UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1371-iii

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Treasury Sub-Committee

Administration and effectiveness of HMRC: closing the tax gap

Monday 12 September 2011

Dave HarTnett CB, Mike Eland CB and Melanie Dawes

Evidence heard in Public Questions 645 - 736

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Oral Evidence

Taken before the Treasury Sub-Committee

on Monday 12 September 2011

Members present:

Mr George Mudie (Chair)

Tom Blenkinsop

Michael Fallon

Mark Garnier

Stewart Hosie

Jesse Norman

Mr Andrew Tyrie

________________

Examination of Witnesses

Witnesses: Dave Hartnett CB, Permanent Secretary, Tax, HMRC, Mike Eland CB, Director General, Enforcement and Compliance, HMRC, and Melanie Dawes, Director General, Business Tax, HMRC, gave evidence.

Chair: Good afternoon. We are going to be a bit lighter today; there are important matters, such as the Vickers report and parliamentary boundaries. I do not know which is the more important, but there are a lot of people wandering about with maps today. You may not get full attention, which sometimes is not a bad thing. We are going to start with Mr Hosie.

Q645 Stewart Hosie: The tax gap has caused a deal of debate for a variety of reasons. How much importance do you attach to it, or estimates of it, when you produce your plans and priorities for the work that the Revenue is going to do?

Dave Hartnett: I think, Mr Hosie, for us, the tax gap is quite an important tool, if I can put it that way, in promoting understanding of all the causes of non-compliance and helping us to focus on ways of reducing them. If I can put it this way, it is a bit like a long-term health check for us. A definition of it is the difference between what the Government can expect to receive and actually do receive, but I think, as you may have seen, unlike some other countries, we include avoidance in it, and also the slightly contentious issue of measuring that in line with the spirit of the law-what the intention of Parliament might have been.

Q646 Stewart Hosie: Can I say that the beginning of that answer was deliciously civil servant? It is an important tool for understanding the causes of non-compliance, but it is completely unsettled. Some people will disagree over the size and scale of it; others will say it effectively does not exist; others will say, "Goodness, it does exist, but we have absolutely no way of accurately measuring it." Are the estimates you have robust enough to make operational decisions on investment and performance, for example, around the estimated £7 billion you expect to deliver in extra gain-extra yield-by the end of this Parliament?

Dave Hartnett: The one thing we know for certain is that the £42 billion, which is the present estimate-there will be another one in a couple of weeks’ time-is not accurate; it is our best shot. We invest a lot in making that estimate. We think it is the best estimate in the UK. If I look to some of the larger ones that are around, they include all sorts of things, including some of the reliefs and deductions that Parliament has said taxpayers should have, and there are various other failings in them. We think it is pretty reliable.

Q647 Stewart Hosie: That is interesting, because some of the professional bodies take the £42 billion and say it is inflated because it includes legitimate disagreements over legal interpretation, which is a perfectly valid position for them to take. Others say it is understated due to inadequate information. You say it is your best guess but you invest a lot in calculating it. What could you do better or what should we, as the Committee, or Parliament, do more of, so that we really understand whether it is £25 billion or £42 billion, or indeed the £127 billion, which was the big-end estimate we have seen? What more do we all need to do to get this right, given how important it is?

Dave Hartnett: I am going to bring Melanie in in a minute, because her area is responsible for the calculation, but let me just say on legal interpretation and other things in particular, the focus we put on legal interpretation is where we lose-but not while the argument is going on-and where the Government are therefore going to receive less than expected. We recognise that "legitimate debate" contention around issues will always happen.

Melanie Dawes: Yes, and it is important to say on avoidance that where we resolve an issue with a taxpayer and we agree with their legal interpretation, we do not record that as a tax cut. We record that as the tax gap having been closed because the treatment has been agreed. In terms of what we should be doing with this, I think it is very good to see that there has been so much interest in it. We have been asked by a number of NAO reviews and by the Public Accounts Committee in the last few years to keep publishing the tax gap and to do more of it. We think it is a very useful strategic tool. We used it to get a feel for the overall big areas of risk when we were putting together our plans for the spending review, for example, so it is very helpful.

The important thing is not to use it in the wrong way, so we are not using it for performance targets to measure up actual operation performance in the business. That is what a number of witnesses said was right, and that is indeed the approach we follow.

Q648 Stewart Hosie: That is helpful. Just one final question on this. It is only us in the room and a few people watching, so let me ask this: gut instinct, is the £42 billion an underestimate or an overestimate? Where do you think the real figure is? Do you think we should be looking for more, or can this be eroded down?

Dave Hartnett: We have a tiny, tiny indication of where the number may be going, because we publish a year in advance the VAT gap. I cannot remember precisely what we published last year-it will form part of the calculation this year-but that VAT gap has gone down by about, I think from memory, 20%. I will correct it in a note if I am wrong.

Q649 Stewart Hosie: That is quite a significant decrease.

Dave Hartnett: Yes, but if you look at the trend, it rose the year before and it is now coming down again.

Q650 Stewart Hosie: Just on that, if that metric was comparable, that would result in an £8 billion reduction in the tax gap forecast; that is a significant change year on year, isn’t it?

Dave Hartnett: It is a very big change year on year, but the tax gap tends not to work proportionately like that.

Melanie Dawes: Perhaps I could just explain the VAT point. The increase in that most recent year was because there was an increase in VAT debt as a result of the recession, and the figures that we had already published for the subsequent year show that has fallen. It is one indication of how the tax gap trends need to be interpreted with caution. In this instance, this was due to the economic cycle. In answer to the question of whether £40 billion is about right, as an order of magnitude, yes, we believe it is, and we are very clear that some of the very big estimates that have been suggested-around £120 billion-are way, way out of range, so that is the order of magnitude we think we should be working with, and it is very comparable. It is at the lower end of international estimate.

Stewart Hosie: That is helpful. Thank you.

Q651 Mr Tyrie: Mr Hartnett, is it right or wrong that individuals and companies should structure their arrangements to minimise tax?

Dave Hartnett: It depends whether you are asking me a moral question or a legal question. The case of the Duke of Westminster establishes that it is perfectly right for individuals and companies to do that.

Q652 Mr Tyrie: Is this the correct course of action for them to take?

Dave Hartnett: That is what the case effectively says. Our challenge is to make sure they have done it properly.

Q653 Mr Tyrie: So people can quite reasonably do everything they can to avoid tax?

Dave Hartnett: We challenge that and examine it, but tax avoidance is not illegal.

Q654 Mr Tyrie: Do you not think that the best method of reducing the tax gap might be to simplify the tax system, so that people know whether they are avoiding it or evading it?

