For instance, it’s impossible to ignore the fact that 40% or 50% of calls to contact centres are going unanswered; it’s impossible to ignore the PAYE debacle. There were a number of reasons for that. But again, against that backdrop, it would be difficult to claim that service to the customer has improved. It would be difficult to ignore the plea from a number of tax professionals and individuals that what they miss is, if not a personal service, at least somebody they can speak to about their tax affairs.

Q21 John Mann: Can I pick you up on that? Looking at the call centres, what are staff being encouraged to do? Is it to spend sufficient time dealing with the callers’ issues or to get on to the next call because there are loads more calls waiting? Where is the balance? Is the balance wrong in that and is it slightly wrong or significantly wrong in your view?

Peter Lockhart: We believe the balance is wrong. Our view is the impetus and onus is on getting through the call as quickly as possible and not dealing with issues that may come up during that call. I think that in itself is a product of the fact that there aren’t enough staff. They’re under extreme pressure to get through the calls, as many calls as possible.

Q22 John Mann: To be clear, if it’s one of my constituents calling, the way the service has developed in recent times-not just under this Government but before, the continuum of change-means that because of the pressure they’re not going to have all their issues properly addressed because there is not going to be enough time to listen to them, because of the pressure to take the next call from another of my constituents or anyone else’s constituents? In your view that is what is happening there. On average.

Peter Lockhart: Well, I think you are answering your own questions. I think that’s right. There is an inordinate pressure to get through the calls. If you ever call the contact centres, and you get to speak to somebody, you will be dealt with exceedingly professionally and in a way that you would expect. But I must say there is inordinate pressure on that individual call handler to get through that call as quickly as possible and, potentially, they therefore have to ignore problems that come up that are not directly related to the content of the call itself.

Q23 John Mann: If there were problems with the style of how calls were being answered I think we would be very aware of it, and I’m not, unlike some Government agencies. However, that does not necessarily mean that staff who answer calls, very professionally and politely, from my constituents and others, necessarily have either the expertise to answer the query or the authority to deal with the query. Is there a problem with either expertise or with the authority that’s delegated to the people answering calls?

Simon Boniface: Not really, no.

John Mann: So that is not an issue.

Simon Boniface: There is always somebody they can refer it up to if it’s an issue that is so complex they can’t deal with it.

John Mann: So you don’t regard that as a problem?

Simon Boniface: Not that specific issue.

Q24 John Mann: But volume of calls versus numbers of call answerers is a big problem?

Simon Boniface: And the answering policy, which Peter has explained to you.

Q25 John Mann: As Members of the Committee know, the town of Retford is a barometer for the country of what is going on.

Chair: It is the country in some people’s eyes.

John Mann: Retford has lost its tax office; 37 staff have gone-transferred or gone-and are no longer working in the service. Is there a disproportionate impact on those areas that have lost the tax office or is your view that the pain is generally equally shared?

Simon Boniface: We would argue that there is a disproportionate impact. There are swathes of the UK now with former Revenue and Customs offices; you will be aware of it in constituencies. There are swathes of the UK that do not have much other than a very minimal inquiry centre presence, and that itself is being reduced through reduced opening hours and reductions in the number of days that those inquiry centres are opening. With the exception of those centres, there are huge swathes of the UK now that have no regular tax presence. So if a taxpayer needs to see an official of Revenue and Customs or an official of Revenue and Customs needs to see a taxpayer in that area, they have to travel from so much further away in order to get to them. Whether that is helpful or not, I would argue not.

Q26 John Mann: For a taxpayer in Retford to get to the nearest offices dealing with them is a bit of an expedition, never mind a journey. Apart from those who are fortunate enough to have a tax office in their locality, what you are saying is that some areas-such as Retford and others like it across the country-have been even more disadvantaged because of the changes?

Simon Boniface: I think we would argue so, yes.

Q27 John Mann: Be it McKinsey or whoever, I can hear management consultants-doubtless, suitably rewarded or suitably highly rewarded-questioning why people are having to make the calls in the first place. Do you think that the HMRC fully understands the reasons why people are feeling that they need to make a call, and/or do you regard the fact of people querying and calling as an inevitability?

Graham Black: That is quite different. I know the Department has done a lot of work on trying to manage demand. What is it that makes somebody want to ring a contact centre when they get a notice of the pay-as-you-earn coding, and so on? They are trying to manage that by putting out easier information the first time round. But tax is complex, and it is not getting any less complex as the years go on, so I think it’s always going to be very difficult for them to manage that demand down, because people will always want some reassurance that they are paying the right amount of tax or that their returns are correct.

Q28 John Mann: Things are possibly going to get worse because of the Spending Review. In your view, do the people making the decisions at the top of HMRC fully understand the implications of what is coming in the next three years, in terms of the delivery of the service?

Peter Lockhart: We are yet to see the detailed plans of how HMRC are going to deal with those, as you say, difficult decisions that will need to be made, on the basis that it looks like around about £3 billion will be taken off the HMRC budget over the course of the Spending Review. Just under a billion pounds will be given back to focus on compliance activity, but in any event it looks like it equates to a further reduction in staffing levels of about 10,000. From an HMRC point of view, we know that an awful lot of work is going into looking at the ways in which they can meet business demands with ever diminishing resources.

Q29 John Mann: But they must be sharing their thinking and discussions with you in detail, surely, to get the best knowledge from within the service and to ensure that they have the maximum wisdom in making decisions that are being forced upon them. Are they properly sharing their plans and their vision on how they are going to handle the managerial problems that presumably they now have?

Peter Lockhart: It feels very much like the plans are a work-in-progress. I think it’s fair to say that we have been quite able to give our two penn’orth at every opportunity, which we have taken the chance to do. But we have yet to see the detailed plans. The kind of plans that we would want to see relate to where the businesses are going to be located; the kind of work HMRC is going to be committed to doing in the future; what it means for staffing in the future and how they are going to bring in extra yield as the commitment states.

