Public Accounts Committee - Minutes of EvidenceHC 1531

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Oral Evidence

Taken before the Committee of Public Accounts

on Wednesday 12 October 2011

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Stella Creasy

Matthew Hancock

Joseph Johnson

Austin Mitchell

Nick Smith

Ian Swales

James Wharton


Amyas Morse, Comptroller and Auditor General, Paul Keane, Director, National Audit Office, John Thorpe, Director, National Audit Office, Marius Gallaher, Alternate Treasury Officer of Accounts, HM Treasury were in attendance.


HMRC Tax Disputes

Examination of Witnesses

Witnesses: Stephen Banyard CBE, Acting Director General Personal Tax, HM Revenue and Customs, Simon Bowles, Chief Finance Officer, HM Revenue and Customs, Dave Hartnett CV, Permanent Secretary for Tax, HM Revenue and Customs, gave evidence.

Chair: Welcome, Mr Hartnett.

Dave Hartnett: Good afternoon.

Q1 Chair: We are going to focus this afternoon first on tax disputes, and then we will look at PAYE and tax credits, if we can.

I am going to start with a rather tough question: it seems to me that you lied when you told the Treasury Committee on 12 September that "I do not deal with Goldman’s tax affairs." In preparing for this afternoon, we had access to a note of a meeting on 8 December in the offices of your lawyers which states that you had settled and, in fact, had "shaken hands" with Goldman Sachs on a deal on its tax affairs.

Dave Hartnett: Chair, I did not lie, and I think the Hansard extract demonstrates that. I was first asked by Mr Norman whether I had had corporate hospitality from Goldman’s, and I explained that I had had supper at Goldman’s to speak to 20 FTSE 100 CFOs with one of my managing director colleagues from the Treasury. I went on to say that "I do not deal with Goldman’s tax affairs." I met Goldman’s on a single occasion, on 19 November 2010, when I had been asked by two of my colleagues to assist them with a difficult relationship issue. I have no deep knowledge of Goldman’s tax affairs. I have never worked in a normal way, in my understanding, dealing with their tax affairs on an everyday and routine basis. I have never done that.

Q2 Chair: The minutes of the meeting in Anthony Inglese’s office at 100 Parliament street on 8 December 2010 say that "a late submission had come in about a deal on which DH"-you-"had ‘shaken hands’ with GS", which is Goldman Sachs. Is that a lie?

Dave Hartnett: Well, I am not going to say it is a lie, and I am certainly not lying.

Q3 Chair: Well, one or other is a lie.

Dave Hartnett: No, Chair, I am afraid it is not. I was at a meeting on 19 November with two of my colleagues and representatives-

Q4 Chair: Did you do a deal with Goldman Sachs?

Dave Hartnett: We reached a settlement-

Q5 Chair: On which you shook hands.

Dave Hartnett: I have no recollection-

Q6 Chair: So if you reached a settlement, why did you say at the Treasury Committee to Jesse Norman, "I do not deal with Goldman’s tax affairs"?

Dave Hartnett: Because what I meant by that is I do not deal, as my colleagues deal on a regular basis, with Goldman’s tax affairs. I attended the meeting on 19-

Q7 Chair: This is a big bit of Goldman’s tax affairs, for heaven’s sake! This is a dispute on which you personally negotiated the settlement, yet you told the Treasury Committee, "I do not deal with Goldman’s tax affairs."

Dave Hartnett: I am very sorry, Chair, but I did not negotiate the settlement on my own. I went to help the resolution of the issues.

Q8 Chair: So the minutes of the meeting with Anthony Inglese, Alan Evans, John Sandford and Dean Rowland-all HMRC people, I assume-are not true.

Dave Hartnett: I am sorry. These are absolute terms. I saw the minute for the first time yesterday. I was not at the meeting. Mr Inglese saw the minute for the first time on Monday-of this week.

Q9 Chair: That is laughable. I shall read you more about this meeting: "It was not clear whether DH"-you-"had settled on £24m or on whatever the principal was. There was discussion about whether there could be justification for settling without interest, especially in view of the Litigation Strategy…It was, however, clear that the proposed settlement gave GS no additional penalty for having resisted for 5 more years, including as DR"-that must be Dean Rowland-"explained raking every conceivable point in the Tribunal". At the end of this minute, it says, "AI"-Anthony Inglese-"said he would always want to assist DH, but not if this were ‘unconscionable’".

Dave Hartnett: Well, I’ve read the minute. I don’t think that Mr Inglese says in it that anything was "unconscionable".

Chair: It is pretty clear that that is what they all felt. He referred to the difficulty all those present at this meeting were having in justifying a settlement without an interest element. It is pretty clear to me.

Q10 Mr Bacon: What I don’t understand about this is that this is one of your top lawyers. What is the position that Anthony Inglese holds?

Dave Hartnett: He is our general counsel and solicitor.

Q11 Mr Bacon: So he is a very important lawyer within HMRC?

Dave Hartnett: Yes.

Q12 Mr Bacon: And he was at the meeting, and it wasn’t clear to him at the meeting, apparently, whether you "had settled on £24m or on whatever the principal was." There was then a discussion about whether there could be "justification for settling without interest". Now, this note is dated 8 December. What date did your meeting with Goldman Sachs take place?

Dave Hartnett: I believe that it was 19 November.

Q13 Mr Bacon:19 November. I read in the newspaper that it was 30 November-or was it at a subsequent meeting where they discovered your meeting that had taken place on the 19th? Perhaps that is the way round it was. But you think that you met on the 19th?

Dave Hartnett: I believe so.

Q14 Mr Bacon: And was there a note of what was agreed at that meeting on the 19th?

Dave Hartnett: I don’t know, Mr Bacon.

Q15 Mr Bacon: You don’t know?

Dave Hartnett: No.

Q16 Mr Bacon: You were negotiating the deal on behalf of HMRC-

Dave Hartnett: No. I don’t want to be difficult, but you keep saying that I was negotiating a deal. I went to assist my colleagues to deal with a very difficult relationship issue. One of the things that I did to assist the relationship issue was to persuade someone to come in from New York from Goldman’s, because it was quite clear that elements of the relationship in the UK had broken down.

Chair: I have to say to you, Mr Hartnett, that your officials say that you shook hands and it was your settlement. Your name is all over this note.

Q17 Mr Bacon: I don’t understand how there cannot be a record from the HMRC side of the meeting. That you don’t know whether there was a record or not of the meeting is astonishing.

Dave Hartnett: Well no, because the other HMRC people at the meeting were the head of our banking sector in the large business service and the case relationship manager with the bank. They are people who were managing the issues and would have made the note. I went abroad fairly soon afterwards-

Q18 Mr Bacon: You didn’t see the note.

Dave Hartnett: No, I haven’t seen the note.

Q19 Mr Bacon: That is extraordinary. I worked in a bank-in a fairly junior capacity-and one of the things you always did without fail was to take a note of a meeting. That was just normal practice. First of all, you answered by saying that you didn’t know whether there was a note. Then you said that there would have been a note. Then you said that you haven’t seen it. Yet this was an extremely important meeting with some very top people there: your large business guy; your client guy; you, the senior official in the entire organisation-and you are telling us that you didn’t see a note of the meeting afterwards.

Dave Hartnett: No, I didn’t. I left the country shortly afterwards to go and visit another Government.

Q20 Mr Bacon: And yet we now know that that was the date upon which this agreement was struck, which subsequently your top lawyer seems to be having some difficulty with, because he wants to assist you wherever possible, but not if it is "unconscionable". The problem that he, and the meeting, appeared to have-indeed, the wording in the note is "all present", I think-

Chair: It says: "He referred to the difficulty all those present at this meeting were having in justifying a settlement". It is the last sentence.

Q21 Mr Bacon: Yes, all those present at the meeting were having difficulty "in justifying a settlement without an interest element." This appears to be the bone of contention, because you ended up agreeing a settlement that did not include the extra interest, despite the fact that they had resisted for five years, put up a stooge witness and all the rest of it. You have not seen a note of the meeting at which that decision was made, with your imprimatur not to pursue them for the interest. Subsequently your top legal people are saying that they are very uncomfortable with it and that they cannot assist you with something that is unconscionable.

Dave Hartnett: Well, I would never want them to assist me with anything that is unconscionable.

Q22 Mr Bacon: The whole thing sounds extremely odd, Mr Hartnett.

Dave Hartnett: Well, when I answer questions from Mr Norman I have to be careful-I expect we will get on to taxpayer confidentiality shortly-with what I say, because I cannot breach taxpayer confidentiality. But if you look at the transcript of the TSC hearing, I make it clear that there was an issue in relation to which a mistake was made, because we saw an impediment to dealing with an issue. In fact, the impediment had been removed. A number of us at the meeting did not know that.

Q23 Chair: That sounds like a bit of gobbledegook. Was the taxpayer ripped off in the deal that you did with Goldman Sachs?

Dave Hartnett: Absolutely not.

Q24 Chair: Did we lose £10 million that we should have had?

Dave Hartnett: The sum is smaller than that.

Q25 Chair: What was it?

Dave Hartnett: I am sorry, but I am now in grievous difficulty of breaching taxpayer confidentiality.

Q26 Chair: Well, the figure in the public domain is £10 million. Our duty as a Committee is to ensure that you provide value for money in the work that you do in settling tax disputes. There is a lot of money at stake. There is £25 billion outstanding in tax disputes. Therefore, in the same way that we delve into the detail when we look at the development of fire stations or whatever, we will delve into the detail here. It appears that £10 million was lost to the taxpayer because of the deal that you did with Goldman Sachs.

Dave Hartnett: Well, I’m sorry-

Q27 Chair: We were ripped off. The taxpayer was ripped off. That is what it feels like.

Dave Hartnett: No, I do not agree with that at all. A mistake was made. Papers have appeared in the media.