Dave Hartnett: I think that depends on who the people are. Simplification of the tax system, I think, is something that my Department, the Office of Tax Simplification and others are focused on, because we regard it as very important, particularly for taxpayers who do not have advisers and the like, so that they can understand, in a more ready way, what is required of them. The simplification of the tax system for banks, to go to the other end, so that something like taxation of repos was simplified, is, I think, a jolly difficult proposition.

Q655 Mr Tyrie: You say in your mission statement that you will close the tax gap. You are not actually going to close the tax gap, are you? You are going to reduce the tax gap; isn’t that right?

Dave Hartnett: We had much debate on this, Mr Tyrie, as to whether "close" means close so the door is aligned with the frame, or whether it is the process of closing, and it is the second of those that we are doing.

Mr Tyrie: That is another classic Sir Humphrey reply, if I may say so.

Dave Hartnett: That was the debate we had.

Q656 Mr Tyrie: Out of the top drawer, if I may say so, above the doorway. Impressive. What concerns me most of all about this whole debate is that we find ourselves stigmatising people for doing something that is perfectly logical, reasonable and, indeed, inevitable, and we have to be very careful in this debate, have we not, to avoid ending up there?

Dave Hartnett: I think that is absolutely right for individuals who do not set about avoidance that is complex or hidden or convoluted in some way, but there are forms of avoidance that I think most people would agree would be reprehensible.

Q657 Mark Garnier: We have heard that HMRC has improved its results in targeting higher-value, higher-risk cases, but that presupposes that you have not done very much in the lower-value, more mass avoidance because of inability to fill in a tax return. What is your rationale for going for higher value ones, and what are your plans for dealing with the more widespread, lower-value ones?

Dave Hartnett: We target our compliance activity, Mr Garnier, by reference to risk, and particularly trying to take on the biggest risks, and the management of risk is different depending on the sort of customer we are dealing with. For example, the risk in big business is likely to be dealt with by a single team managing that. The risk in relation to individuals may be dealt with by some of the-

Q658 Mark Garnier: Sorry, when you say "the risk", what do you mean?

Dave Hartnett: The risk that-

Mark Garnier: Of non-compliance?

Dave Hartnett: Of non-compliance, and that the Exchequer is losing money. For individuals, our approach is to have campaigns; a small number of our officials may deal with a large number of taxpayers. That is our approach there.

Q659 Mark Garnier: This presupposes that you are going for, broadly speaking, the easy targets, the easy targets being, for example, people who are already in the tax system. What about people who just have not engaged with the tax system at all? How are you going to approach people like that?

Dave Hartnett: In lots of different ways. We have hundreds of people working on the hidden economy using internet search, following adverts in the Yellow Pages and doing many other things to identify those people.

Q660 Mark Garnier: Presumably, you are not Googling "tax avoidance" and seeing what it comes up with. Do you want to elaborate a little bit on that? What sort of thing are you looking for?

Dave Hartnett: I will bring Mike in, if I may.

Mike Eland: We use internet search. We have a device called a web robot that identifies websites in particular areas. People in the hidden economy will often use websites to get business. With our new risk tools we are able to check that against our tax records and see whether they are known to us. So we identify quite a large number of people who are active in the economy but not declaring tax, and we can pursue them in that way.

Equally, with new information tools, people can leave a number of signs that they are economically active, which we can identify and then compare to our tax records. That is the sort of thing that we are doing. We then follow through on that with an investigation.

Q661 Mark Garnier: I want to follow up on this investigation thing. Is it not the case that some people might find themselves the subject of an investigation and suddenly decide that the cost of defending it or complying with it-in terms of getting their accounts sorted out-is going to be x, and that they could just pay you a cheque for x minus y, which is what you are after, and is it not therefore easier just to say, "Here is some money, go away," the underlying point being that it was not necessarily a valid investigation in the first place?

Mike Eland: We do not believe that is the case, because what we are interested in with an investigation is establishing the correct tax liability. That, if we get co-operation, can be dealt with fairly swiftly. Obviously, if it is an area where we identify evasion and suppression, it will take longer.

Q662 Mark Garnier: I am sorry to interrupt you, but you talk about co-operation. Co-operation, to me, where you say you can come to a swift conclusion, is when somebody turns around and says, "Yes, that is right, I think I owe you x," and you broadly agree with it, but I have people who come and see me in my surgeries who say that they find it incredibly frustrating dealing with HMRC. It gets in touch and says, "You owe some money," and they write back and say, "Here is all the paperwork." They discover that when they do that, they find themselves having to talk to a different person, department or adjudicator. There is the cost of going through this process, in terms of time; a great many of the people who come and see me do not necessarily have accountants, so the cost is their personal time. They are finding it breathtakingly frustrating. I try to lubricate the wheels in order to try and get this through, but the frustration is that it is incredibly time-consuming. There is no sense of any real process at HMRC that makes it easy for people to deal with one individual, as a result of which people eventually pull their hair out, come and see their MP or, indeed, in the end just pay up to get you off their backs.

Mike Eland: It is not in our interest to have a long-drawn-out investigation any more than it is for the business concerned. We have worked with the agents to develop a process, which we call open and early dialogue, which is designed precisely to sit down at the beginning of an inquiry, work out what the issues are, and pursue those and resolve them as quickly as possible. We are looking all the time to make sure that what we are doing is proportionate, and that we are focused on the real risks. The whole strategy that underlies our approach to the spending review is to deal with error through either designing it out of the system or dealing with it in a very low-intensity way, and to concentrate our skilled and face-to-face resource on evasion, not error. That is very much the direction we are looking to move in.

Q663 Mark Garnier: I understand from another constituent-a business, this time-that you can levy a fine, as a percentage of an error, in terms of a tax return. Is that the case?

Mike Eland: That is correct.

Q664 Mark Garnier: I think it is 15%, isn’t it, of an erroneous number? I think in the case of this business, there was £250,000 that should not have been there. In fact, it did not make any difference to their tax return. They were charged 15% of £250,000. I am trying to work out in my head what that is, but I cannot. Anyway, it is a reasonable amount of money. They challenged it, and they had a really rough time of it. When you are levying those fines, do those get counted as part of closing the tax gap, or is this another sort of accounting? You are not looking at that in terms of-

Dave Hartnett: Let me pick this up. We do not count it in that way, Mr Garnier. Maybe I can make three points. The first is we would prefer somebody who believed they had done absolutely nothing wrong and was certain of it, and were being incorrectly investigated by us, to complain-quite simply, to move up the chain and register a complaint. We will then have a look at it.

Secondly, I am not sure what sort of fine it was-whether it was a fine in relation to unpaid tax, business tax of some sort, or Pay As You Earn.