Q30 John Mann: Have they given a timescale for outlining this detail to you?

Peter Lockhart: We expect a first iteration by the end of this month and then detailed plans about a month later. So we are on the verge of getting some real detail, we hope, about what that means from an HMRC perspective.

Q31 John Mann: Are the senior management fighting hard enough for the service and are they properly informing decision makers-including, in our very modest way, the Treasury Committee, Parliament-of the consequences of the reductions in funding that they are getting?

Graham Black: Obviously, we are not privy to the conversations that take place between them. We do know that they fight for the Department and for resources; I think the reinvestment in compliance demonstrates that. The question is to what extent they are being listened to when they are putting forward their arguments, because £900 million reinvestment has to be set against the £3 billion that is going to be cut. So I am afraid that is as much information as we get. We get the end product rather than the to and fro of the conversation.

Q32 John Mann: One of the ways of making cuts-we are seeing it in local government, as was well reported in very recent times-is to push the cuts on to somebody else. Do you think it’s likely that the taxpayer, as consumer of the service, is going to have to bear a heavier price in one way or other for the reduction in resources available?

Simon Boniface: The taxpayers already are, aren’t they? If we look at the contact centre service, and the impact of the job cuts and not replacing those staff on that contact centre service, there is already a price being paid. If there are going to be further similar reductions over the next four years, then the Department is ever more likely to want people to use the internet and want people to use means other than contacting it directly, which one could assume leads to a change and a reduction in customer service. The Department has already closed offices, reduced the opening hours of its inquiry centres and has reduced its inquiry centre service based on the fact that it has to make cuts, and that is likely to happen further.

Q33 John Mann: My final question, Chairman, is about the way the taxpayers are perceiving things in my area and elsewhere. They see that there has been a huge change in the way things are done, the technicality of it, the IT, the online changes and so on, and they think that, presumably, that is the way it will continue going. Isn’t there a bit of a contradiction-certainly a dilemma-because if that’s the direction you’re going but, at the same time, you’re forced to make huge changes because of a reduction in resources, the two objectives will clash? What the taxpayer will get is the worst of both worlds: an attempt to move to the most modern electronic era in all the systems but, actually, a system that is struggling to cope with that change and the reduced resource change at the same time. How big a problem do you see that being?

Peter Lockhart: There has been a tradition of over-promising and under delivery in terms of IT capability. I think a lot of the staff reductions have been predicated on the ability of IT systems to deliver when quite clearly they have not. So there is a degree of nervousness about the store that is set on IT systems. The taxpayer is getting unduly hit as long as this Government and HMRC ignore the fact there is a massive £120 billion or £52 billion-whatever your calculation is-tax gap, namely the tax that is not being collected. If the resources went into tackling that, along the lines of the reinvestment that has been announced in HMRC, we might not see libraries closing and dustbins not being emptied, which are the ways that taxpayers are probably going to be hit in the future.

Q34 John Mann: So, for the honest taxpayer in my area, dealing with yourselves is going to be even more difficult. For those who are trying to avoid paying tax, you are suggesting it’s going to be easier?

Simon Boniface: No, we hope not on both counts, obviously, because we do have a commitment to the organisation.

Q35 John Mann: Well, we hope not on both counts, but I am asking whether you think that is a likely consequence of decisions that have been made?

Simon Boniface: In terms of the service delivered, the first suggestion is a possible consequence of the changes. As for the possibility of easier tax avoidance, we would not expect that to happen because the reinvestment money is specifically targeted to increase the resource to combat it, and we argue that more should be spent. So, we would hope that possibility would not occur.

Q36 Mr Love: This Committee will be looking at the tax gap. We have had several submissions all giving different answers to the same question, as you’ll no doubt be only too well aware. So what I wanted to do, in terms of compliance, was to focus on what is being asked of HMRC. You have all welcomed the funding, indeed I think you were very much in the forefront of suggesting to Government that if they invested some money it would produce a return. As you have suggested, they have given £900 million and they are saying that this should reduce the tax gap by £7 billion. But, of course, that is against a backdrop of efficiency savings of £3 billion over the next four years. Can you do it? Can I take one from each of the two unions, perhaps Peter then Graham? Just give us your view: can it be done?

Peter Lockhart: Well, as colleagues have said, it is not enough, but what a great-

Mr Love: I am not asking about additional; I’m asking: can you hit the target of £7 billion on the basis of the investment that is going to be made?

Peter Lockhart: In answer to a parliamentary question some figures were published, albeit broad ones, which showed that for each compliance officer you have in HMRC a tax yield of £650,000 would be brought in. Now, these are fairly straightforward mathematical equations, but clearly we believe the additional modest reinvestment in HMRC will easily enable it to reach fairly modest targets around increased tax yield.

Graham Black: I certainly think that the reinvestment will result in a good deal more yield coming into the Exchequer. If I remember rightly, they have not spoken of a £7 billion reduction in the tax gap. I think it was £7 billion in additional revenues; the wording is not quite the same. So sometimes it is apples and pears in terms of what people are measuring. But there is no doubt at all that the areas that the Department has identified are all areas where we can bring an awful lot of money in by putting in additional resources. Our concern is that these are recycled resources from within HMRC rather than simply additional resources, but we did certainly welcome the fact that they were focusing on some areas where we needed to put more money into prosecutions. We do not prosecute serious tax offenders in the same way that we prosecute benefit fraudsters, for example. So we certainly welcomed it, we just felt it wasn’t quite enough; in fact it wasn’t nearly enough.