Q28 Chair: How much did we lose on the back of a mistake made?

Dave Hartnett: Chair, I cannot answer a specific question about that.

Q29 Chair: The difficulty is that our duty as a Committee is to ensure value for money for the taxpayer. My problem with this, and in reading all the papers preparing for today, is that you are the guy who does the deals, you are the guy who sits on the board that vets the deals, you are the commissioner who vets the deals and you are the guy who decides what comes into the public domain. The NAO does not look at the details, so there is nobody checking on whether the deals that you personally do provide value for money for the taxpayer. It is an outrageous, unprecedented situation.

Dave Hartnett: With enormous respect, I do no settlements on my own.

Q30 Chair: We don’t know that-nobody knows. The minutes we have are of a meeting-either they are lying, or there are lies around the place-where the minutes clearly say to me that you made that deal with Goldman Sachs.

Dave Hartnett: Well, I am sorry, but not one person named in that minute was there. There were a number of people in the room. I did not do a deal personally.

Q31 Mr Bacon: You may not be the only person in the room, but it is an odd state of affairs when your own chief lawyer-your own general counsel-has serious concerns about what you appear to have done. In the case of Vodafone, it was clear in the controlled foreign corporations case there that the experts inside HMRC who knew the law on that issue were excluded from the meetings. They were explicitly not consulted. Here you are doing a deal where you forwent the interest. Presumably, in the earlier days, one of the aspects of the dispute was that you wanted the interest if they continued to resist.

Dave Hartnett: Of course.

Q32 Mr Bacon: Did HMRC warn Goldman Sachs that if it continued to resist, it would continue to be liable for the interest?

Dave Hartnett: The interest was always in our mind, Mr Bacon.

Q33 Mr Bacon: Did HMRC warn Goldman Sachs that it would be liable for interest if it continued to resist?

Dave Hartnett: I am sorry, you are asking me to cross the margin of taxpayer confidentiality again, but maybe I can pick up the prior point you made. As we have said before, on the Vodafone case, at no stage did I or anyone else stand down experts. Our foremost experts were involved in the matter.

Q34 Mr Bacon: Let me help you on this question of the warning. HMRC did warn Goldman Sachs that if it resisted it would be liable for the interest; that was in the letter written by HMRC to Goldman Sachs in 2005. And yet here we are, five years later, and you just, with a wave of the hand, agreed. Despite the fact that it had resisted enormously-and all the other people involved in this type of scheme and the other users of the scheme basically ‘fessed up and settled-Goldman Sachs held out and does not pay any extra penalty. This is one of the things that Mr Inglese and his colleagues in the meeting were so concerned about.

As the Chairman quoted earlier: "It was clear…the proposed settlement gave GS no additional penalty for having resisted for 5 more years." As Dean Rowland explained, Goldman Sachs was "raking every conceivable point in the Tribunal, and putting up a ‘stooge’ witness when Mr Housden"-a Goldman Sachs official-"was the obvious person to answer questions." It did not suffer any penalty for that. For the avoidance of doubt, what we are talking about here is a scheme whose purpose was to ensure that extremely rich and extremely highly paid people paid less tax and national insurance in this particular case on their bankers’ bonuses than would otherwise have been the case. I do not think that this type of deal would have been available to a medium-sized company of 150 employees in my constituency, would it?

Dave Hartnett: Mr Bacon, what I have made clear already-

Q35 Mr Bacon: We are supposed to be equal before the law.

Dave Hartnett: That is a principle of HMRC. There was no wave of the hand. There was no pushing aside of interest in order to secure a deal. That is not what happened. Mr Rowland was not there; nor was anyone else. A mistake was made and it was actually me who took the mistake to Mr Inglese.

Q36 Chair: A mistake was made that cost the taxpayer what?

Dave Hartnett: I cannot answer that, Chair.

Q37 Chair: I will go to Austin, but first I will say one final thing before I hand over to Austin. I still assert that in whatever role you played with Goldman Sachs-you clearly played a role, as you say, alongside others-you lied to the Treasury Committee in saying, "I do not deal with Goldman’s tax affairs". You did not say, "I do not solely deal with Goldman’s tax affairs." You said, "I do not deal with Goldman’s tax affairs". You did, and that was a lie.

Dave Hartnett: No, it was not, with respect. I do not deal with Goldman’s tax affairs. I do not know about its tax provisions, how much tax it pays generally-

Q38 Chair: Wasn’t this negotiating? This is really playing with words. This negotiation was dealing with Goldman’s tax affairs. It was dealing with a really important part of Goldman’s tax affairs.

Dave Hartnett: I went to the meeting to make the relationship work.

Q39 Mr Bacon: But the point the Chairman is seeking to make is that less than a year before you told the Treasury Committee "I do not deal with Goldman’s tax affairs", you have been in a meeting in which you have dealt with Goldman’s tax affairs. That is the point. I accept what you are trying to explain. You would have been more accurate if you had said, "It’s not my job normally in the ordinary course of business to deal with Goldman’s tax affairs on a month by month or week by week basis. That’s not my job. But occasionally I have got involved." That might have been a more accurate way of putting it, but it is not what you said. You just said, "I do not deal with Goldman’s tax affairs", when in fact you had.

Chair: It is even worse. You said, "I knew nothing of Goldman’s tax affairs", but you had been at a meeting to discuss it.

Mr Bacon: "When I was at that supper" may have been true for all we know. But the next sentence, "I do not deal with Goldman’s tax affairs", was not a true sentence. It should have been qualified; it was not a true sentence.

Dave Hartnett: I am really sorry. In the cut and thrust of the hearing, I said "I knew nothing of Goldman’s tax affairs when I was at that supper. I do not deal with Goldman’s tax affairs." I do not deal with Goldman’s tax affairs in the way I have dealt with hundreds of thousands of people’s tax affairs during my career.

Q40 Nick Smith: So what were you assessing at that meeting apart from Goldman’s tax affairs?

Dave Hartnett: The fact that the relationship had broken down and that the issue was not being moved forward. My colleagues dealt with Goldman Sachs.

Q41 Nick Smith: But the nub is you were talking about the tax affairs.

Dave Hartnett: With respect, Mr Smith, I did not have the deep knowledge to deal with Goldman’s tax affairs. I did not make a deal. I did not wave interest away.

Q42 Austin Mitchell: But you cannot be surprised that we find it inconceivable that you can go into a meeting with Goldman Sachs-which is not, after all, a charity for handing money to impecunious bankers-not knowing anything about its tax affairs. Do you go into all meetings as ignorant as that?

Dave Hartnett: No, Mr Mitchell, I do not go into meetings ignorant-I try very hard not to do that. I did not force myself into that meeting or anything like that, I was asked by my colleagues for assistance and I sought to provide it, mainly with the relationship issue. My colleagues were seeking to settle something.

Q43 Austin Mitchell: Relationship advice. That is very interesting. Perhaps you would give us some information here, because the Chair has asked for an estimate of how much was given away to Goldman Sachs. My understanding is that we are talking about £22 million that was not paid in national insurance contributions on bankers’ bonuses. What would the interest on that be, and how long was the period involved?

Dave Hartnett: I cannot answer that question.

Q44 Austin Mitchell: Well, can you give us a note stating the number of years involved, the rate of interest that would be charged and the amount of interest written off?

Dave Hartnett: I don’t know whether I can give you a note-I don’t think I can, because I think the law prevents it.

Q45 Chair: I know Jo wants to come in on this, but I shall just tell you why this is deeply irritating. We are trying to find out whether the work you do provides value for money. You are hiding behind confidentiality on a case that is in the public domain, and about which we have published whistleblowers’ information-that is where a lot of this comes from, so it is protected. You are perfectly at liberty in that context. It is all in the public domain, it is protected anyway and, by answering, you would help us to decide whether or not you and your team provide value for money. Do not hide behind confidentiality.

Dave Hartnett: Before I came here, I put together for myself a mental profit and loss account of the issues that I and my colleagues have dealt with over the past five years. The mistake that was made, for which I and my colleagues are very sorry, is one thing; the income side of this is billions of pounds. It may be helpful if I say something about the legal position.

Chair: We will come to that, but people want to pursue this point.

Q46 Austin Mitchell: Can I pursue it? You had given Goldman Sachs a huge competitive advantage. All its competitors coughed up in 2005, but you gave it the full use of all that money from 2005 to the date of settlement. That is a big advantage given to Goldman Sachs-you would not give such an advantage to any small business that is hounded and punished for interest payments.

Let me move on. There is a great similarity between that deal with Goldman Sachs and the one you reached with Vodafone. In each case, the interest was not charged. Why was that?

Dave Hartnett: Well, I gave to the Treasury Select Committee an example-a particular example-of the circumstance in which interest would not be charged. I face the same difficulty, Mr Mitchell, with your Vodafone question as I face with your Goldman Sachs one. I cannot talk to the Committee about the affairs of an individual-

Chair: Would you talk to us in confidence?

Q47 Austin Mitchell: Perhaps you could give us the interest on the Vodafone affair. I remind you that the advice given to HMRC from leading tax silk Malcolm Gammie was that it could recover the dodged national insurance if it went to court. That meant that, under its own litigation and settlement strategy, it must not reach an out of court settlement for less than 100% of the tax and interest at stake. In other words, you are cutting right through-defying-your own department’s strategy on tax settlement.

Dave Hartnett: Mr Mitchell, I am sorry that this has arisen, but the really difficult issue is truly-and I say this in all conscience-that a mistake was made. It was a mistake; it was not a deal to wave away interest, as Mr Bacon says. I am prevented by law from-

Chair: You are prevented by choice, not by law.

Q48 Mr Bacon: May we pursue this point for a minute? I am literally looking at the Wilberforce and Scarman judgments that point out that the laws of the United Kingdom have long struck a public interest balance between taxpayer confidentiality and the Revenue’s official secrecy on the one hand and accountability and taxpayer confidence in the administration of the tax system on the other, so it is not an absolute. In fact your own legal advice says that it is not an absolute duty against disclosure and you have discretion in the exercise of your functions. That is true isn’t it?