Q665 Mark Garnier: It was business, but it was a cell filled in incorrectly. The fine was levied as a percentage of the number that was filled in incorrectly.

Dave Hartnett: I clearly know nothing of the case, but if it is that simple, I would say that we very recently carried out our powers review and changed the approach to penalties to one of focusing on behaviour. Innocent error, certainly the first time, does not attract a penalty. That is important, so you may want to write to me about that, if it is that simple.

Mark Garnier: I think I will do, because in this particular case, after a fairly extensive process, you guys eventually turned round and decided not to go ahead with fining them, but none the less, the cost to them in terms of management time and all the rest of it was pretty extensive. I will write to you about that.

Dave Hartnett: Thank you.

Q666 Mark Garnier: Just carrying on, getting back to the smaller taxpayers, according to your annual report, 50% of taxpayers were willing and able to pay their tax on time in 2010-11. It is not very many, is it?

Dave Hartnett: It is a number we are trying very hard to increase. There is a greater number who have some difficulty, and our aim is to support them in paying the right tax at the right time. Then there is a group that has a propensity to think it is all right not to pay at the right time, and then there are some who are determined not to pay at the right time, or not to pay at all. We are developing-if it is helpful, I will ask Melanie to explain, because she is responsible for our strategies-different approaches to different sorts of taxpayers to increase the numbers who do pay the right amount at the right time.

Q667 Mark Garnier: I come back to a point that Mr Tyrie made a little bit earlier. Is it not the case that the tax code is just so ferociously complex that it makes it very difficult for people to be able to comply with it? Indeed, we have had two sets of witnesses here, one of whom is somebody I disagree with, so I will not necessarily mention his name, but he quite categorically said that if anybody wants to operate in this country, they should learn this, but he was rather a pompous man. The rest of them, including the unions, all agree that this was a big problem. It is just very, very difficult indeed to be able to comply with this country’s tax code. You talk about how we are trying to aim for more simplification, but even after the Budget last year, one of the comments made was that the rate of increase in complexity of the tax code had merely slowed down; it had not been reversed. We talk about this Office of Tax Simplification, but the fact of the matter is: what is genuinely being done about proper, significant, tax simplification? At the end of the day, should we not perhaps rip up the tax code altogether and start again from scratch to make sure that people can understand what they are supposed to be doing?

Dave Hartnett: Let me say two things again. The first is that we have succeeded in taking almost £600 million of burdens created by the tax code off business in the last five years and aim to do more. I think the Office of Tax Simplification-I sit on its board with one of my Treasury colleagues-is determined to simplify. The sort of thing that we want to simplify is the approach for small business. One of the most interesting pieces of research we have done recently shows that a small business starting up that is not, if I can put it this way, on the straight and narrow on taxation within about nine months might not get on the straight and narrow until we intervene-which usually comes with a big bill. That has to be improved significantly, and we are looking at how to do that. I think the Office of Tax Simplification will come up with some pretty good proposals in relation to the taxation of small business.

I think that some of the changes to the plan for Pay As You Earn- particularly the simplification of end-of-year procedures in the next couple of years, probably ending the life of forms P45 and P46, which the nation at least knows the names of, if not what they do in the tax system-will help a great deal with individuals’ understanding of the tax system. We are determined to do more, and there will be an announcement shortly about a new, additional programme for the Office of Tax Simplification.

Q668 Tom Blenkinsop: Estimates suggest that as much as £125 billion potentially liable to the UK could be in Swiss bank accounts, and that the potential liability under this deal is around £20 billion. However, the Government expect to raise only £3 billion to £6 billion. Why is that?

Dave Hartnett: I think the first thing to say, Mr Blenkinsop, is that no one really knows the number. £100 billion is probably a fair estimate-£100 billion, £125 billion. One of the first issues is the extent to which individuals who are not domiciled in the United Kingdom have money in Switzerland after remitting their income or gains, and therefore have no tax to pay. That will take a large part out of a rough estimate of the tax liability.

Secondly-I do not say this to make you smile, but you may-a lot of UK residents who bank in Switzerland pay their tax in the UK. We see lots of tax returns with Swiss income on. Gradually, you get down to a lower number. It may be helpful for me to say that as we have taken forward our work with Switzerland, we have approached the calculation in three different ways. First, HMRC analysts looked at it on the basis of publicly available information and came up with a range of £5 billion to £7 billion. Secondly, the Swiss banks looked at it and came up with a best estimate-this was done through a major accounting firm-of £4 billion, and then we used another external organisation ourselves, which came up with a figure of just over the £7 billion that we came up with. I do not know what the right number is, but it is interesting that, roughly, these three calculations are in the same ballpark.

Q669 Tom Blenkinsop: Why does this particular law change have a two-year lead-in time, and what is to prevent evaders moving their money in the interim?

Dave Hartnett: There are two things there. Why the lead-in time? The Swiss have to build a system to make this happen. This is a novel arrangement among states; it is the first time, I think, any tax administration will have created something that sees withholding against capital. Withholding against income is normal in taxation, but withholding against capital is not.

The second thing is people can move their money. We recognise that, and the Swiss recognise that, but the Swiss have pledged that they will not be complicit in helping people to take money out of the scope of this. If I may pause with a minor digression, it will be good when everyone can read the full agreement, because much more of this will then become clear. The world is getting a smaller place. First it was Liechtenstein, now it is Switzerland, and other tax administrations with which we are working are focusing on other so-called tax havens, and we will be approaching them in due course.

Q670 Tom Blenkinsop: The tax rate that will be applied under this arrangement is marginally lower than the equivalent marginal top rate of tax in the UK. How do you justify creating an HMRC-endorsed tax break for people who hold their money in Swiss bank accounts?

Dave Hartnett: Are you thinking of the 48% withholding? The 48% is a calculation based on the top rate of 50% when money would often not come in, or generally not come in, until 31 January following the end of the tax year. This money will come in earlier, so we calculated a withholding based on that anticipation of money.

Q671 Tom Blenkinsop: So if an account holder does choose to disclose the details to HMRC, they will become liable for the full amount of any taxes, plus interest and penalties?

Dave Hartnett: Absolutely.

Q672 Tom Blenkinsop: If they take up the back tax rate, these obligations are deemed to be settled?

Dave Hartnett: Yes.

Q673 Tom Blenkinsop: Is that not somewhat counter-productive?

Dave Hartnett: I don’t think so. It is not everybody who can get that degree of certainty. We have made sure, for example, that people we are already investigating cannot obtain certainty through this arrangement; that those involved in non-tax crime cannot; and that those involved in organised crime cannot. We recognise that people are going to do some calculations here. I think that many will not come straight through the doors of 100 Parliament Street and say, "I want to make a disclosure," but they may take themselves into the Liechtenstein disclosure facility instead. Others will want withholding because that gives them a different sort of certainty.