Q37 Mr Love: As you will understand, people will say that the trade unions are there to defend their members. What I am trying to get is some evidence and objective facts. I will come back to the £650,000 because you’ve made a different submission in relation to that. One of the other things you have been asked to deliver is £8 billion of tax credit fraud and error savings by 2014/2015. Can you deliver that?

Graham Black: Again, I believe that is across HMRC and DWP.

Mr Love: That is including DWP, yes, absolutely.

Graham Black: I am less close to that, but again we know the money is out there. We can see the risks that we have been unable to deal with previously, so by putting resources on to it, there are certainly large amounts of money we can take in. Whether that exact figure is going to be right or not, I must admit I am not close enough to be able to guarantee it.

Mr Love: You don’t disagree with that? I don’t want to take up a lot of time.

Graham Black: No.

Q38 Mr Love: Let me go on because in your submission-ARC’s submission-you said, "Compliance staff earning 50K can generate yield of £1.5 million and stop Exchequer leakage of a further £1.5 million". That was just contradicted by PCS in terms of £650,000 cited in a parliamentary answer. Can we shed some light on what the evidence is in terms of what savings are generated from additional staff?

Graham Black: We are absolutely at one with PCS in terms of the numbers they have published. ARC members tend to be involved in the very high-end avoidance innovation, so they tend to be involved in the biggest and the most complex cases. Inevitably, you would therefore expect that the money they bring in will be pound-for-pound more because they’re going to be dealing with a very large multinational or a very wealthy individual. So they will have a higher what we call a yield/cost ratio; they will bring in more money per pound. That does not take away from the fact that we have a vast amount of evasion and avoidance at other levels of the economy, where you still get a very good return on your investment. So I do not think the figures are different, it’s just that we are looking at different risks and ARC members tend to be dealing with the high-risk areas.

Q39 Mr Love: Just previous to that part of your submission you said that in 2009/2010 HMRC generated £12 billion of additional money. Is that the evidence that you base those figures on or is there other objective evidence?

Graham Black: That is objective evidence and that £12 billion comes from PCS and ARC members. It covers all of the compliance activity we do, but equally within the Department we get different amounts of yield from different activities. If you look at international tax avoidance large amounts of money tend to be involved. If you look at ghosts and moonlighters, you have to catch quite a few of those to get a reasonable amount of money. So, absolutely, we think those figures are right.

Peter Lockhart: The £650,000 was an average figure across all staff, which I think Graham has implied. I forget who asked the question, but that is the figure we have used and that again is across all staff.

Q40 Mr Love: Can I just ask you about the balance. You mentioned about moonlighters and ghosts: are the objectives you have been set by Government hitting the right targets? Although benefit fraud and other fraud must be dealt with, that will produce very much lower returns than those that come from tackling some of the high-end activity and there is a lot of concern about that. What is your view of the balance? Perhaps we will start with PCS, maybe Simon could comment.

Simon Boniface: Yes. Obviously, we would not denigrate the work that is done to deal with benefit fraud, but proportionally the way that evaders, avoiders of tax, are dealt with does not seem to be equitable. So we do think that there is a strong case for much more investment in the compliance and enforcement activities of HMRC, and that socially it should be seen as unacceptable to avoid tax and to defraud the Treasury of tax. Obviously there is a worry that if we do not put the resources in, non-compliance becomes ever more acceptable, so we are very keen to maintain the compliance effort.

Terry Cook: I think that is right. As Simon said, it is absolutely a fairness issue. As the people who administer and enforce the tax system, we have to satisfy the public and Ministers that we are spreading our efforts properly, proportionately and fairly, and I think the public have every right to expect that.

Q41 Mr Love: Can I turn to the issue of Vodafone? You will have seen the recent publicity. It has been suggested that HMRC-I am quoting from an article that appeared in the press-would do better to do deals with big companies and rake in substantial sums for the Exchequer than to engage in lengthy expensive court cases that HMRC may lose. Is that the current philosophy and do you support it?

Graham Black: It is certainly not the current philosophy. We have what we call a litigation settlement strategy, which says if someone is engaged in an avoidance scheme and we think it does not work in law, we should take them through the courts.

Q42 Mr Love: You have been taking Vodafone through the court for 10 years.

Graham Black: Yes. There are areas that are a bit greyer than that; and, you are right, it’s not necessarily cut and dried and it’s not necessarily going to be entirely one side or the other. Sometimes negotiation takes place in those cases, but by and large this litigation settlement strategy says if somebody is engaged in high-level avoidance and we have a strong case-it does have to be a strong case-we will take it through the courts. That is still the policy of HMRC.

Mr Love: Do you disagree with that, Peter?

Peter Lockhart: We do not disagree with that. I think it’s difficult for us to comment; these are questions for HMRC, aren’t they? But I think the fallout from the Vodafone case-the stuff that we’ve read alongside the stuff you’ve read-it hardly sends a message to either taxpayers or to members of staff in HMRC that there is a real intent to pursue big businesses. We don’t know the precise details of how that deal came about. From what I’ve read, I believe that Vodafone has set aside a larger sum to pay than they ended up paying. But it is more the principles that evolve from that. It is only Vodafone that has come to the fore, whereas there has been a great deal of publicity about chasing so-called benefit cheats, benefit frauds, to the extent that that has dominated the media, rather than the billions of pounds that could come from the proper taxes paid legitimately by big business.

Graham Black: We share that concern because, even on the Department’s own reckoning, companies out there are keeping more than £6 billion through tax avoidance that we should be getting in. So, absolutely, it requires more attention, more effort, and more professionals attacking that sort of avoidance. We cannot talk about the individual case but we absolutely spend a lot of our time dealing with high-level avoidance. The question is whether we could do more and whether we could bring in more of it in future.