Dave Hartnett: There is discretion in relation to our functions, but maybe I can set out-

Q49 Mr Bacon: One of your functions is ensuring that the public have confidence in the tax system and that you are able to account to Parliament as accounting officer-or at least your colleague, Lesley Strathie, is able to account to Parliament as accounting officer-for the effective, efficient and economic administration of the tax machinery, so plainly you could make a very good case for saying that in certain circumstances disclosure is required. It is not a difficult conclusion to reach.

Dave Hartnett: The Commissioners for Revenue and Customs Act 2005 sets out very clearly public interest and similar issues. Our view, which we have been through with our own lawyers and legal counsel, is that we are prevented from disclosing information and that these provisions reflect earlier provisions and that is a well established policy here. There are gateways and section 18 of the Commissioners of Revenue and Customs Act provides greater strictures than we had before. The key, Mr Bacon, is that there is no specific gateway that enables the disclosure of information to parliamentary Committees and our advice is that I or any other official in HMRC disclosing specific taxpayer information to a Committee is in jeopardy of committing a criminal offence.

Q50 Stephen Barclay: May I just pick up on that point? I think it goes to the nub of whether you are prevented by law from discussing individual cases or whether it is your choice. In your evidence a little earlier, you said, "I don’t think I can, because the law prevents it", whereas at the Treasury Committee you were a bit clearer. You said that you "cannot talk" about it-in other words, you were prevented legally-and, "twice in the last 10 days I have been to see our most senior lawyers to see whether there was anything" you could do, so even if you wanted to, you were prevented. Again you said that you were prevented by law. Perhaps we can work our way through it. Section 18(1) prevents disclosure except in the circumstances described in subsection (2). That is correct, is it?

Dave Hartnett: Yes.

Q51 Stephen Barclay: Okay, so if we then look at subsection (2), it says that disclosure is permitted, and this is the point that Richard alluded to, if it is made in connection with "a function of the Revenue and Customs". Is that correct?

Dave Hartnett: Yes.

Q52 Stephen Barclay: One of those functions is to assist Parliament. Is that correct?

Dave Hartnett: Let me just have a look at the list of functions.

Q53 Stephen Barclay: One of the functions of Revenue and Customs is to assist Parliament.

Dave Hartnett: Could you point to that in the list of functions, Mr Barclay?

Q54 Stephen Barclay: I’ll go one better. I’ll quote from the first Treasury counsel, who said in the minutes to the meeting dated 23 June 2009, paragraph 6, "In any case, we sought legal advice from First Treasury Counsel. He advised that as PAC are a parliamentary body with an oversight role over HMRC it follows that HMRC’s functions would extend to assist PAC with that oversight role. So there is no absolute bar on disclosure but this would still be at HMRC’s discretion". The first counsel is making the point that I am making, which is that a function of HMRC is to assist Parliament. Is that correct?

Dave Hartnett: Mr Barclay, I have to say to you here-and I fear that you are not going to like this answer-that I am unable to discuss the legal advice of Treasury counsel.

Q55 Stephen Barclay: I am not asking you to discuss the legal advice, Mr Hartnett. I am asking you to explain whether a function of HMRC is to assist Parliament. I am not even asking you about this specific issue. I am asking you about whether a function of HMRC, as first Treasury counsel advised, is to assist Parliament. It is a very straightforward question. Yes or no?

Dave Hartnett: I am going to say that I don’t know, because-

Q56 Mr Bacon: You don’t know whether one of your functions is to assist Parliament?

Dave Hartnett: Mr Bacon, I want to be as open as I can. I am sitting here with advice-

Q57 Mr Bacon: You are here now, assisting us. It is plainly one of your functions. It is obvious-why even discuss it? It is obvious that one of your functions is to assist Parliament.

Dave Hartnett: Because the same advice that Mr Barclay has quoted from-I have no idea whether you have the full advice, because this material appears to have been leaked-says that providing information about specific taxpayers will put officials in jeopardy of prosecution.

Q58 Stephen Barclay: With respect, that is a different point. I note that, at the Treasury Committee, three different members complained to you about what they termed "Sir Humphrey" answers. I was asking a very straightforward question; I was not asking about the wider legal advice. Is a function of HMRC to assist Parliament? It stands to reason that the answer is yes or no.

Dave Hartnett: I believe it is a function of HMRC to assist Parliament.

Q59 Stephen Barclay: Okay, thank you. If it is a function of HMRC to assist Parliament, there is nothing in the 2005 Act that legally prevents you from discussing an individual case, which is contrary to the advice given to Edward Leigh, the former Chairman of the Public Accounts Committee.

Dave Hartnett: I am sorry; I did not understand that.

Q60 Stephen Barclay: The letter that was sent in 2009 to Mr Leigh specifically cited section 18 of the 2005 Act as the grounds on which you could not disclose individual cases to the Committee. What you have just said to us is that a function of HMRC is to assist Parliament. The 2005 Act does not prevent you from discussing individual cases that relate to a function of revenue. Therefore, there is nothing in the 2005 Act, as I understand it, that prevents you; it is your choice whether you do so, but you are not legally prevented from doing so. That is correct, is it not?

Dave Hartnett: If I may read out section 18 fully, it says, "is made for the purposes of a function of the Revenue and Customs, and…does not contravene any restriction imposed by the Commissioners". The commissioners of Revenue and Customs, when-

Q61 Chair: That’s you.

Dave Hartnett: There are others.

Q62 Chair: Yes, but you’re a commissioner. Don’t pretend that they are separate people.

Dave Hartnett: I am certainly not suggesting that I am not a commissioner. When this was put to the commissioners and, indeed, to our executive committee, they took the view, on advice, that the strict rule of taxpayer confidentiality-which I expounded for the TSC and here today-was their understanding of the position. The Mr Eadie advice, which you appear to have, makes it clear as well that none of this is free of difficulty.

Q63 Stephen Barclay: Again, that is a different point. My point is that, in law, you are not prevented by the 2005 Act from disclosing this information. It is entirely at your discretion whether you wish not to disclose information, but you are not prevented in law from doing so.

Dave Hartnett: My advice, Mr Barclay-what I would like to do, because it seems to make more sense, is write to you fully.

Q64 Stephen Barclay: But you have already consulted on this issue. You even spoke twice before seeing the Treasury Committee, at which point you said, after talking to the most senior lawyers-you took a special interest in this before-that you were prevented legally. Having had that advice and after telling the Treasury Select Committee that you were legally prevented, now you are saying that perhaps that advice is not correct and that you need to speak to lawyers again.

Dave Hartnett: No, I am not saying that at all. I am saying that that is my advice, and my advice has not changed-the advice I have received.

Q65 Chair: So writing to us will simply confirm what you are saying.

Dave Hartnett: I am offering to write fully around the considerations that I have discussed with our lawyers and to explain the advice that I have received.

Q66 Chair: Well, we welcome that, but I do not think it takes us further. I’ll come back to you later, Stephen.

Q67 Joseph Johnson: I just want to go back to Goldman, if we can. The £24 million that seems to be at stake here is a small proportion of the £25.5 billion of outstanding potential tax that is at risk. It is 0.1%, if my calculator is correct. It surprises me that your personal intervention was necessary for such a relatively trivial sum. Why doesn’t your Department have the capacity to deal with such trivial sums in the context of the outstanding amount without your personal intervention?

Dave Hartnett: There are two or three things that I could say. First, I am the head of tax, and my colleagues consult me regularly. I do not normally get involved with issues such as £24 million. There was a huge relationship issue, and from my previous work, I happened to know someone who I thought could unlock it, and that person flew in from New York.

Q68 Joseph Johnson: You weren’t talking about the tax affairs per se-you have already made that clear-but you were talking a lot during that meeting. How long did it last? What were you talking about? What was the personal relationship that was so important to the successful management of the tax affairs of Goldman Sachs that it required your personal intervention?

Dave Hartnett: From memory, the meeting was a couple of hours-maybe a little longer, maybe a little shorter. The relationship between our team and the Goldman’s team had got into a bad place.

Q69 Joseph Johnson: In what sense?

Dave Hartnett: The teams weren’t getting on with each other; they weren’t making any progress; and there was no meeting of minds on any issue.

Q70 Chair: You had dinner with Goldman Sachs on 19 May 2009, and you also had lunch with Goldman Sachs on 25 July 2008, yet it is so small in terms of outstanding liability.

Dave Hartnett: Neither of those had anything to do with Goldman’s as such. The supper-it was hardly a dinner-was about explaining developments in international tax practice to 20 chief finance officers, and the lunch was on private business with somebody with whom I set up the business tax forum.

Q71 Chair: Is it sensible to have lunch and dinner with people with whom you are in dispute?

Dave Hartnett: Do you know, I had no idea we were in dispute at that time.

Q72 Joseph Johnson: It surprises me that it is that important for there to be buddy-buddy relations between HMRC and someone that is liable for tax.

Dave Hartnett: There is no cosy relationship at all.

Q73 Joseph Johnson: Well, what is wrong with the straightforward application of the tax code?

Dave Hartnett: That is exactly what we were trying to do.

Q74 Joseph Johnson: And why does that require amicable relations between HMRC and Goldman?

Dave Hartnett: It doesn’t particularly require amicable relations; it requires the dispute to be managed in an orderly way. That is what I was trying to facilitate.

Q75 Joseph Johnson: But the tax code is set down in legislation. It is relatively simple to apply, is it not?

Dave Hartnett: Surprisingly enough, no.

Q76 Joseph Johnson: Why did it require your personal intervention to repair a human relationship?

Dave Hartnett: My colleagues asked me to help, and I agreed to do so. That is part of my role.