Q674 Tom Blenkinsop: Is this policy not counterintuitive to closing the tax gap?

Dave Hartnett: No, because we are recovering tax that we have wanted to recover for tens of years, but have never been able to, and the important judgment here was whether the United Kingdom or the international tax community generally was going to be able to break down banking secrecy in Switzerland any time soon. The judgment made was that, certainly in the next 10 years, that seemed very unlikely, and therefore it seemed reasonable to take a very large slice of money in a way that Switzerland had never previously contemplated.

Q675 Tom Blenkinsop: By pursuing that policy, are you not entrenching part of it by abandoning the pursuit of full liability?

Dave Hartnett: I do not think we are abandoning the pursuit of full liability. We cannot find people in Switzerland, and one of the really important features of this arrangement is that the Swiss are now going to give us the opportunity of obtaining more information about named individuals than we can obtain under the standard approach of article 26 of the OECD model double taxation treaty. Part of this arrangement will give us much more than we have ever had before, and we will be able to pursue individuals. Some of those individuals would say to us, "Here is my certificate from Switzerland, which proves I have already settled for the past," but going forward we will be able to check in detail in Switzerland whether people have paid all their taxes.

Q676 Tom Blenkinsop: The Liechtenstein deal was not open to people who were already the subject of HMRC investigations. Will this deal prevent HMRC from taking action against those who are already being investigated by HMRC for tax evasion in Switzerland?

Dave Hartnett: No. The people already being investigated are excluded from this arrangement. If they suffer withholding on their Swiss money, that amount of withholding will be a payment on account, and not a settlement of liability.

Q677 Tom Blenkinsop: So if people sign up to this, they could be paying a premium for anonymity, as it were. Does that not suggest that they may be involved in other illegal activity?

Dave Hartnett: It depends what the legal activities are.

Q678 Tom Blenkinsop: You are not going to know, are you?

Dave Hartnett: If the legal activities are criminal in some way, other than in relation to tax, then they will not get the certainty that they are seeking. That is the important thing. If I can, Mr Blenkinsop, I will give you an illustration. I think the whole nation probably knows that our Department has a disc from the Swiss-from the Geneva branch of a major UK bank-with 6,000 names, all ripe for investigation. Unless, as we check them, we find they are already paying tax, they will all be outside this agreement.

Q679 Chair: A good question to ask is where you are with those 6,000 names.

Dave Hartnett: Mike may want to come in to help me in a minute, but we have a-

Chair: I am not suggesting you need help, Mr Hartnett.

Dave Hartnett: Let me try, Chair, if I may. We have hundreds already under investigation. Some of those-

Q680 Chair: When did you get it?

Dave Hartnett: The disc?

Chair: Yes.

Dave Hartnett: June last year, about that. So we have got 100-

Q681 Chair: And you are doing 100 a year?

Dave Hartnett: No, no. We cannot do that, because it is a sad fact of life that some people will die. We are then restricted as to the number of years we can seek to collect tax, so we want to act on these data as fast as we can. We have hundreds under investigation, some of them under criminal investigation, and we are about to challenge another 800. Then we will industrialise the process, challenging 1,000 at a time, with a view to having all those who need challenging challenged pretty quickly.

Q682 Tom Blenkinsop: That is the question: had you challenged them before?

Dave Hartnett: I am sorry, I do not understand.

Tom Blenkinsop: The people on this list-have they been investigated before?

Dave Hartnett: Some have been.

Q683 Tom Blenkinsop: Do you know how many of them?

Dave Hartnett: I do not know the answer to that.

Mike Eland: No, I do not.

Dave Hartnett: But they are in much more difficulty with us than those who have not been investigated before, because if they have lied to us in a prior investigation, that is an issue that we take terribly seriously, and we would want our criminal investigators to consider cases like that.

Q684 Stewart Hosie: Mr Hartnett, I have a question on this Swiss issue-not necessarily the 6,000, but the Swiss issue generally. If it becomes clear that large numbers of these people put their money into Swiss bank accounts or wherever, having paid tax in the UK, and if they have paid their tax in Switzerland, quite properly, as I suspect many of them will have done, when are you going to report--or will you report it?-that 50% or 60% have done the right thing, and that of the remaining 40%, a small number are doing particularly naughty things, some of which have been criminal? When will we get a breakdown of the nature of the 6,000 and the bigger numbers that you have?

Dave Hartnett: I think when we have it. I do not mean that to be a trite comment. I am sure that this Committee will want more information from us on that, and maybe the Public Accounts Committee will as well, but the challenge for us at the minute, to use a slightly strange word, if I may, is to industrialise process here, so that we can use the minimum number of investigators that fits with collecting the maximum amount of money.

Q685 Chair: What do you mean by "industrialise"?

Dave Hartnett: Chair, it is what I was saying to you earlier on. We are about to challenge 800 of these investors by post. What we are going to say to them is, "Here is what we know. We are going to investigate. Here is your chance to come forward and tell us exactly what has gone on here if you have a problem with us." The advantage of that sort of approach-

Q686 Chair: But I just call that sending them a letter, not industrialising. How long does it take you to send letters to 6,000 people? Every politician round here does it almost weekly, I think, it is alleged.

Dave Hartnett: If I can be very bold for a second, we want to do a little more perhaps than the politician who simply sends the letter. What we want to do is send the letter-

Chair: Your letters are more threatening than those that politicians send, but that is another question later down the agenda.

Dave Hartnett: We send the letter, let people see what we know, and then act if they have not responded within a relatively short period of time.

Q687 Chair: I am not being funny. If you have 6,000 names and addresses and it amounts to sending them a letter-a carefully considered letter-why, after 15 months, has that letter not gone out?

Mike Eland: Can I come in here? What we have done is look at the names we had on the list and identified those whom we want to pursue through investigations straight away, either because they are known to us as they have committed an offence before or whatever, or because we consider them to be high-risk cases. We have, I think, around 750 investigations of that sort going on-a mixture of criminal and civil investigations.

What we are now looking at is the remainder of the population, having, if you like, creamed those off, and we are looking to try and identify those who either have a good explanation as to why they have the account, so we can weed those out quickly, or people who will voluntarily come forward and do a full disclosure, and we can dispense with them quickly. This is the next stage in the process. The first stage in the process was to comb through the 8,000 and identify the high-risk cases and get those investigated.