Q43 Mr Love: As I understand it, Vodafone had set aside over £3 billion, twice the amount that they ended up paying. While I accept that these are mainly questions for HMRC, I do think that often we need to refer to others to give us perhaps a different perspective on some of these issues that affect the organisation. Perhaps the more serious issue highlighted in the article, and a more weighty consideration, is that there is concern that management are high-handedly ignoring proper procedures and overriding inquiries at an advanced stage. You will have heard that before, and I’m sure I’m not bringing something to your attention that has caused you some surprise. Is there concern in the organisation, at all levels, about the way in which senior management are acting at the present time?

Graham Black: Firstly, I have to say that I have never seen anything from anyone at HMRC that has been any less than the highest level of integrity. We see a lot of things in the press. We know obviously there is concern among taxpayers and among the press and, indeed, probably among some members of staff, but I have not seen anything to support that. However, I think the same article did suggest that there might be some independent inquiry that would look at how HMRC dealt with these sorts of inquiries into multinationals. We would welcome that, if that gave an opportunity for everyone to be completely satisfied that they were being dealt with in a proper way, by the right people, at the right time. We would certainly welcome that.

Q44 Mr Love: Before you answer on behalf of PCS, can I say that, while we might not be an inquiry, we can ventilate some of these issues and draw them to your attention and maybe add to the demand for a proper inquiry, if that is deemed appropriate.

Peter Lockhart: No, I think the issue is around openness and transparency, the same kind of openness and transparency that is required across all tax and benefit regimes. I think the same honesty and scrutiny should apply to the tax that is paid by big business. We are not talking hundreds of pounds here but, as you say, it’s billions of pounds. The hospitals and schools rely on this money and I think it is, therefore, of greater concern to ensure that scrutiny when it comes to big business. It is more difficult for us to comment on the precise machinations of how it works-the Vodafone case-but certainly it will have had repercussions for HMRC in terms of how they tackle and deal with tax owed by big business. We would welcome a greater degree of scrutiny of those big decisions that are made.

Graham Black: Fairness is a very important aspect for everyone who works at HMRC. It is something we really pride ourselves in. We do not want people, either within the organisation or people looking at the organisation, to think we’re less than fair to every taxpayer, whether a very large multinational or a small businessman or an old age pensioner. Fairness is a key element of the whole organisation.

Q45 Mr Love: Can I just ask you one final question: you have had some success in persuading Government to invest, but from your answers you do not think they have invested enough. If the figures are so clear, if the evidence is so stark that further investment would produce a significant return, why are you having such trouble persuading the powers that be? It is not because Governments do not want to raise the taxes; they clearly want to. Why are they so sceptical?

Graham Black: That worries me, too. The answer is that we know that all Government Departments are going through a difficult time; everyone is being asked to tighten their belt. There have been a lot of cuts in Government Departments. Inevitably, Treasury must think that a Treasury department should be seen to suffer its share of the pain. From our perspective that is the wrong question. We are facing a huge deficit, but looking at your one revenue-raising department, you shouldn’t be asking, "How far can we cut it?" You should be asking, "How much can they contribute towards reducing that deficit?"

Q46 Chair: I think you’re very loyal and very good civil servants but, from the outside, there seems to be some vagueness about your policy on, for example, Vodafone, which is the most public case. Before that example, the policy was hard, no quarter was given and cases went into court. There seems now to be a hot and cold policy, and that almost an individual can decide, "We’re going soft on this". Who takes the final decision on whether to make a settlement or to continue to court? Is it the same individual who decides or is their decision put before a higher authority? Does the board or the executive board have a say in it? Has there been a change of policy, because one doesn’t know what the policy is now?

Graham Black: I certainly don’t think there has been a change in policy. As to who makes decisions, it depends how big the case is. At the local level a case worker will liaise with his or her manager to decide that. On the very biggest cases we have a fairly complex governance structure, which means that we tend to have a group of people who look at all the facts, all of the suggestions on whether something should be accepted or whether it should go to court, and it would be looked at by that group of people rather than by an individual. So that is our governance process as you would see it written down in the Department.

Chair: Okay. The National Audit Office are looking at it anyway.

Q47 Stewart Hosie: Graham, you said that the objective was to be fair to every taxpayer but there appear to be inconsistencies in bits of this. We know that there is a target to reduce a proportion of debt in 30 days and 90 days. That makes sense. But we hear continually-anecdotally and from some cases-about debts that are either written off or marked down as zero in order for cases to be closed. Is this something you’re aware of? Is it widespread? How does this come about?

Graham Black: Is that easier for you to answer, Simon?

Simon Boniface: I’d have to say I don’t know the detail myself actually.

Peter Lockhart: Again it’s possibly a question for HMRC, but certainly in the past we have been concerned that lower level debts had been written off. I do understand that HMRC have now established a team to tackle lower level debts, but equally we have some concern about the hiving off of some portion of debt to private debt collection agencies, particularly when HMRC may be pursuing that same taxpayer for one debt while the private sector debt collection agency may be pursuing that self-same taxpayer for a different debt. We are not convinced that that is the best use of taxpayers’ money to bring in that money.

Q48 Stewart Hosie: On that specific point then, is this because you do have 32 different business streams and there is a lack of communication, which was certainly the case when that structure was put in place? How would we get to a situation where the Revenue is chasing one debt and another bit of the same organisation has hived off the collection of another debt to a private agency? How would that come about in practical terms?

Peter Lockhart: You may know more, Simon, but the single part of HMRC that deals with debt management and collection is fairly tightly controlled. I think our issue is-forgive us for repetition-the growing amount of debt that remains uncollected. We cannot but conclude that there is some correlation between having more staff and more interventions through that debt management service and the increase in the collection of debts that would result. That simple correlation exists.

Simon Boniface: There is also a disconnection in terms of IT, because the VAT computer system that links the VAT debt to other debt is not linked together properly yet, as I understand it, but I don’t think any of us here are experts.