Q77 Joseph Johnson: You mentioned that you flew someone in from New York. Was that an HMRC person?

Dave Hartnett: No, it was the global head of tax at Goldman’s.

Q78 Joseph Johnson: Who you requested to attend the meeting in London.

Dave Hartnett: I asked him whether he would come. As I said, I’ve met him in the context of the OECD.

Q79 Joseph Johnson: Continuing with the Goldman stuff, did you personally sign off the Goldman Sachs settlement?

Dave Hartnett: No, the Goldman tax settlement was delayed but went through a governance process in which an error was found. It was then considered by commissioners and by other senior officials.

Q80 Joseph Johnson: Did one of the commissioners sign it off, and were you one of those commissioners?

Dave Hartnett: I was.

Q81 Joseph Johnson: How many other commissioners were involved in signing it off?

Dave Hartnett: One other.

Q82 Joseph Johnson: So you oversaw the process by which the settlement was arrived at, and you were then 50% of the commissioners who agreed that it was a fair settlement?

Dave Hartnett: Yes.

Q83 Joseph Johnson: The Goldman Sachs settlement was, therefore, one of the four large tax cases in which you bypassed your own governance arrangements?

Dave Hartnett: I can’t answer that question.

Joseph Johnson: It self-evidently is.

Dave Hartnett: We really did not bypass our own governance arrangements. For those cases, we set up bespoke governance arrangements because people-

Joseph Johnson: Bypassing your own governance arrangements.

Dave Hartnett: Because the people who sit on the high-risk corporate programme board were all people involved in the cases.

Q84 Joseph Johnson: I am just going to pedal back, if I can. You set up, I think, in 2007 or 2006, this high-risk corporate board.

Dave Hartnett: Yes.

Joseph Johnson: To enable a bit of objectivity to be given to big settlements, to enable people to step back and say, "Is this really a fair settlement for the taxpayer?"

Dave Hartnett: Yes.

Q85 Joseph Johnson: In a number of the largest tax cases you decided to bypass that special arrangement, which you had set up specifically for that purpose. Could you please explain why you decided to bypass that governance arrangement, which had been specifically set up to deal with exactly the case that Goldman Sachs presented?

Dave Hartnett: I think I have, but let me go back again. We set up for each of those large cases the role of inquiry co-ordinator: someone who would manage the case. We used very senior people to do that, and many of those senior people actually sat on the high-risk corporate programme board. Given their involvement in the case, we decided that bespoke governance arrangements could apply, and that is what we did.

Q86 Joseph Johnson: Did you need to seek anybody’s authority before giving yourself a waiver on the need to apply the standard corporate governance arrangements?

Dave Hartnett: Well, one case had started before the high-risk corporate programme was set up. One was outside the high-risk corporate programme-I think two were actually outside the high-risk corporate programme. The high-risk corporate programme is not just a governance mechanism; it is a way of working. It is a way of working I first saw in the United States. It looked like a very good way of us making significant progress on cases that had been going on for a long time, or where disputes were particularly difficult.

Q87 Joseph Johnson: Did you need to consult anybody before you took Goldman Sachs outside the normal mechanisms?

Dave Hartnett: We didn’t take Goldman Sachs outside the normal mechanism.

Q88 Chair: You did. You took them outside your defined strategy. You could have got 100% back and you did not.

Dave Hartnett: We made a mistake on one issue.

Q89 Joseph Johnson: You took them out of the high-risk corporate bracket.

Dave Hartnett: They were never inside it.

Q90 Joseph Johnson: Goldman was never inside it. But in normal circumstances, because it was a large company and a large case, a large taxpayer, it would have been inside that.

Dave Hartnett: No; we make decisions carefully about the cases that are inside the programme, and they were not inside the programme.

Q91 Joseph Johnson: Why? It is a large company and a big taxpayer, one would hope.

Dave Hartnett: I am sorry, Mr Johnson, you are taking me where I cannot go again. I would need to tell you something about an individual taxpayer to answer that, but the case did go-

Q92 Chair: The important thing that Mr Johnson is asking, which the Committee would like to know, is whether you gave yourself authority to waive what appears to be the procedures you should have followed in this particular case?

Dave Hartnett: No; I did not manage the taking or not taking of this case to the high-risk corporate programme board. I was not involved in that. I was not in the country.

Q93 Chair: But according to the minutes of the meeting we have, it was your decision, and you were one of the commissioners. You were involved. You might have been out of the country on the day of the meeting, but you were involved because you were one of the commissioners that signed it off.

Dave Hartnett: The case was taken to the high-risk corporate programme board as a governance mechanism. It was not inside the high-risk corporate programme as a case. We use the high-risk corporate programme-

Q94 Joseph Johnson: You are giving contradictory evidence.

Dave Hartnett: I am trying not to, but help me if I have.

Q95 Joseph Johnson: You have been saying quite clearly to me for the past few minutes that it was not ever in the corporate high-risk programme, and you are now saying it was taken into it as a governance mechanism.

Dave Hartnett: Simply for the governance.

Q96 Joseph Johnson: But then it was taken out of it again.

Dave Hartnett: The matter was referred to the commissioners.

Q97 James Wharton: Just on some of the evidence that you have already given us this afternoon, Mr Hartnett, you said that when you met Goldman Sachs and went to a lunch and a supper, you did not know that HMRC was in dispute.

Dave Hartnett: Yes.

Q98 James Wharton: The employee benefit trust issue affected a number of companies, did it not?

Dave Hartnett: Yes.

Q99 James Wharton: HMRC resolved it in 2005.

Dave Hartnett: Yes. I oversaw that.

Q100 James Wharton: And is it true that 21 companies held their hands up and said, "We accept what the court has said, and we will pay," and Goldman Sachs was the only one that did not, at that time?

Dave Hartnett: I think the number was slightly larger. I think there was another that couldn’t, rather than didn’t, settle, and then I think what you said is fair.

Q101 James Wharton: Yet you did not know that there was an ongoing dispute. I just want to understand why you did not know. You oversaw this. Everybody else either settled and paid up or said, "We cannot," for a variety of reasons. Goldman Sachs had not and was fighting tooth and nail not to, and yet you did not know that there was a dispute.

Dave Hartnett: I was dealing with numerous other tax issues at the time. I went to Goldman’s to lunch to see a-

Q102 James Wharton: I don’t dispute any of that, but you said very specifically in your evidence this afternoon that you did not know that there was a dispute. Is that is accurate.

Dave Hartnett: I think it is, Mr Wharton. It was certainly not in my active knowledge at the time.

Q103 James Wharton: I find that surprising-

Dave Hartnett: I am very sorry.

James Wharton: But I accept your answer.

Chair: We will check the answer.

Q104 James Wharton: I appreciate that you dispute what has been in the media.

Dave Hartnett: I do.

Q105 James Wharton: The media imply that there was handshake meeting between yourself and Goldman Sachs that led to a resolution. My understanding of your evidence is that there was a meeting about relationships, but not about that specific issue. Can you tell us who was at that meeting? Was David Goldberg at that meeting?

Dave Hartnett: Goodness-the people at the meeting from HMRC were the head of the banking sector and the large business service and the relationship manager for Goldman’s. There were three representatives of Goldman’s. This is terribly difficult. My advice is that I cannot name them. There was no one else.

Q106 James Wharton: You say that you cannot name them. Is that off the top of your head or is that because you just do not know?

Dave Hartnett: No, my advice is that that is taxpayer confidential information.

Q107 James Wharton: So you cannot because of the advice that you have been given. You cannot tell us whether David Goldberg was there.

Dave Hartnett: No, I think I have given you the answer to that slightly obliquely. Three Goldman’s officials and three HMRC officials were there.

Q108 James Wharton: Okay. Did you ask for a briefing before you went to that?

Dave Hartnett: I did. I had a briefing a day or two before. It was a short briefing.

Q109 James Wharton: Did that briefing mention the detail of this ongoing dispute? Would it normally?

Dave Hartnett: It mentioned certain details of the issues that were going to be discussed.

Q110 James Wharton: I want to ask a slightly different question. You have said several times that a mistake was made. Although I appreciate that you do not feel that you can reveal the quantum of the cost of that mistake, it had a cost to the Revenue. Who made that mistake?

Dave Hartnett: I was the most senior person there. I am entirely responsible for it.

Q111 James Wharton: If you make a mistake in most walks of life that ends up costing, say, a private company a significant sum of money, there would be some sort of disciplinary action. What disciplinary action has been taken in respect of that mistake?

Dave Hartnett: None. Mr Wharton, we learn from our mistakes as an organisation, and we have learned from this one.

Q112 James Wharton: I need to understand that. I accept that if the mistake is in the framework that exists, you would therefore amend the framework, but if it is a mistake by an individual, who for whatever reason has not done their job properly, you would expect some sort of action to be taken against that individual who made the mistake or the responsible person if they were taking responsibility. Was it a mistake in the framework that existed in the systems at HMRC? If it was, what has changed? Or was it a mistake by an individual, and if so, why has no disciplinary action been considered against that individual?

Dave Hartnett: A mistake about what seemed to be a legal impediment was made by a number of people, and we have made sure that a mistake like that cannot be made again.

Q113 James Wharton: Just for absolute clarity, has any disciplinary action been taken against anybody as a result of that mistake?

Dave Hartnett: No.

Q114 James Wharton: But you have amended your procedures so that that cannot happen again.

Dave Hartnett: We certainly have.

Q115 Matthew Hancock: I just want to follow up on exactly that point. People make mistakes. You cannot reveal to us the numbers that you were looking at relative to the mistake, which I think would be helpful-not least to you-to put this into context.

Dave Hartnett: Absolutely.

Q116 Matthew Hancock: But I am worried about the accountability around this. There are procedures in place to ensure that you cannot make public an individual company’s tax position. But what I am concerned about is that the system ensures that, when mistakes like this are made, they are learned from and that the people who make them are held responsible. How many mistakes of this scale are made?