Dave Hartnett: Chair, can I add that we were not idle for 15 months? The data that we received needed analysis; it needed sorting as between families, and as between trusts and other complicated structures, before we could really challenge anybody. Other countries that have had similar data in relation to the same bank have all had to do that. I think the UK is pretty near the forefront of those mounting a large number of challenges.

Q688 Chair: So the other 5,300 letters will go out soon?

Dave Hartnett: They will go out, on a programme, over the next short number of months, subject to us continuing the process of checking whether they have already paid their taxes-

Q689 Chair: Can I just press you on that? I have always been aware of the vagueness of time scales and amounts, and so on. What do you mean by "a short number of months"? This year?

Dave Hartnett: No. Six to nine months was the estimate I was given yesterday.

Q690 Chair: Under your agreement, requests to disclose information on specific individuals from you have to be on plausible grounds. What in the banking industry are "plausible grounds"?

Dave Hartnett: What the agreement specifically says is that if we have grounds to consider that somebody has hidden money in Switzerland, we can ask the Swiss Government to identify all their bank accounts in Switzerland, which is not something that happens under any other agreement I am aware of. The Swiss have the facility to check all their banks, and that is what is going to be happening, going forward.

Chair: But what are "plausible grounds"?

Dave Hartnett: As I think I was saying to Mr Garnier earlier on, where we identify what appears to be a tax risk in relation to an individual, that will be a plausible ground.

Q691 Jesse Norman: Mr Hartnett, the NAO talks about governance errors. What is a governance error? What does it mean in this case?

Dave Hartnett: A governance error is where there is a process to oversee-I think in the context of the NAO, you are thinking of settlement of an investigation-and that governance does not happen in line with our processes.

Jesse Norman: We are now back in Sir Humphrey world.

Dave Hartnett: I am not.

Q692 Jesse Norman: Perhaps you could be a little bit more explicit as to why the governance has not, in some case referred to by the NAO, gone in accordance with your processes. What does it mean to say that it has not gone in accordance with your processes, and why has that happened?

Dave Hartnett: I think there are two cases that the NAO identified. There was one where a settlement was approved without the whole of the High Risk Corporate Programme Board being consulted before the taxpayer was told that the case was settled. In another, we reached a conclusion on an issue, not realising that an impediment to full application of the relevant law no longer applied and that the official responsible for taking that to the High Risk Corporate Programme Board did not initially realise that was necessary. The governance worked very well, because the High Risk Corporate Programme Board identified that issue.

Jesse Norman: I have certainly misunderstood what you have just said. In the second case, what happened?

Dave Hartnett: In the second case, there was a misunderstanding of a particular aspect of the law.

Jesse Norman: Of the law?

Dave Hartnett: Of the law. There had been an impediment, which had prevented the law being applied in a particular way, and the individuals involved in the case did not realise that that impediment had been removed.

Q693 Jesse Norman: So they could have got more if they had not thought the impediment was there. Then it was discovered the impediment was there, and they then went and got the extra.

Dave Hartnett: In this particular case, the matter was referred to the High Risk Corporate Programme Board later than it should have been-only by days-because the individual responsible for the case did not realise it had to go there.

Q694 Jesse Norman: In the first case, where the board was not consulted-

Dave Hartnett: Not fully consulted.

Jesse Norman: Not fully consulted. What is the problem with that? Why is that an error of governance?

Dave Hartnett: Because we have a process laid down, and it was not fully followed.

Q695 Jesse Norman: I suppose I am asking why the process is the way it is. What problem is the process designed to guard against?

Dave Hartnett: The process is designed to ensure that for cases under a particular amount of money, there is a broad oversight among our tax leaders of a proposed settlement.

Q696 Jesse Norman: In other words, you do not want individual people going off and striking a settlement unless it has been properly shared. You do not want people running off and doing private deals.

Dave Hartnett: Absolutely.

Q697 Jesse Norman: Were you personally involved in doing this particular deal?

Dave Hartnett: The one that was not approved by the whole-

Jesse Norman: Yes.

Dave Hartnett: No.

Q698 Jesse Norman: That is helpful. Are we talking about the Goldman Sachs deal, just so I understand?

Dave Hartnett: Mr Norman, you know I cannot answer that.

Q699 Jesse Norman: Okay. There has been a deal done with Goldman, I think I am right in saying, in which they were-

Dave Hartnett: I am really sorry, but I cannot talk at all about a specific taxpayer. To make sure I could not do that, twice in the last 10 days, I have been to see our most senior lawyers to see whether there was anything I could say about the newspaper reports on this, and they have said no.

Q700 Jesse Norman: Take the case we are talking about. The error has now been put right, is that correct?

Dave Hartnett: Mr Norman, there is huge speculation that the case referred to in the NAO report is Goldman Sachs, and my legal advice says I cannot say anything that adds to or detracts from that speculation.

Q701 Jesse Norman: My last statement was not intended to be dispositive either way on that; it is just a question, which is: if there was a governance error, has the error been corrected, regardless of who the institution or not may be?

Dave Hartnett: I am very sorry, but because of the huge media speculation that that second case is Goldman Sachs, I am unable to answer any questions. I do not want to be difficult with the Committee. I knew this would arise, and colleagues and I got legal advice to see what we should do.

Q702 Jesse Norman: While we are on the issue, which you do not want to talk about and I do, have you ever had corporate hospitality from Goldman Sachs?

Dave Hartnett: I have been to a supper with Goldman Sachs. I would not call it corporate hospitality from them. I went with a managing director from the Treasury to talk to about 20 chief finance officers from FTSE 100 companies about developments in tax policy and tax administration.

Q703 Jesse Norman: Was any dispute with Goldman outstanding while you had this experience?

Dave Hartnett: I knew nothing of Goldman’s tax affairs when I was at that supper. I do not deal with Goldman’s tax affairs.

Q704 Jesse Norman: That is a helpful clarification. By extension, I assume you cannot talk about Vodafone, although we had a conversation about Vodafone when you were last in front of the Committee?

Dave Hartnett: The advice I had then was that because there were a lot of non-issues in the media, I could correct those, and that is what I sought to do.

Q705 Jesse Norman: That is helpful. One of the questions that has been put about the Vodafone settlement is that the Treasury never collected the interest owing on the tax that was payable. I forget if you addressed that issue last time; did it in fact collect the interest that was payable on the tax that was owing?

Dave Hartnett: I am in the same place again, Mr Norman. Can I just say, I would really like to answer these questions for the good of our Department and to make clear my own position, but your interim report in July made clear that the law really does not allow us to defend ourselves when it comes to having to talk about individual taxpayers?

Jesse Norman: I am not seeking to attack you or anyone else. I just need to get the facts straight.

Dave Hartnett: I understand that.