Q49 Stewart Hosie: But given both your unions represent huge numbers of the staff inside the Department, I find it amazing if these stories and those concerns-specific concerns like the IT one-were not filtering up to you.

Simon Boniface: We know about it, and we included the fact that the IT does not link together yet in our submission to the Committee. They are saying it will this year, and they have said that in the past, so we are ever hopeful that the situation will improve. But it’s another one of these sorts of problems-in 2005 Inland Revenue merged with Customs and Excise, but we still have separate systems for different heads of tax from the origin departments in 2011.

Q50 Stewart Hosie: That doesn’t sound great for the customer. How does the taxpayer facing that know that they are speaking to the right people? How does it work for the taxpayer?

Simon Boniface: Our debt management organisation will endeavour to make sure that they speak to the right person. The concern we have is that the right person might depend on whether the taxpayer’s debt is to do with PAYE or whether it’s to do with VAT, and it may well be somebody different that they are communicating with, depending on the origin of the debt. We think that’s not the greatest customer service.

Q51 Stewart Hosie: I appreciate that. Obviously there are concerns about the private debt collection agencies, but your submission talks about staff being encouraged to have taxpayers pay outstanding debts by credit card. Is this widespread? Is it localised? Where is that taking place?

Simon Boniface: It is taking place across the piece. I think the extent to which it is widespread depends on the take up. I do not think it’s a first choice method for payment. But, as our submission pointed out, this approach has been cleared through Parliament. If you read the HMRC’s submission, it talks about the progress in our time to pay arrangements for customers, which we would suggest are much more beneficial than the interest payments an individual might have to pay on a credit card debt. So I think it is disappointing that we have that arrangement in place, when maybe we should be erring more towards the positive measures that the Department has taken to arrange time to pay for individuals.

Q52 Stewart Hosie: I think that is very sensible. Let me go back to fairness for all taxpayers. Because of the targets you have to reduce the 30-day and 90-day debt, does it mean there is a push to press for payment more quickly rather than perhaps longer proper resolutions when there is a debt in place?

Simon Boniface: More quickly if the money is available. The intent is not to give extraordinary amounts of time to pay to somebody who has the money to pay us, but those arrangements are put in place for people who are going to struggle financially and, as a consequence, their business could go under if they had to pay the whole lot within a set period of time. It is that kind of consideration that the Department applies: what is the impact on the individual? What is the impact on the business of the pursuance of that debt at the time?

Q53 Stewart Hosie: That is precisely where I want to get to because, like many MPs, I have a lot of constituent complaints from businesses with "the Revenue on their backs", and I am deeply worried that there doesn’t appear to be the correct level of understanding of the business or sensitivity. Three small examples: I have a business that was in debt-the debt should be cleared about now-and about five or six weeks to go on a very significant repayment schedule, very chunky, the Revenue demanded an eight-month future cash forecast, which would take a huge amount of management time and accountancy cost when the debt was only six or seven weeks from being cleared. Why would someone in the Revenue ask for that? Would they not understand how much that would cost, in terms of management time and money, and would they not look at that alongside the repayment schedule and work out that the debt was almost cleared? Why would that disproportionate demand be put on a business, when they were struggling to pay a debt and working hard to do it?

Simon Boniface: Obviously, without knowing the full data of an individual case, I cannot answer as to the background to actions that somebody has proposed. However, the people who are working in our organisation dealing with these things are expected to be professional, and are professional, and do generally understand the pressures on business, and certainly I know a lot of effort has been made to make that the case. But I cannot answer about an individual case.

Q54 Stewart Hosie: No, it was an example, and obviously I don’t expect you to deal with a specific case. The problem is that that does not stand alone. From your experience, why would we get to a situation where the Revenue might threaten a business with a winding up order-again with a debt that they admit, which they were repaying-when they were four weeks away from completing the debt and this information had been given to the Revenue? Is this is a communication issue? Is it an automated letter that ignores the sensitivities of real people? How would that happen?

Simon Boniface: Yes, I think some of this does fit with concerns that we registered. For example, it could be the post because it just goes to about six places now and then gets distributed out. When does somebody get around to opening something? When is the data registered on file? I don’t need to tell you about the 17 point-odd open cases and the implications of that for PAYE. We do have concerns that because of the staffing-it all comes back to staff cuts again-basically too often we are not doing the simple things quickly and well: open the post, action it. Somebody says, "I have a change of address", and staff change the address. We need to do the easy, simple things quickly and well.

Q55 Stewart Hosie: It is not just a lack of staff though, is it? It is the locale and the local expertise and, indeed, the loss of seniority in some of the locales where there are still offices.

Simon Boniface: Yes, we have had concerns about that as well. I think, as our colleagues have said to you before, and it’s equally true at all grades, we need expertise; we need people trained and developed to do the job properly, and of course sometimes you can make cash savings by doing things at lower grades as well as making job cuts.

Graham Black: We recognise the need for automation. By and large it is cheaper, but these things can be complex and people are not automated, they are individuals, they have individual requirements and needs, and you need people with professional expertise and judgment and ability to make decisions looking at them. That cannot be done by a computer. That needs people on the ground who know what the situation is.

Q56 Stewart Hosie: I think this will be a common thread that I am sure that we will want to reflect. But I have one final little example on this that I’d like you to explain. How could it come about that a company is wound up for a very modest disputed debt, and the cost of the personal bankruptcies, the business administration and the recalls-and everyone must know this in advance-runs into hundreds upon hundreds upon hundreds of thousands of pounds, for what was a very modest debt, and payable? Before they take those decisions, do the Revenue contemplate what the real impact and cost for individuals, businesses and families will be before they instigate that sort of legal action? How would that come about? Is that even taken into consideration, what the bankruptcy administration, winding up and recall costs might be before a decision to prosecute somebody happens?