Dave Hartnett: With respect, Mr Hancock, we have not got anywhere near the scale issue yet, but we are not an organisation that is prone to making mistakes.

Chair: We don’t know. People have no idea.

Q117 Matthew Hancock: So how many mistakes of a scale in the millions are made by HMRC each year?

Dave Hartnett: Few, because often we are able-normally we are able to intervene to correct them because they are spotted by the process. I spotted the mistake here.

Q118 Matthew Hancock: After it had been made. And what process is there to ensure that those not responsible for the mistake can hold to account those who are responsible for such mistakes?

Dave Hartnett: There are line management issues in there that are important. We expect our managers, when mistakes are made, to ensure that people learn from them. I think, Mr Hancock, if I may, there is another important issue here. You have the NAO report and the NAO report found just two errors in procedure in their work. They looked at 27 cases involving hundreds of issues. I am not suggesting for a moment that the NAO did a detailed review of tax issues. Their report makes that clear. The NAO report generally gave HMRC a good write-up for our governance and how we manage these large-

Chair: I have to say-

Q119 Matthew Hancock: One last question. Do you think the accountability through the NAO report, like that, is sufficient? In these questions of large sums of public money, is there sufficient accountability, given the constraints on the ability to have a public accountability for your actions in this sort of area?

Dave Hartnett: What I was trying to offer you, Mr Hancock, is the independent view of how we govern these issues. You asked me what the framework was like. I think we have a sound framework. On this occasion, a mistake was made.

Q120 Chair: Can I ask the Comptroller and Auditor General: do you think the loss to the taxpayer after the settlement with Goldman Sachs was reasonable-bad value, good value?

Amyas Morse: I can certainly say that the error we are talking about, which is referred to in our report-

Q121 Chair: We do not know the quantum. Do you?

Amyas Morse: Let me just go on. I think the error was probably one which might have led to the belief that interest was applicable or mistakenly thinking that interest was not applicable. The range of the error-not simply the amount of tax that might have been involved-that it is reasonable to give is between £5 million and £8 million. However, and having been a tax person myself many, many years ago, negotiating much smaller settlements-I have never negotiated anything of this size-I know that a lot of factors will be involved in this settlement. If the interest had been on the table, it does not follow that because the interest was not considered, as it clearly should have been, the settlement would necessarily have fully reflected that in increased quantum.

Q122 Chair: Did the taxpayer get value for money out of the settlement that was made with Goldman Sachs?

Amyas Morse: I cannot give you an answer. I am not being coy.

Q123 Joseph Johnson: I am sorry; I did not understand the interest that could be lost.

Amyas Morse: What I am trying to say is this. In negotiating any large case, a whole series of factors is taken into account and there is give and take. If it was really an open-and-shut negotiation-forgive me-I am talking from very out-of-date experience. If it was really open and shut, it would be open and shut. It is not as simple as that. There must be a sustainable argument on the side of the taxpayer if there is any prolonged negotiation.

Q124 Mr Bacon: Can I just pick up on that very point? Twenty-one of the 22 scheme users realised that it was open and shut and paid up. The litigation and settlement strategy is very clear. We had this conversation with Lesley Strathie last year on this very point. Where the character of the case is all or nothing, and the question is merely, "Does the law apply or not?", the strategy says clearly that you should settle for 100% and you should not take down. They took down, in circumstances where it was quite clear that interest was applicable. Not only that, HMRC had actually warned Goldman Sachs that if it persisted in resisting, which it did for five years with a lot of spurious arguments in front of the tribunal with stooge witnesses, that interest would be liable. HMRC itself had told Goldman Sachs that interest would be liable; that is the context.

Amyas Morse: Well, not necessarily. Setting aside for a minute whether we are talking about Goldman Sachs, if in a multi-factor settlement there was an admitted mistake in taking into account entitlement of interest, I am simply making the point that if you say, "That amount of mistake is exactly the amount of tax lost", it is a little bit simplistic. There was a composite settlement. I think that is all I can say.

Q125 Matthew Hancock: Are you saying that the cost due to this mistake is £5 million to £8 million?

Amyas Morse: I am saying that the quantum of the mistake was £5-8 million.

Paul Keane: The financial error was £5-8 million.

Q126 Stephen Barclay: Why was the mistake binding, if this was an informal meeting, unminuted, with just a very brief document in advance?

Dave Hartnett: You are taking me to the margin of what I can and cannot say, Mr Barclay, but I am going to try. When I recognised the mistake, the first person I turned to was Anthony Inglese as our solicitor and general counsel, to ask the very question you have asked. Here is where I’m afraid I frustrate you. There were a number of issues to be taken into account. Mr Inglese said to me that there were two entirely acceptable approaches in law; one was to stay with the proposed settlement and one was to put it to one side. There I have to stop, because I begin to talk about-

Q127 Stephen Barclay: Okay. Were those discussions minuted?

Dave Hartnett: I don’t know the answer to that. I received all of the advice.

Q128 Stephen Barclay: So you did not even get written advice.

Dave Hartnett: I received it all. All legal advice is good advice.

Q129 Stephen Barclay: I am not saying it was not good; I don’t know because we cannot see it.

Chair: We are trying to find value for money for the taxpayer.

Ian Swales: To come at this from a different angle, you will be pleased to know I am not going to ask about Goldman Sachs.

Chair: If you are going on to something different, let us finish.

Q130 Ian Swales: No, I am coming at the same point but from a different angle. You said earlier that when you thought about this mistake, and you thought about your profit and loss account, you knew about the mistake but on the plus side there were billions. Can you say what you mean by that plus side being billions? What are you measuring against?

Dave Hartnett: What I was trying to say, Mr Swales, is that I am not proud; I am very sorry that a mistake was made. My colleagues may want to remind me of things but I could not, when I was thinking about this, remember another mistake like that. So, for me, that is on the deficit side. If you look at the NAO’s Report, I think the number is £9.3 billion brought in from the high-risk corporate programme, billions brought in from other cases, and billions brought in from other initiatives. That was what my profit-

Q131 Ian Swales: My question is, how are you measuring those billions? Remember we are talking about tax assessments. What are you actually measuring? When you say you brought in £1 billion, what is it measured against? I cannot imagine they are volunteering to pay more tax than has been assessed. What do you mean?

Dave Hartnett: I am talking about cash to start with. That is cash that we have argued is due to the Exchequer that we have recovered. As the Committee has considered before, a lot of our work involves tax avoidance. Perhaps I could go back to something that was said on my left, but I cannot remember by whom. It is only in the past three or four years that we have been able to address sums of money like this in cases; that did not happen before, so our new process works. We are mounting arguments on tax avoidance that are winning arguments, largely, with large corporates and their advisers.

Simon Bowles: To put that into context, Mr Swales, we achieved a compliance yield of £13.9 billion last year, which is double what we achieved five years ago, in the context of-

Chair: But we do not know what you lost. We do not know what we could have got.

Q132 Ian Swales: May I then ask, because it is relevant to what we have been talking about, what the fact that you have recovered these billions-whatever they are-says about the records inside the Inland Revenue, in terms of assessments and so on? At the back of all this, what the Committee, and by inference taxpayers and Parliament, are concerned about is the idea that people within your organisation and perhaps you personally have the power to negotiate on billions, without having too much governance or accountability record keeping. That is the elephant in the room that we are exploring. My question is: once you have got to the point that you have recovered billions, is that all reflected in the detailed records in the Inland Revenue? How does it all work?

Dave Hartnett: We keep very detailed records, indeed. We want them for more than one reason. We want them for governance. We want them for precedent value. We also want them to record what techniques worked and what arguments worked.

Q133 Ian Swales: So, if we go to the records of an organisation like the one we have been talking a lot about and we open up the files, we will know how that organisation was assessed and what the final settlement was.

Dave Hartnett: Absolutely.

Q134 Chair: Mr Hartnett, you are saying yes to that, but that’s a nonsense, because you would not tell us the information-it’s a nonsense.

Ian Swales: That is why I asked it the way I did, because I am asking about governance.

Dave Hartnett: I’m sorry, Chair. I think Mr Swales asked a different question.

Q135 Chair: No, he didn’t. He said, "If we went to the file of company X, could we look at the way you dealt with them?" And the answer is no, because you would not let us see the files.

Dave Hartnett: I think he asked a different question. I am sorry, but I think Mr Swales asked the question, "Do we have the record?" And yes, we do.

Chair: No, he asked, "Could we go and see the file?"

Q136 Ian Swales: Let me put it in very simple terms. We could not go to a file-could we?-in your organisation and see that this company, whichever it was, was assessed for £1 billion in tax, that you did a deal and they paid £0.5 billion, and that there was a simple note saying, "And we wrote the rest off." Would we find that in any of your records?

Dave Hartnett: I would be very upset if you found a record which said, "We wrote off £0.5 billion." Can I just say, Mr Swales, that the National Audit Office has complete access to our records? We hide nothing from it at all.

Q137 Stella Creasy: Mr Hartnett, I am a little confused, and I wonder if you could talk me through this. You talked about using a bespoke process. Who designed it?

Dave Hartnett: It is truly bespoke. It works for each of those four cases.

Q138 Stella Creasy: Who designed that bespoke process?

Dave Hartnett: The process evolved as we tackled the cases.

Q139 Stella Creasy: Who designed it, because if it is bespoke it was created at that point?

Dave Hartnett: Well, the design of a bespoke process happened within our business tax area and it will have been designed by senior officials there.

Q140 Stella Creasy: So by senior officials, but it was not anything to do with the high risk corporate programme?

Dave Hartnett: Yes, because, as I said earlier, members of the high risk corporate programme board are those senior officials.

Q141 Stella Creasy: Such as yourself.

Dave Hartnett: No, I am not a member of the high risk corporate programme board, and I have not designed any of those processes.