Q706 Jesse Norman: For the record, you cannot clarify whether or not interest was charged on the tax that was payable. Let me ask another question: does the law require that interest be paid on tax that is owing?

Dave Hartnett: Depending on the circumstances, yes.

Q707 Jesse Norman: What kinds of circumstances would release HMRC from this obligation?

Dave Hartnett: Let me try to give you an example, which I hope is helpful. One of the areas where we have not sought tax-I am just trying to find a note I wrote to myself on this-is in relation to certain controlled foreign companies, where following a change in the law on the taxation of overseas dividends in 2009, so that the majority of dividends paid by overseas companies were no longer taxable, we looked again at how certain exemptions applied. We discussed this with our own lawyers, other lawyers, and business extensively, and developed something called the new approach to CFCs. We consulted widely. This applied to the motive test in relation to the CFCs, so that where a company pays a dividend now-post-2009-and elects to be taxed on it, and is therefore regarded as passing the motive test, no interest arises on that. I am sorry that is rather complicated. We can set it out in a letter, if that helps.

Jesse Norman: That would be helpful, if you would. I am grateful for that offer and I accept it. Just to be clear, circumstances under which interest might not legally be required to be paid on tax owing are of the kind you describe.

Dave Hartnett: There are others.

Q708 Jesse Norman: In the case of Vodafone, this interest had been long-standing for a very long period of time, much later than 2009. It is absolutely opaque as to why the treatment of dividends would have any bearing. I suppose that may have been the cause of the tax that was owing?

Dave Hartnett: I am feeling, Mr Norman, as though I am thwarting all your questions, but I cannot answer questions on Vodafone. I am very sorry.

Q709 Jesse Norman: When you last came before us, you said that, in terms of avoidance, some £6.2 billion had been protected through litigation, and I subsequently had a letter from Dame Lesley suggesting a list showing £6.5 billion. Something like just under £6 billion of that was from fighting group litigation challenges. Only about £100 million was on corporation tax avoidance cases. That is £100 million out of the £6.2 billion. In the list of legal decisions that I was sent, just seven cases had been taken to the tribunal since 2000. My question is: can that really be a decent response to issue of corporate tax avoidance, amounting to evasion?

Dave Hartnett: I think, Mr Norman, the first thing I would like to do is look at the analysis of those numbers, because one case-we mentioned it at the last hearing, so it is in the public domain-Prudential, which is about off-market swaps, has produced about £1 billion through the immediate case and the 30 or so following cases. The analysis you have given, which I have not made for myself, so I cannot really comment on now, is not right, in terms of the money that has flowed from some of those cases.

Melanie Dawes: Can I add, Mr Norman, that on corporation tax, we also have a lot of other cases with large businesses that are following on from some of those cases? On VAT, it is more usual to find that each case has to be heard on its own merit, so you will find that there are often a lot of other companies standing behind what may appear to be quite a small number of cases but actually involves quite a large amount of tax.

Q710 Jesse Norman: Thank you for that. You will know from previous discussions that I feel very strongly about the high penalties being imposed on small business, and the small penalties being imposed on large business. My colleague, Mr Blenkinsop, raised the question earlier about percentages being charged in penalties and, of course, when you have a negotiated settlement, almost by definition there is no standard compared to which you can charge penalties, which build in a bias in favour of large companies, who can negotiate their terms of settlement, and against small companies.

However, the Revenue is occasionally successful in these cases, and here is an example: Prudential had a scheme involving deliberate mislabelling of payments in order to arrange a tax break. In that case, there was no penalty charged at all, as far as I am aware, but there are countless cases-every constituency has them-involving small businesses in which HMRC is relentless in chasing large penalties on small business. I am just wondering why you are not charging penalties in cases like Prudential’s. In 2008, you told the House that penalties from large businesses would increase, but in fact they have gone down, haven’t they?

Dave Hartnett: Yes, they have.

Q711 Jesse Norman: Why should that be? That seems to me a pretty poor outcome.

Dave Hartnett: We did touch on this at the last hearing.

Jesse Norman: Let us talk about Prudential then. We do not need to expand on the point; I have made the point about the drop in paying penalties.

Dave Hartnett: Our people will have looked incredibly carefully at every case that we have litigated and won that involves avoidance, or that we have settled, to determine whether the law allows a penalty to be taken. Forgive me, but I do not have the transcript of last time with me; however, one of the points that I know Mr Clasper wanted to make-I cannot remember whether he made it-is that evasion in large business, or dishonesty in relation to taxation, is something that we do not see very often; I certainly made the point first. In order to take a penalty from large business, we have to find that the law can be applied. With smaller business, there is more often dishonesty, or-

Jesse Norman: There is more often provable dishonesty. If someone goes into a negotiation with you with a bunch of numbers that they just want to get away with, and you make your way to a negotiation, it is hard to prove dishonesty, although they may have started miles away from where you were, in terms of negotiation.

Dave Hartnett: We do search out for dishonesty and our investigators are very good at it. Over the years, we have often asked our criminal investigators and other specialist investigators to take up an inquiry into big business avoidance and search out the dishonesty.

Q712 Jesse Norman: The Prudential case is a counter-example to that. I have here a copy of the legal report: "HMRC win on ‘mis-labelling’ (Tax newsflash, June 2009)". It says that the Court of Appeal affirmed the judgment on the Prudential issue in favour of HMRC. You win the case; where is the money? They should pay the penalty. The Court of Appeal has found for you in this. It seems cut and dried that penalties should be paid. These people have attempted to get away with not paying, and they have been found out.

Dave Hartnett: I am afraid, Mr Norman, that all our legal advice is that winning in the Court of Appeal is not enough for us to be able to take a penalty.

Q713 Jesse Norman: Is that because you fear that it may go to the Supreme Court, or is it because you simply regard a Court of Appeal judgment, uncontested or unreferred successfully, to be an insecure basis for charging a penalty?

Dave Hartnett: No. A decision by the Court of Appeal, or indeed the Supreme Court, is not of itself enough to bring the case within the legislation that leads us to be able to charge a penalty.

Jesse Norman: I would be very grateful if you could have someone write to the Committee on that. It seems to be an extraordinary thing.

Dave Hartnett: Of course.

Q714 Jesse Norman: We have procedures for deciding what is within the law. In some cases it is unclear what the law is. The judges make a decision; the people pay up. A final question. You have talked a little bit about the Swiss deal, which I think in many ways is important and good. You have also said that HMRC cannot find people in Switzerland, so my question is: first of all, how are you able to make any estimate of what the revenue from that deal is going to be, given that you do not know who they are? We bracketed out the disc you have received. Secondly, how on earth are you going to be doing it, since in many of these cases these accounts are under nominee names, or in the names of trusts or foundations or other institutions, and the Swiss themselves may not know the ultimate beneficial owner? How have you been able to get to this £5 billion number? How properly and responsibly have you been able to get to that number? Not, as it were, just by guesswork?