Graham Black: I would say, at the end of the day, the priority is that the Department will want the money that is owed. That is what they are there for. You would probably be asking us questions if they were not trying to collect that. But I think they would be taking into account ability to pay, long-term ability to pay, short-term cash flow problems. All of those things would normally be taken into account. I do not know the individual circumstances of the case.

Stewart Hosie: No, and nor should you.

Graham Black: If there was an ability to pay, you would expect that to be one of the key elements because, when push comes to shove, the Department is there to assess and bring in the right amount of tax and that would be one of elements they would look at if some time to pay was required.

One of the good things the Department has done is to improve its ability to deal with time to pay arrangements, so that it does not move to winding things up as quickly if giving a period of time would mean the business can continue, pay the debt and then be a taxpayer in the future as well. But, equally, I think we recognise the sort of stories you are talking about, the systems don’t always produce the sort of answers that-

Q57 Stewart Hosie: Again, by and large, that comes down to the right local people in the right areas. One further question, Chairman. Given so much of this is now centralised and automated, is there anything that could be done to put in a degree of sensitivity into the system, or a requirement for human intervention that might not be there at the moment? Could the system itself be improved so there are more checks and balances to smooth out some of the sorts of difficulties I have described? Is that possible?

Simon Boniface: Yes. With all the Department’s systems at the moment, there is always the opportunity for a human intervention at various points within the process, and that exists. It does not mean to say an automated process will not continue on its merry way until after that, but we do have that human engagement. We still have 70,000-odd people working in the Department, so there are people there who you should be able to speak to about concerns and the issues, and certainly that is the intent. Certainly the intent of our members, the staff of Revenue and Customs, is that they want to help the taxpayer. They want to do their job right; by and large they do want to help the taxpayer, and so they welcome that opportunity.

Now, of course, part of the problem with the staff cuts is that you are a member of staff sitting there thinking, "Yes, I’d be quite happy to spend 10 minutes talking through with this taxpayer what this taxpayer’s concerns are and seeing how I can meet them", but then if your boss is on your back saying, "You don’t have 10 minutes, you have to pack it up after four and move on to the next job", then it’s not so easy, is it?

Stewart Hosie: That’s helpful, thank you.

Q58 John Thurso: I want to ask about corporate governance and management at the top within HMRC. But before I do that, Chairman, can I put on record that what Retford is to the deep south Wick is to the far north-a superb tax office. Listening to comments from all of you about command and control, culture, problems with the way management is handled at the very top, I get the impression that there is quite a serious problem-I think, Graham, you said that you were not sure what the strategy was or words to that effect-right at the top at board level. Am I getting the right impression from you, and is there a serious management problem at HMRC?

Graham Black: I think management are struggling; I think the Department is struggling. If the Spending Review numbers carry on, then for each of the first 10 years the HMRC will be in existence there will be deep cuts in terms of personnel. That is not a one-year cut or a two-year cut. Every organisation goes through periods where they have to rationalise and take some cuts, but we will have had 10 years of nothing but cuts. Most organisations when they cut back, they centralise. They have to make sure that they get their budget under control and their headcount down. You become command and control. My fear is that we have forgotten how to get away from command and control. We have to be able to release our staff-very professional staff-who, despite the staff survey, are keen in their work. They want to do their work well; they believe in what they are doing. We have to be able to free them up to do the job that they want to be able to do.

I think management is struggling to align that with the need to be in control of cutting things, time after time after time, which requires more change and more central control. So they have struggled. I think there is a much better idea of the strategy of the Department going forward and what they want to achieve, but frankly any series of managers in the position that the current incumbents are in would find it a very, very difficult job. You have a department that will effectively have halved in size over that period. It is very difficult to get a highly motivated and high morale department when you’re dealing with that year in, year out; no escape; no times when it gets stabilised; no times when significant things seem to get better. It has a pretty corrosive impact on the department, and senior managers have struggled to come up with an answer to that. Frankly, I think it is a very difficult to come up with one.

Q59 John Thurso: Almost uniquely among Government organisations you have a top line, you have revenue. If you are running a private organisation you look at your costs in the light of your revenue to arrive at the best bottom line. You do cut costs, but you also sometimes spend because you know that you can get more money in-and we have had that discussion earlier, and I am sure it’s something that will be followed up-but the concern I suppose I am probing is that you take the traditional kind of public sector, where there is no top line, there are only costs. The only way you can do anything about that is to cut them; you either do the same things less well or more superficially, or you do fewer things and get on with it. The problem is that the downside of that is that whoever the clients are they are getting a worse service; and, hey, so what, to be blunt.

But the result in HMRC is less tax take, and that means less money for all of the other Departments. This is the point you have been hammering home to us. Do you think that the very senior management have too much of the "just cut the costs" culture, rather than worrying about the mixture of cost to achieve revenue?

Graham Black: I would say that that is where they have been left. I’m sure they must be making the case for more resource, but they’re not getting more resource, they’re getting more cuts. So that is what they have to manage, and therefore probably-

John Thurso: I have to say you are being extraordinarily loyal, which is very good.

Graham Black: That is the impression I get. People recognise that there are tax gaps and there are things that we can do that would bring in more money; they recognise the service that we could provide in different ways; they recognise that we’d like to support local agents and accountants in helping taxpayers, but when you’re getting another 10% cut, as you said, you cannot do everything that you want to. So that would be my impression.

Peter Lockhart: The arbitrariness of previous cuts are somewhat demonstrated by the fact that of the staff who have previously left the Department-for whatever reason, perhaps on voluntary severance packages-HMRC now need more of those people, to the tune of 3,000 more, in order to tackle tax avoidance and deliver the £7 billion to which they are now committed. So, even by that gauge, there has not been a clearly thought through plan, certainly in terms of how HMRC reorganise themselves in line with the expectations of previous Spending Review commitments.