Q142 Stella Creasy: So you were made to apply a bespoke process that you did not design yourself, but that you ultimately judged.

Dave Hartnett: Ultimately judged, yes.

Q143 Stella Creasy: Would you use that again?

Dave Hartnett: No. We are changing the process. We learned from what the NAO had to say, and we are making a significant change. We will put everything through the high risk corporate programme board and we are changing the way-we have started already-in which commissioners operate cases. We believe that there will always be a small number of cases, and there have been only a small number of such cases in the past, where a commissioner will be heavily involved in negotiations. Where that happens in future, two other commissioners will review the process to ensure that the process was appropriate.

Q144 Stella Creasy: So in this instance what you have learned is that more than two commissioners should have been involved, and that the bespoke model that the board put together was not the right model to use.

Dave Hartnett: I want to change that just slightly, if I may. What we have learned is there will be greater assurance if two commissioners unconnected with negotiations review the process.

Q145 Stella Creasy: How are you going to achieve that? You said earlier that it was quite difficult, given the nature of these cases, to get that level of separation.

Dave Hartnett: We have four commissioners at the moment. As head of tax, I am most likely to be a commissioner involved in negotiations in a small number of cases and, in future, any case like that will be reviewed by two other commissioners who will be able to say, "This cannot proceed to settlement".

Q146 Stella Creasy: That is a slightly different point, though, Mr Hartnett. You said earlier that one of the difficulties you faced in having the separation that your own government structure said was required was that other commissioners were involved in resolving cases in the same way that you had been. Now you are saying that that is possible. I don’t quite understand.

Dave Hartnett: Where we are going to draw the line-and we are going to draw it very conservatively-is that it will be acceptable for a commissioner to advise on an issue and, depending on the degree of advice, perhaps to review the process. But commissioners who have done more than that or have been involved in negotiations will not be part of the process for reviewing the process of the case.

Q147 Stella Creasy: That is terribly unclear.

Dave Hartnett: Well, let me try again.

Q148 Stella Creasy: They can review, and they can advise to some extent, but they can’t negotiate. Is that what you are saying?

Dave Hartnett: Let me try again. I am very sorry for not being clear.

Where a commissioner has been involved in the process of negotiation of a case, that negotiation and any proposed settlement will have to be reviewed by two independent commissioners who have had no role in the case before it can be formally settled.

Q149 Stella Creasy: So if you are saying that that is a better process-

Dave Hartnett: Yes.

Q150 Stella Creasy: You accept that the mistake in this case was that somebody was involved in both the negotiation and the review of the settlement, and that calls into question the process that was undertaken.

Dave Hartnett: But there were two other people involved in the review of the settlement who hadn’t been involved.

Q151 Stella Creasy: But you have just said that actually-

Dave Hartnett: No, we are changing in the way I have described.

Q152 Stella Creasy: So you would accept that there was a problem with the way in which this decision was made.

Dave Hartnett: I think there has been a lack of objective assurance, which the NAO brought out. We have accepted its recommendations.

Q153 Mr Bacon: I just want to clarify with the NAO. Mr Hartnett, earlier you characterised this report as being quite good in its conclusions, but my reading of it is basically that it says, "Are the processes adequate? Well, no they are not. And, to the extent that the processes were as they stood-however inadequate that might have been-were they complied with? Well, no they weren’t." Is that a fair summary, would you say?

Paul Keane: I think it is fair to say that we conclude that the processes were adequate, but we note the four large cases that have been discussed where effectively, HMRC set aside those governance arrangements, and that’s where we raised concerns around the adequacy of the process.

Q154 Stella Creasy: There is something that confuses me. If you are saying that you need to use a different system and you did not design that original bespoke system, what did you say when they came to you and asked you to take part in the resolution of this case? Did you not raise concerns yourself that you were being put in a difficult position?

Dave Hartnett: Can I just explain the process by which we raise the level of assurance on cases? The high risk corporate programme board will agree to settle cases where more than £100 million is involved-under consideration, that is, because it might not be £100 million in cash. When it gets to £250 million, the matter has to go to commissioners, or where the high risk corporate programme cannot agree. We have had one instance of that. It goes to commissioners because we require 100% complete consensus agreement on the part of the high risk corporate programme.

Q155 Stella Creasy: Mr Hartnett, this is interesting, but the question I actually asked you is about a slightly different issue. If you didn’t design this bespoke system-and you have now outlined to me some of the challenges that you have learnt from the NAO-why did you participate in it? You were saying that actually, you want in future to work in a different way. Did you raise any concerns that you might be in a difficult position-that you might find yourself saying, as we are saying, "Well, how you can negotiate and agree?"?

Dave Hartnett: I have had concerns at various times that-if I can put it this way-I am the only commissioner in HMRC who has deep tax knowledge, so I was always going to be involved. I think that the NAO has shown there is a very clear way to do this better.

Q156 Stella Creasy: Did you try to excuse yourself from this? Did you try to put that separation in because of your concerns?

Dave Hartnett: No.

Q157 Stephen Barclay: Did you just say you are the only commissioner with tax knowledge?

Dave Hartnett: Deep tax knowledge. And there are six tax commissioners altogether.

Q158 Stephen Barclay: So for being a commissioner of HMRC, having tax knowledge is not part of the job spec.

Dave Hartnett: Well, we have many requirements of our commissioners. They are very talented people.

Q159 Chair: Well, how on earth are they going to judge, if you do all the negotiation? You are now going to exclude yourself in the future from signing off those negotiations, but the people who are going to have responsibility have no understanding of tax. I would not want to sign them off. Lesley Strathie has no knowledge or qualifications on tax. If she will be signing off your work, that is not sufficient; that is not a check.

Dave Hartnett: No. Alongside what we decided to do on the back of the NAO Report, we will be appointing more commissioners-subject to the sovereign agreeing-who have tax knowledge. That is another step. If I may, I think this analogy is reasonable-forgive me if it is not. The commissioners will have advice; they will be able to check whether advice was taken; they could get advice from inside or outside the Department-so their position is a little like that of Ministers, who must make decisions.

Q160 Chair: No, because what you were very careful in saying in your evidence to us was that all they are looking at is process. To take the Vodafone instance, where we know Vodafone had £2.2 billion, or thereabouts, in its accounts, set aside to settle tax disputes, you ended up getting something like £1.4 billion out of them-I cannot remember-much less than they had even made provision for. I am interested, as the Chair of the value-for-money Committee, in whether that loss of nearly £1 billion even from what Vodafone had in its account, set aside to pay tax, was value for money. I need tax knowledge to be able to assess whether the deal that you finally did was a good deal. It is crazy to think that someone like Lesley Strathie-and I have huge regard for her as a manger-can make that judgment.

Dave Hartnett: Let me say that there is frequently a difference between what companies provide-some provide very low; some do not provide at all-and what the tax issue is resolved for.

Simon Bowles: Can I just come in there? I was a public company finance director in a previous life, and it is my experience that companies will want to provide conservatively-often very conservatively-for their tax liabilities, because what you do not want to do is go to the market twice: once with a surprise about a tax liability, and then, "Actually we had to up it."

Q161 Stephen Barclay: What was HMRC’s assessment? I do not mean of any individual case-we have already covered that; but what was the combined value of the four cases where governance was not correctly followed?

Dave Hartnett: Oh dear, I am having to disappoint you again, Mr Barclay. Billions, but given that a number of the companies involved, and other companies, released public details of provision and the tax they pay, if I give you a more precise figure-

Chair: We do not even know which companies are involved. We know Vodafone, because Private Eye gets it out. We know Goldman Sachs, because The Guardian or someone gets it out. We do not know the other two.

Q162 Stephen Barclay: On all four of those cases, was written advice sought by any commissioner signing off the deal, prior to that acceptance being communicated to the company?

Dave Hartnett: I am trying to remember. Certainly on three of them there was extensive advice.

Q163 Stephen Barclay: I do not want to talk about Vodafone. We cannot talk about specifics. My question was this. There were four cases where the NAO says governance was not followed. In an early answer, Mr Hartnett, you referred to one of the controls that we should take comfort from being the fact that the NAO has unfettered access. I assume that, in exercising that unfettered access, it would want to see the written legal advice in order to assess whether the legal case was strong-and you were one of the people signing off deals, as a commissioner. To come back to my question, if I may: was written legal advice sought, in all four of those cases, prior to any acceptance being communicated to the companies?

Dave Hartnett: I can assure you it was in three. I can’t remember for the fourth.

Q164 Stephen Barclay: You can’t remember?

Dave Hartnett: I just can’t remember. I am very sorry. I will go and check.

Q165 Stella Creasy: Did the person participating in the negotiations also review the decision? For the one where legal advice was not sought and the one where you are unsure whether legal advice was sought, can you clarify whether it is also the case that the person participating in the negotiations also reviewed the settlement?

Dave Hartnett: There are three cases. The NAO will help if I get this wrong. For three of the four cases, at least one commissioner was involved in negotiations and in approving the settlement.

Paul Keane: One at least, and in one case both commissioners.

Q166 Mr Bacon: I am staggered at so many tax commissioners not having deep tax knowledge. I am delighted that you are hoping to appoint more. Can you remind us who the other two tax commissioners are, apart from you and Dame Lesley?

Dave Hartnett: They are Steve Lamey, who is the director-general in benefits and credits, and Mike Eland, who leads our enforcement and compliance.

Q167 Mr Bacon: So we are talking about full-time employees of HMRC. The analogy of a non-executive director of a public company would not apply. These are full-time people, one of whose jobs is to be judge, jury, executioner and gravedigger on deals. You are rightly concerned that you are the only one with deep tax knowledge, which I find extraordinary. Only in this country could that happen. How many more are you seeking, with the sovereign’s consent, to appoint?

Dave Hartnett: Two.

Q168 Mr Bacon: And they will both have deep tax knowledge?