Dave Hartnett: If I may, it is certainly not by guesswork. We have expected, throughout the discussions with the Swiss, to be tested on the numbers. We started out in two ways, looking at the number. The first was by looking at various research that had been undertaken and is available in the public domain, which puts some numbers on the amount of money held by United Kingdom residents in Switzerland.

The second thing we did was ask the Swiss banks, under supervision of the Swiss Government, to come up with a number, and those two numbers were not very far apart. I cannot remember how far apart, but it was a small difference. Then we applied the sort of issues that I was talking to Mr Blenkinsop-non-domiciled status and the like.

Where we have gone with the structures and trusts is that Swiss banks will require disclosure to them of beneficial ownership, and if that shows a connection to the United Kingdom, there will be withholding against those investments, and the Swiss tax authority will audit this in relation to the Swiss banks. It has a pretty fearsome reputation for the way in which it audits Swiss banks.

Q715 Jesse Norman: Why did you offer immunity to the bankers involved as part of this deal?

Dave Hartnett: We have not technically offered immunity. We have said we will not start criminal investigations, and the reason for that is that we have no evidence on the basis on which to start them.

Jesse Norman: But you might well discover evidence in the course of the implementation of this deal that creates serious concern about it.

Dave Hartnett: We thought it was very unlikely indeed that we would get evidence against Swiss bankers during the course of this. Can I switch across to Liechtenstein to illustrate the point, just for a moment?

Jesse Norman: Yes, of course.

Dave Hartnett: We thought, there, because the Liechtenstein disclosure facility is different, that we would, or could, get a great deal of evidence about some bankers, and none has been flushed out at all.

Q716 Jesse Norman: Does that apply to historical misdeeds, as well as to the current moving of assets out of the jurisdiction?

Dave Hartnett: The focus of what I am saying is about historical misdeeds.

Q717 Jesse Norman: Finally, one thinks of the parallel case of the Americans with UBS. As you will recall, they were extremely tough about it, prosecuted a lot of tax evaders, got some convictions, fined a bank and then had an amnesty, so that other evaders could see what was potentially facing them. Why did you not adopt that approach?

Dave Hartnett: Because we did not think that we would succeed with that approach. I am probably going to be slightly clumsy in what I say now, but let me try. The Swiss banks have a huge market in the United States, operating out of New York and, I think, up to 40 other towns and cities. They necessarily have to have a huge amount of data and material in the United States. We have found in other inquiries that there is very limited data and evidential material in the United Kingdom held by Swiss bankers because the sort of transactions we would be interested in are more often than not done out of Geneva, Zug, Zurich or wherever, where the evidence is available.

Jesse Norman: I will not proceed any further on that. Thank you very much.

Q718 Mark Garnier: Can I just come back to you on the question of the errors and appeals process? I have the HMRC figures on internal review for the year ending on 31 March 2010. I think you had something in the region of 13,500 cases, of which about 25,000 were completed, so obviously a number were not completed. On the outcomes, excluding penalty cases, the HMRC decision was upheld 60% of the time. You have lost 40% of the time. On outcomes of penalty cases, you lost 54% of the time. That is an awful lot of occasions where it is upheld against you.

Dave Hartnett: In the internal review process?

Mark Garnier: In the interview review process, yes.

Dave Hartnett: I agree with you, Mr Garnier. That has caused us to look very carefully indeed at the issues that have arisen, and we have an external penalties oversight group, which we set up through the review panels, which has helped us look at that.

I think, from memory-please correct me if you have the details in front of you-many of the cases that were set aside were in fact in relation to VAT-

Mark Garnier: And most of those went against you.

Dave Hartnett: Yes. We have been producing new guidance for our people, and we are looking to develop new processes to reduce that number and to ensure that we are not seeking to impose penalties on people where it is just not due.

Mike, do you have anything to add?

Mike Eland: Only that this is a new system that has come in. The VAT penalty system has been changed, so it is a matter of getting people used to a new system, which is why we are keeping it under very close review, as Mr Hartnett has explained.

Q719 Mark Garnier: But it is an awful lot of errors against businesses, if you are talking about VAT. These people out there could be sole traders-they could be all sorts of people-who are struggling to cut their furrow in very difficulty economic conditions. I think it is entirely right that HMRC is trying to make sure that you collect tax where it is due, but it is entirely wrong that in so many cases you are wasting people’s time, and are distracting them from the job of sorting out the economy and diverting them into a review process, albeit it an internal one, because you have made a hash-up of the process in the first place in thousands of occurrences.

Dave Hartnett: We agree. The move to behaviourally-based penalties has been a big change for UK tax administration, and we have invested a lot of time with our people to help them understand that. As well-the tax profession has applauded this-the internal review process has demonstrated its worth here clearly. The feedback that comes to us from it now-we started doing this some months ago-means that we have to change the way we ask our people to pursue penalties, and we are doing that.

Q720 Mark Garnier: If a business has been subject to a wrongful penalty, and the internal review process finds in its favour and against you, how do you compensate those businesses, or indeed individuals?

Dave Hartnett: Certainly we set aside the penalty to start with, but more importantly, we have a compensation and redress policy in the Department. If people have incorrectly incurred expense, and that is down to us, they are entitled to seek compensation from us.

Q721 Mark Garnier: And you pay it?

Dave Hartnett: And we pay compensation and redress.

Q722 Mark Garnier: You pay the full compensation?

Dave Hartnett: It depends what-

Mark Garnier: It is quite an important point. The other interesting point is that 80% of internal reviews are put forward by an individual with no agent acting on their behalf, so this is an individual. It may be that they have a big finance department in the business and can afford the time-well, who says they can afford the time? It is a nightmare for them. But the important point is you will have a number of charges. Some of those will be direct charges for an accountant or tax expert. Some of the other charges will be the cost of time, and the opportunity cost of having your business winners taken away from going out and selling their product, and instead coming and dealing with this. This is a big deal. On top of that-this is also very important-you have a reputational cost. Again, if a small business is suddenly distracted away from looking after its customers, and somebody discovers that it is dealing with an investigation from HMRC, that again has a knock-on effect. It may lose business on the back of that. Some of the costs are very directly quantifiable; some are a bit more unquantifiable. What are you doing to compensate those businesses that you could effectively put out of business by an erroneous penalty?

Dave Hartnett: We will always meet the costs that taxpayers have incurred.