Q60 John Thurso: In the predecessor Committee at the last Parliament we looked at this a number of times, and I always had the feeling that the kind of Gershon approach was, "Right, you have to have 20% out" or, "You have to slash this, and we’ll worry about the consequences after you’ve done the slashing because it’s the only way we’ll get anywhere". That is why I am asking about the strategy right at the top, about the board level, because that approach has no definition of the objective of the exercise, other than to cut. If what we want this Government to try and do is to say, "Well, let’s have some clear objectives", and then say, "What are the resources needed to achieve that in the most effective way?" and build it up that way, then one might arrive at a different answer, one might even save more one day. But what I’m driving at is: are the board focusing on that or are they really just doing as they are told? I know I am inviting some disloyalty. I am trying to get it out of you.

Simon Boniface: Well, obviously, I think there is a sense from us-not just this year but historically-they have done what they have been told. That is why we have all the cuts that we have had for such a long time. That said, the investment demonstrates that they have made efforts to persuade Treasury and Government of the need to invest in the benefits of doing so, so there is clearly evidence of that going on. Now, let’s be clear about it, they have not said to us, "We asked for three times as much and this is what we ended up with", which of course is what we would like to have heard. But that does not mean that they didn’t, it’s just that they would not tell us, and that’s not unreasonable. So, to be blunt, that is the position.

Q61 John Thurso: One of the very senior tax advisers said to me recently that he was deeply concerned that the Revenue, HMRC, had basically moved from a highly technically competent organisation to a very process-driven organisation; that its most senior management were process managers not tax technicians; that this shift in culture was very much part of what was the problem, in that there were not enough highly competent tax technicians. It may be more for either Graham or Terry, I do not know. But do you believe that that is the case? He was very strong on this advice, somebody who has been on the other side from the Revenue for many, many years, and he said, "The competence of the people we’re dealing with is well below that, and that is where the investment needs to go", so right from board level right down.

Graham Black: Yes, I can understand the points made. I think it comes back to something Terry said earlier on that, if asked, we would probably say that, the overall weight and balance of the board is not right. We have to have tax professionals but we do need process professionals as well, because a lot of our organisation is going to be about big processing sites and we need people who understand that. We think perhaps the balance is not right. At the moment we perhaps need more of our tax expertise at the very high level. On the other hand, we do need people from outside coming in and bringing their expertise as well; we need professional managers; professional HR teams; professional IT people. All of those play key elements in the Department.

But our core purpose is raising and bringing in tax, so you have to make sure you have that cadre of high-level professionals at the core of the Department, and we just think that perhaps the balance has moved too far in one direction and could be rectified.

Terry Cook: Sorry to interrupt, but just to add to that. I think it’s a fairly common experience in any organisation, which is trying to drive down costs or is perhaps struggling, that training and development is one of the first things that goes out of the window. It’s a very easy thing to lose; it’s a short-term gain, and I think we probably have not thought hard enough about the long-term consequences.

Q62 John Thurso: Has there been a big drop in training and development?

Terry Cook: Perhaps you are a little tired of hearing this, but in recent years I think there has been a recognition that the baby was probably thrown out with the bathwater. I think we are now beginning to appreciate that we need to train the staff we have; that we need to carry on recruiting graduates and other people; and to train our own tax people. That is not to say we cannot buy in expertise, but we very much believe the emphasis should be on developing our own people.

Q63 John Thurso: The last question on this: you have an executive committee and you have a board. There has been a little bit of stability, after a great deal of change and many different chiefs, but we are about to have another period of instability with a number who are going and-with them-a fairly considerable body of tax expertise. Do you think that the board is giving sufficient thought to that and has a strategy and policy for succession planning at board and executive committee level?

Graham Black: I must admit we are not privy necessarily to all of the succession planning that they do at board level, but what I can say is that-looking wider across the Department-for many years we have not put enough time and energy into managing and developing the careers of our senior staff. I imagine it goes through the whole organisation. I think both Customs and Inland Revenue put great store in bringing on people throughout the Department, recognising them at an early level, then training them up and giving them a variety of jobs so that they can develop and come through the organisation, and there was somebody who would be career managing people.

Q64 John Thurso: But if you do not know about succession planning on the board, that means they are either doing it in the utmost secrecy or they are not doing it, and it is probable it is the latter.

Graham Black: That might be one interpretation.

John Thurso: I might-

Graham Black: I sound like a civil servant again.

Q65 John Thurso: I get the feeling that is something that this Committee should be very concerned about. Would you agree that we would be right to be very concerned that such a thing should happen?

Graham Black: Yes.

John Thurso: Thank you very much.

Chair: Lovely, John.

Q66 Michael Fallon: Graham Black, you told us some time ago that you were proud to work for the organisation, and you said-I think just after that-that staff were proud. But the last staff survey showed that only 25% of staff were proud to work for the organisation.

Graham Black: I suppose I was distinguishing between feeling proud to work for HMRC and feeling greatly committed to the work they do. The people, if they work in contact centres or if they work in compliance, want to do a good, professional job. They think it is the right job and it needs to be done well, and they are very proud of what they do and what their team do.

Are they proud of HMRC as an organisation? Probably not at the moment: we have had a lot of high-level, fairly well publicised problems recently; we see cuts year in, year out; people see decisions that they are not entirely in agreement with. So I think there is a difference, and it comes out in our staff survey, in that people are feeling very proud of the work they do on a day-to-day basis, they like the team that they are working in, and their immediate manager, but they are not feeling very proud of HMRC as an overall entity and not feeling a connection with it. Again coming back to what we said earlier on, the connection people would have had with Inland Revenue or Customs and Excise is missing. It is more of an emotional tie, I think, rather than an intellectual thing.

Q67 Michael Fallon: There are other organisations that are also public facing and have suffered quite considerable reductions in staff numbers over the years, but yet you keep on coming right down the bottom in terms of staff morale.