Dave Hartnett: One will have deep tax knowledge.

Q169 Mr Bacon: Will it be a future requirement that eventually they should all have deep tax knowledge?

Dave Hartnett: Our non-executive chairman has made it clear that his aspiration for our executive committee-I do not think he has expressed this in terms of commissioners-is that half would have deep tax knowledge. It is not like that yet.

Q170 Mr Bacon: Half would be marvellous. There are a number of issues I want to pursue, but Mr Barclay raised the issue of the NAO having full access and being able to decide whether the case was strong enough. The fact is that you have resisted the NAO’s demand for detailed legal advice. I have been looking at an internal e-mail from HMRC, which you were copied in on. It discusses the cases with over £100 million tax at risk, which we are intending to disclose to the NAO. It states: "You will remember that NAO were pushing very hard for detailed information on the cases where we make a provision or contingent liability in the trust statement. Dave and Alan"-I don’t think it is the comedian from the 1970s; I believe it is you and Alan Evans-"were able to convince them to accept less detailed information that did not give any indication as to whether we thought our case was strong or weak." In those circumstances, it makes it very difficult for the auditors to do their job properly, doesn’t it?

Dave Hartnett: Can we put this in context, Mr Bacon? I am sure that the NAO will help me if I go astray. These are our accounts that we are talking about. It is the provision for disputed tax that appears in our accounts. The discussion that we had with the NAO, which has a lot to do with taxpayer confidentiality, was on how we could provide more transparency in relation to the provision in our accounts. I think I have that right.

Q171 Mr Bacon: Given that the NAO has full access and will not disclose it further, so it should have oversight, the confidentiality issue in this relationship is not an issue. The issue is whether the case is strong or weak. The point is that the NAO and, indeed, we, cannot make an assessment as to whether you have been administering the affairs of your organisation effectively, efficiently and economically if we cannot understand whether you were following your own litigation and settlement strategy by going for 100% in strong cases, because you have resisted telling them whether the cases were strong or weak.

Dave Hartnett: The issue there was not resisting at an absolute level; it was what was going to be disclosed by the NAO. The Comptroller and Auditor General may want to say something about this.

John Thorpe: Could I say something about it? I think that this relates to the audit of the financial statement. This is how the process worked. We identified approaching 100 legal cases which we thought may have a bearing on the financial statements. We carried out a review of those and did some in-depth testing on some of those cases. The issue is that the schedules that sit in the finance department are anonymised, because they cannot be passed around the organisation with taxpayers’ details on them. To get the assurance that we needed-first, to say what the strength of the case was-we had to go to the legal department, and to tax experts. We also spoke with analysts about how they quantified whether it was a liability or an asset.

In a spectrum of cases, some have a liability for the department, and from memory that approaches £6 billion in the accounts. There are contingent liabilities, so we must identify which cases fall into that category. On the other side, there are contingent assets, and cases where the department has a potential claim to recover tax. We cannot make an assessment of how that should be recognised without looking at the individual papers or talking to the individual experts to assess the strength of the case.

Q172 Mr Bacon: But that is precisely what they say they are not given: "Dave and Alan were able to convince them"-the NAO-"to accept less detailed information that did not give any indication as to whether we thought our case was strong or weak." The list is set out as follows: alphabetical order; no split between cases where there is provision for a contingent liability; and a very brief description of the case.

John Thorpe: We have very detailed working papers with all those cases, and with the supporting documentation, which supports where they fall in provision or contingent liabilities.

Q173 Mr Bacon: I understand that this is under your financial audit hat, but presumably there would be nothing to stop the NAO going back in with a value-for-money hat on and doing a value-for-money study, looking at the whole issue of strong and weak cases if you wished to do that.

John Thorpe: Indeed. If I can talk from the financial audit perspective, I should also say that we track those cases. They’ve been on the books for many years, so we are reviewing them on an ongoing basis. It is not simply an end-of-audit activity.

Q174 Mr Bacon: I am relieved to hear it. Thank you very much. May I quickly move on?

Mr Hartnett, you mentioned in answer to Mr Wharton earlier that at the meeting with Goldman Sachs three HMRC officials were present, and what you described as three Goldman officials. Did you mean employees of Goldman rather than advisers to Goldman?

Dave Hartnett: Yes.

Q175 Mr Bacon: So you were not that oblique in saying that basically, David Goldberg QC wasn’t there, because he’s not an employee of Goldman?

Dave Hartnett: I keep being asked the same question-whether Mr Goldberg is at our meetings.

Q176 Mr Bacon: Well, it seems that many of us want to know.

Dave Hartnett: There are lots of tax silks.

Q177 Mr Bacon: It says here, "Was David Goldberg, QC there?" That is my first question. Have you had lunch with Mr Goldberg?

Dave Hartnett: Yes. I had lunch with Mr Goldberg perhaps once, twice or three times in the last five years.

Q178 Mr Bacon: Three times in the last five years.

Dave Hartnett: He acts for us also.

Q179 Mr Bacon: Does he-because he is a leading tax silk?

Dave Hartnett: Yes. It took a long time, but we managed to persuade him to work for us.

Q180 Mr Bacon: At least he has deep tax knowledge.

Dave Hartnett: Not all tax silks work for us.

Q181 Mr Bacon: I have a marvellous schedule of your lunches, and if I had had as many lunches I’d be even fatter than I am. I accept that it is sensible for someone in your position to meet people "socially", whether for dinner or breakfast. We all have such encounters and they are very useful, so I’m not attacking you for that-although there are quite a lot of them-but I have a couple of questions.

Dave Hartnett: May I just say something first? Many of those are not simply lunches. I speak extensively on tax.

Q182 Mr Bacon: So you were guest speaker.

Dave Hartnett: Quite often.

Q183 Mr Bacon: On the right-hand side, it sometimes says, "Speaking engagement". Am I to take it that when it doesn’t say so you were still a guest speaker?

Dave Hartnett: Absolutely.

Q184 Mr Bacon: Where it says "individual", what are we to make of that, and why can’t the individual be named?

Dave Hartnett: Because the convention that we have been given across Whitehall is that we don’t name individuals if they’re taxpayers, and the individual might be a taxpayer.

Q185 Mr Bacon: Most people are taxpayers-or are you having lots of lunches with non-doms?

Dave Hartnett: Not really, Mr Bacon.

Q186 Mr Bacon: Everybody’s a taxpayer. Even the Queen is a taxpayer.

Dave Hartnett: What we’re trying to do by that is to ensure that it is not simply put into the public domain what individual we might be talking to about tax issues. That’s our convention.

Q187 Mr Bacon: It’s not the only view one can take. I am sure that in Sweden you can probably go in and look at a list every day.

Dave Hartnett: We have a look at the tax-

Q188 Mr Bacon: Is there any serious reason why we couldn’t be more open about that? It would give extra confidence, and confidence in the tax system would be a good thing.

Dave Hartnett: Let me put it like this: imagine that you appeared on my list-named.

Q189 Mr Bacon: I would be delighted to come to lunch, by the way, should you wish to invite me. I’d put it on my website.

Dave Hartnett: There are probably only two reasons why the public at large would deduce you were there: first, that you had a constituency issue, but we do not tend to have meetings like that; and secondly, that you had a problem. The convention is that you should not be indentified.

Q190 Chair: I have to say, I do not take as generous a view of this as Mr Bacon does. In your position as the chief negotiator on tax disputes, it is very dangerous for you to go and have lunches-107, we are told, in two years-with a range of organisations with which you have been negotiating. Had I, as a Minister, done that with organisations I was doing business with, I would have been on the front of the Daily Mail and pushed out of my job. That is the reality of it.

Dave Hartnett: Chair, that list does not involve companies that I am negotiating with.

Q191 Chair: It does. Well, we don’t know because some of them say "taxpayer confidential". The list involves a load of organisations that will be acting as the advisers to individuals with whom you will be negotiating- PricewaterhouseCoopers happens to be the old firm that I worked for, so I know that it would have done it for them.

Dave Hartnett: As I understand it, there are competition rules about how and when leading figures in the big four accounting firms can get together. Once or twice we have had real trouble getting them together when we wanted to talk to them. The heads of tax of the major accounting firms have supper quarterly, I think, and once or twice a year they have invited me to go.

Q192 Chair: You have had 107 lunches-corporate hospitality engagements-in two years, which is at least one a week.

Dave Hartnett: They are not all lunches, with respect.

Q193 Chair: Dinner, lunch-I can go through the list.

Dave Hartnett: I am scrupulous about recording everything.

Chair: I think it is deeply unwise.

Q194 Stella Creasy: Mr Hartnett, can we stay with your point? You said that you might not have lunch with Mr Bacon, because people might draw inference from that. What inference do you think they would draw from your having lunch with companies like Goldman Sachs?

Dave Hartnett: They might infer that a tax issue is under consideration. Since we have started publishing fully, I do not do that-I find other ways of doing things.

Q195 Stella Creasy: What other ways?

Dave Hartnett: Well, maybe a cup of coffee in my office.

Q196 Stella Creasy: So you do not record every contact you have with these companies.

Dave Hartnett: We are not required to record a cup of coffee. Permanent secretaries are now required to record and publish all meetings we have with people outside the civil service. If you look at my published list, it says "a taxpayer"; it does not say who the taxpayer is.

Q197 Stella Creasy: Given that, potentially, four firms are involved, and you do not have to name any of them, have you had more contact with-

Dave Hartnett: I always name the firms.

Q198 Stella Creasy: Have you had other contact, apart from that involving just a coffee or a drink, without any food-no crisps, or whatever, down the pub-with the four firms involved in these disputes?

Dave Hartnett: Sorry, I am now confused.

Q199 Stella Creasy: In that same time period, can you clarify that the only social contact you had with the firms that the Department was in dispute with-that you were negotiating on-was the ones that are listed? Or were there other times when you were in contact with them?