Q723 Mark Garnier: If they send you a bill for £20,000 from their tax adviser, you will pay that for them?

Dave Hartnett: If we have led them to incur a bill of £20,000 from tax advisers directly as a result of our mistake, then our approach would be to pay that compensation.

Q724 Mark Garnier: And other costs-costs of management time?

Dave Hartnett: Not usually. We follow the approach that the Parliamentary Commissioner for Administration takes, where there have been some changes recently, but we will look carefully at the costs that are incurred, internal and external. Each case needs careful analysis.

Q725 Mark Garnier: Has HMRC ever been subject to a legal case for reputational damage?

Dave Hartnett: Not that I can recall.

Mike Eland: We would have to check.

Dave Hartnett: We will have a look.

Q726 Mark Garnier: Just one final question: there have been some suggestions that the new tribunal system, which is now running, is much more bureaucratic and slower than the old system of General Special Commissioners. Do you have any view on that? Is that true, and if it is, is it a pain in the neck?

Dave Hartnett: I do not think one can make an overall statement that it is true. In some circumstances, it can take longer for cases to come on at the first-tier tribunal than it used to take in front of the General Commissioners, but the General Commissioners, generally in the past, were bodies of local businessmen and other local people, with, in more recent times, a lawyer as their clerk, whereas now there are judges in the first-tier tribunal, assisted by lay people.

We have noticed that some cases are taking longer to come on, but often this is a location issue. It is something we pick up with the user group for the first-tier tribunal.

Q727 Chair: We have a few more minutes. We have had people-elderly people, people from all over the country-being chased for money that they did not think they owed, and threats were made at them. Are you saying there is now an official appeal procedure that starts with asking for an internal review, and if it is not in their favour, that they can go off to a tribunal? Is there now official appeals machinery in Inland Revenue?

Dave Hartnett: I think, Chair, there always has been.

Chair: It has not been very well broadcast.

Dave Hartnett: What is relatively new-

Chair: Just say whether there is one now.

Dave Hartnett: It exists. The internal review-

Q728 Chair: Very good. What about this business of section 29 or something, at the height of the crisis? It was never volunteered that people could ask for an independent review or go to a tribunal. People were told, "You may be considered for being let off under this part of the code." Can people challenge you? Do they have a right to an internal review, and can they then go off to a tribunal?

Dave Hartnett: People can ask for an internal review-

Q729 Chair: Ordinary taxpayers whom you have mishandled, or who feel they have been mishandled? Wonderful. It is good to put that on the record. One last thing. On that business that you were speaking to Jesse Norman about, I have every sympathy with you for not being able to answer questions because of legal advice. You may have noticed in our report that we found the Minister similarly unable to say anything, do anything, and tell us anything. We found it quite amazing, and a pretty disturbing state of affairs, that a Minister cannot come to Parliament and pass on information on his responsibilities. You are similarly placed in a position where you personally had the problem of your name being used, and your actions being misconstrued, if you wish, and you cannot reply or answer. The lack of transparency, and the damage that it does to our officials, seems to be unacceptable. How on earth do we get out of this? Do you have a suggestion for us? It is uncomfortable for you and it is unacceptable to us as guardians of the guardian. Do not be too specific, because we might do it.

Dave Hartnett: That I recognise, Chair. I think there is clear concern on the part of the Committee and others about the lack of transparency, but I believe this has to be balanced against taxpayer confidentiality, which exists all over the world.

Q730 Chair: That does not make it right.

Dave Hartnett: No, it does not make it right. There are countries-some of the Nordic countries-that require all cases to be settled by an appeal tribunal. That is every single case. In the United Kingdom, if every single case had to be settled that way, that would mean hundreds of thousands, maybe more. I do not have a bright idea for you today, but the thing that worries me most-and I would hope we could find a solution to it-is that when I was here before I called what my Department has called the urban myth of the £6 billion absurd. We have seen a number of calculations of that £6 billion, which include roundings and all sorts of things, and the Commissioners of Revenue and Customs-as, I imagine, are Ministers, but I have not talked to David Gauke in particular about this-are worried about the impunity with which people can attribute alleged deeds, actions and calculations to us, which we know to be not right, but we cannot answer.

Q731 Chair: But we do not know that they are not right, and there is a difficulty in terms of being open and transparent to the public.

Dave Hartnett: I agree.

Q732 Jesse Norman: I have to go in a second, so I apologise for that, but your question, Chairman, obliterated a distinction, which is that the Minister does not know anything about these cases. The Minister is in exactly the same position vis-à-vis the Revenue as the members of this Committee-that is to say, complete ignorance. Therefore, there is not even that first tier of accountability to Ministers that we normally find, subject to a duty of confidentiality, elsewhere in the system.

Melanie Dawes: Can I perhaps come in on this? I think one very important part of this is what our governance is, which you were talking about earlier, and that is why I think we did welcome the NAO report into this, and we welcomed the fact that it has said that the governance is strong, and that in the substantial majority of cases we were abiding by it very well. I think that is quite important, because it is about everybody understanding how we reach decisions, and understanding who in the Department is making those decisions, so that we can make sure they have the right qualifications and background and so on. It is quite an important part of that, and it is quite new for that information to be out in the public domain.

Q733 Jesse Norman: Just for the avoidance of doubt, will it be given full details of specific cases?

Melanie Dawes: It was absolutely exhaustive on the-

Q734 Jesse Norman: So there is no question of withholding information, or lack of transparency?

Melanie Dawes: No, absolutely none at all, and it said that it looked-this was one of its criteria-at any case where it had any concerns raised with it, so we certainly felt it was pretty comprehensive.

Q735 Jesse Norman: But it has no tax expertise, so it is not in a position to judge on the substance of the information it sees, as to whether or not-

Dave Hartnett: Mr Norman, where it lacks tax expertise and feels it needs it, it goes out and gets it from the big four, or elsewhere.

Chairman, there is maybe one thing I can add that would be a little helpful today. On the back of the National Audit Office report, not so much on the two cases Mr Norman was exploring, but the four cases earlier on, which were dealt with outside the HICP process, we are going to change our governance arrangements.

Q736 Chair: And you will tell us the details when you take that decision?

Dave Hartnett: Of course.

Chair: Lovely. On that happy note, I am sorry to disappoint you-this session has been so small-but I have run out of members. Thank you very much. On behalf of the Committee, I wish Dame Lesley a full recovery. It is really sad, the illness she has had. I hear that she is progressing; I hope she is progressing well. You will convey the Committee’s best wishes to her.

Dave Hartnett: Thank you, Chair, and of course I will do that. I saw her on Friday. She is up and about, having had an operation, and is now preparing for the next stage of her treatment.