Graham Black: I agree, and that is very worrying.

Michael Fallon: Why is it? Let’s get to the bottom of this. It cannot just be the reduction in numbers.

Graham Black: No. It’s not just the reduction in numbers, but I do think that is one of the very key elements. The other element is the culture of the organisation; some of the mistakes we made when we merged initially, that we referred to; and that command and control approach, not freeing up our staff to use their abilities in the best way; making them feel unvalued. That has had a very bad effect on overall staff morale and that is one of the things that we would want to see reversed.

Q68 Michael Fallon: But there have been various programmes over the years, haven’t there? What should senior management do now to improve staff morale?

Simon Boniface: As a starting point, it’s about trust; it’s about command and control; it’s about empowerment. So, get rid of the command and control as far as you conceivably can; start placing some trust in individual staff. If you have trained them to do the job and they know how to do the job, let them get on and do the job.

Some of the internal bureaucracy to get figures to justify and demonstrate that everybody is doing something every minute of the day, and that they are doing exactly what you want them to do, some of the micro-management, is just unnecessary. To be perfectly honest, if you were working under it you would not feel trusted, you would not feel empowered and you certainly would not respond well to a staff survey when it came out. You have to remember where the bulk of staff are, the massive majority are staff at the administrative grades, working in processing work and in contact centres. That is where the large numbers are, and that is the kind of environment that too many of them work under.

So, if you are senior management and you wanted to change something, you might need to take a deep breath, accept the fact that you were not going to micro-manage people for a period of time; put a bit of trust in them; empower them to do the job; see if they deliver for you; and then if they do, you can stay with that approach and you do not need to command and control.

Graham Black: We would agree with that entirely. That goes through all levels of the organisation, right up to the very senior levels. My last job before I was President-a reasonably senior level in the Department-I felt less empowered, less able to do things, take decisions and get things done than I did 10 or 15 years previously at significantly lower grades. So that is a big problem.

Q69 Michael Fallon: Is it part of the function of the withdrawal from some of the smaller collection offices to these bigger processing centres and call centres?

Simon Boniface: That has had an impact because they are less personal. It is that factory mentality isn’t it? There are 1,000 of you; you are all part of a machine. Whereas when there are say, 20 of you in the office-Wick office-you know everybody you work with; you value the people you work with; everybody knows each other; they trust each other to get on and do the job they’re doing; you do not have the oppressive management that you have in a big centralised centre, where you’re terrified that the person sitting next to you is not working.

Q70 Michael Fallon: We have had evidence from an ex-employee detailing a culture where issues and problems that are identified, very locally, simply do not get through to the top of the organisation because employees feel that the senior management just does not want to hear bad news.

Terry Cook: I think that possibly the most worrying number in the staff survey-of all the worrying numbers-is the very tiny figure recorded of people who say, "Yes, it is safe to speak up in this organisation". It’s not clear how that has emerged, but there is certainly a very strong feeling among people that even to reasonably ask questions about a change of approach, or a change of process, is to be labelled as a dinosaur; somebody who is harking back to a golden age; a blocker. Again, that is particularly difficult for many of our members who have been trained-as you might hope and expect-to be fairly questioning, challenging individuals. We would rather see that valued than condemned as being obstructive.

Graham Black: We read with interest the submission that you are talking about. Apart from the fact that perhaps having come from an Inland Revenue background, he seemed to think an Inland Revenue culture has taken over HMRC, I would say that we have something that is not either Inland Revenue or Customs and Excise, but we certainly recognise the sort of cultural issues that were being raised there, and they go right through. We have SCS members, senior civil servants, who feel it is not a comfortable place to challenge or accepted practice. As Terry said, that is one of our greatest concerns about the current culture of the organisation.

Q71 Michael Fallon: What about the whistle-blowing itself, where staff identify something they really feel to be wrong, are those procedures-

Graham Black: There are whistle-blowing procedures in place in HMRC.

Michael Fallon: But are they working?

Graham Black: That I can’t say, I must admit. You would have to ask someone who is either whistle-blowing or felt that they wanted to. There are procedures in place to try and protect whistle-blowers if they feel that that is the level of contact they need to have.

However, I think most of this is not so much whistle-blowing as general disagreement with a change that perhaps is being introduced; people are told to do one thing, they think that that is not going to have the impact senior managers think, it might have something quite the reverse. They do not feel that they can always challenge that and say, "No, there are reasons why this wouldn’t work". I think it is more of that sort of inability to challenge that people are feeling.

Q72 Michael Fallon: In these big processing and call centres, are you represented too? Are there fulltime union officials in these departments?

Peter Lockhart: We have elected officials in place in those offices.

Q73 Michael Fallon: But are they full-time? They’re seconded to union work?

Peter Lockhart: No, they are employees of HMRC who would be elected by their colleagues in the union and they would serve for a set term, an annual term, as the elected officer or representative in that office.

Simon Boniface: So they would work there as well. Most of the time their work would be contact centre work or working in processing, but they would also be a union representative.

Michael Fallon: So they’re not full-time officials, they’re working for the organisation at the same time?

Simon Boniface: Yes, that is right, absolutely.

Q74 Michael Fallon: Why are there two unions, by the way?

Peter Lockhart: There is a long tradition in the Civil Service of broadly grade-based delineation of membership and so it’s a product of those historical arrangements.

Q75 Michael Fallon: So in a big processing centre, will people just tend to belong to one or the other or 50:50?

Graham Black: Primarily, in a processing centre, the majority of members would be PCS members. Some of the managers may be members of ARC or-

Peter Lockhart: The massive majority will be PCS members.

Chair: Thank you very much for your evidence, it has been very useful. It is the start of the inquiry and you have set us off on a flying start. Thank you very much.