Dave Hartnett: There is nothing other than coffee-

Q200 Stella Creasy: So you confirm that, on top of those contacts, you had other contacts with the four firms in question.

Dave Hartnett: Yes, they might have come in for a meeting on an issue.

Q201 Ian Swales: I understand why you might not want to have this information in the public domain, and you have given us reasons for that. But we are also talking about internal governance in HMRC. Is the knowledge of whom you have seen available anywhere in HMRC?

Dave Hartnett: Yes. My line manager has it and lots of other people in HMRC will know about it.

Q202 Ian Swales: So the top people in HMRC know about all those meetings.

Dave Hartnett: Yes.

Q203 Chair: Who is your line manager?

Dave Hartnett: Lesley Strathie.

Q204 Chair: But she is now on sick leave.

Dave Hartnett: Yes.

Q205 Chair: So, who is your line manager?

Dave Hartnett: Nominally-that is probably the right way to describe it-Sir Gus O’Donnell.

Q206 Stella Creasy: So have you been in contact with Gus O’Donnell to report all the coffees as well as the lunches?

Dave Hartnett: He gets a copy of-

Q207 Stella Creasy: He gets that list, doesn’t he?

Dave Hartnett: He gets that list, yes.

Q208 Stella Creasy: He doesn’t get the coffee list.

Dave Hartnett: He gets the permanent secretary’s list as well.

Q209 Stella Creasy: So he doesn’t get the cumulative total.

Dave Hartnett: Miss Creasy, when I have coffee with an accountant or an adviser, it is almost always to address a particular issue, usually accompanied by someone else from my department, and sometimes-if you can forgive me for putting it this way-they bring a great gang with them from their firm.

Q210 Ian Swales: Can I ask one last question? Do you think it would be wise if you always had somebody else with you from HMRC at such meetings?

Dave Hartnett: That often happens, and yes, it could be wise.

Q211 Ian Swales: Well, you have said it often happens. I am asking, do you think it should always happen?

Dave Hartnett: Not necessarily, but perhaps on the back of this discussion I will think again.

Q212 Stephen Barclay: It is reasonable to have coffees and to meet people. You have to be accessible and you have to be able to work. It comes back to the point that we touched on earlier about what the written legal advice is and whether the NAO has access to it.

Can I take us to a slightly different area? Once you reach settlement with a firm, what is the maximum period over which they must settle the outstanding claim?

Dave Hartnett: That depends entirely on what the issues are and the financial position of the organisation. Some £1 billion-plus settlements have not been fully provided for, and there are significant issues.

Q213 Stephen Barclay: So it’s unlimited? It is at your discretion?

Dave Hartnett: No, we are always trying to strike the right balance between getting the money as fast as we can and collecting for the Exchequer the maximum amount of money that fits with-

Q214 Stephen Barclay: I don’t want you to talk about-well, I would like you to talk about individual cases, but you have given your position on that and you are going to write to me with a legal note on that earlier discussion. Can you tell us the maximum period that a firm has been allowed before settling its outstanding agreed tax bill with you?

Dave Hartnett: The longest I can remember-this goes back a little way-was probably 10 years.

Q215 Stephen Barclay: My constituents, especially small firms, would find it very odd that at your discretion you are giving firms 10 years to settle their tax bill.

Dave Hartnett: Well, I don’t know about your particular constituents, but I can certainly say that we have given small firms and individuals longer than that at times.

Q216 Stephen Barclay: Okay. Where you give a firm more than 12 months to settle its outstanding bill, do you look at its balance sheet to see what assets it has got?

Dave Hartnett: We do more that that. It is in the nature of our enquiry to look at the balance sheet. I would expect our people to be thoroughly familiar with the balance sheet. Our business payment support service, for example, which is the way we support smaller businesses by giving them time to pay, will ask for financial reports as well before we agree the time. Where we are settling with a business over time, we will often ask for a bank report or some other financial report.

Q217 Stephen Barclay: How are the governance criteria around that documented within the department?

Dave Hartnett: We have clear guidance for our people on things like the business payment support service, and we have advice on the time to pay for investigation settlements in our manuals.

Q218 Stephen Barclay: And that is something that the NAO would look at?

Dave Hartnett: I don’t know whether it has looked at it, but it is very welcome.

Q219 Stephen Barclay: To take a hypothetical case, it would not be possible, for example, for firm X with a bill of £1 billion to have £5 billion or £7 billion in assets?

Dave Hartnett: Yes, I think it would be. It depends on what is on the other side of the balance sheet. We want our money-we want the nation’s money-as fast as we can get it. Normal terms are 30 days; sometimes that will stretch to months. If we cannot get it faster, we will take it over a longer period.

Q220 Joseph Johnson: On Stephen’s point about a level playing field between smaller businesses and the like of Goldman Sachs, I have businesses in Orpington that are being put out of business for late payment of their VAT returns, and they are not even being allowed to stagger them over a quarter, let alone a period of years, so I really don’t buy the argument that there is a level playing field.

That is not the point that I want to go back to, which is that we are in a period of incredible fiscal consolidation in Britain. You have got a huge job to do-£25.5 billion of potential tax out there to be clawed in. I am concerned that HMRC’s credibility has taken something of a knock in the past 18 months as a result of the decision-not quite sure whose decision, at this point-to go outside usual procedures with these bespoke arrangements in respect of Goldman Sachs, Vodafone and a couple of other important cases. Do you acknowledge that-that HMRC’s credibility in the public and between the corporates has taken a knock?

Dave Hartnett: I think the speculation, if I may call it that, about what we have done as a department in one or two large cases has been damaging to HMRC but, actually, much of the speculation has been plain wrong. At the TSC hearing before last, for example, on advice I aimed to take away in respect of one corporate some of the mischief that was out there about how we had operated.

Q221 Chair: May I ask you another question? You did the deal in Switzerland for UK residents with funds in Swiss bank accounts-I understand that you negotiated that, didn’t you?

Dave Hartnett: I negotiated, but it is a ministerial agreement.

Q222 Chair: Do you think it is a good deal?

Dave Hartnett: I think it’s a terrific deal.

Q223 Chair: And how do you justify the difference in treatment of rich people who have Swiss bank accounts and the single parent who is being pursued for an overpayment of tax credit?

Dave Hartnett: I think, Chair, what we have achieved in relation to Switzerland was that-

Q224 Chair: How do you justify the difference in treatment?

Dave Hartnett: I am sorry, I need to explain a little about Switzerland first. I will be very quick. What we have achieved will be money for the Exchequer that we would not have got in any other way. We have protected the Exchequer in relation to cases that are already working-so they cannot come within the arrangement-and we have protected the Exchequer in relation to serious organised crime and the like. My answer to you would be that this Switzerland deal is gaining for the Exchequer billions of pounds that it would not otherwise have got. We are addressing issues in the UK for large and small individuals-

Q225 Chair: How do you justify the difference in treatment for rich people? And I am not sure that you have protected, because they can all take their money offshore to another country before May 2013. How do you justify the difference in the treatment of UK taxpayers who are rich enough to have bank accounts in Switzerland, and the way your department treats the overpayment of tax credit to single parents-if you pursue it at all?

Dave Hartnett: We know the people who have been overpaid tax credits and can address that, but we do not know the identity of people in Switzerland and we cannot establish who they are.

Q226 Chair: So your justification of the difference in treatment is-

Dave Hartnett: A pragmatic solution to a long-standing difficulty.

Q227 Chair: Although they can all go offshore somewhere else by 2013.

Dave Hartnett: But we have made arrangements to follow the money, which has been very important to us. And we will follow the money. With Lichtenstein and with Switzerland, we are bringing in huge amounts of money for the Exchequer.

Q228 Chair: We haven’t covered everything that we wanted to this afternoon, but I think in the interests of everyone-if you are happy with this-we shall draw the sitting to a close. I just want to say a general thing and ask you a final general question.

What comes out of this for me and the members of the Committee is that there is a huge sum of money-£25.5 billion, which is an enormous amount of money in potential income to the taxpayer, and incredibly important at a time of deficit reduction-and you are responsible for trying to collect it. You are also a member of the board that oversees your action. You are also a commissioner who oversees the action of the board on an action you have taken. The NAO does not do the detailed work to assess whether the deals you reach are value for money and, at present, there is no way in which you account to the public or to MPs-to us as custodians of the taxpayer’s pound-and nor do you account for whether you are doing a job that is providing value for money. That is how it feels to me. My final question: do you feel that? If you do, what would you change so that we, as the custodians of the taxpayer’s pound, can feel better about ensuring that you and your team provide value for money?

Dave Hartnett: If I may, I’ll say two things. First, I am very confident that we are providing value for money, but I think that both the TSC hearings and interim report, and this hearing, make it clear that there are real concerns here. The TSC has flagged up to us that it wants to consider, as part of its current review of my department, how greater clarity can be brought-

Q229 Chair: What is your view? You are currently the permanent secretary there. What is your own view? I have to tell you that everyone came to this with a fantastic unanimity of view around the table-across party-and no one prepared, in that sense, for it. We came with a unanimity of view and the Treasury Committee has a similar view. You have been around for a long time. How can we get a system? You tell us you are value for money, but the only bits that hit the press question that. Your behaviour in relation to things like lunches makes us even more suspicious, and there is no way of verifying things on behalf of the taxpayer.

Dave Hartnett: I think the answer to your question is going to have to be determined by others to whom we provide advice. The TSC asked whether we had seen systems elsewhere. There is one in Finland, for example, where there is an independent body between the tax administration and the taxpayer when it comes to resolving issues. Most other countries have a system like the United Kingdom’s. I did look before I came here at the policy statements made in the United States, for example, which mirror our own mission statements and the like. But we will provide advice to others, because it will be their decision as to whether the system changes.

Chair: Thank you very much. I ask my members to stay behind.

Prepared 19th December 2011