Evidence heard in Public

Questions 217 - 257



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Oral Evidence

Taken before the Public Accounts Committee

on Wednesday 31 October 2012

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Jackie Doyle-Price

Meg Hillier

Austin Mitchell

Nick Smith

Ian Swales

Gabrielle Cohen, Assistant Auditor General, National Audit Office, Paul Keane, Director, NAO, Paula Diggle, Treasury Office of Accounts, Marius Gallaher, Alternate Treasury Officer of Accounts, and Michael Carpenter, Speaker’s Counsel, were in attendance.


Settling large tax disputes (HC 188)

Examination of Witnesses

Witnesses: Amyas Morse, Comptroller and Auditor General, NAO, and David Mundy, Partner, Government and Infrastructure, Bircham Dyson Bell LLP, gave evidence.

Q217 Chair: Welcome, as a witness. The reason we have done this as a public session is that we have had a number of private conversations and private sessions of the Committee in which we have considered some of the work you have been doing to assist us in coming to a conclusion around the way in which HMRC deals with tax settlements between itself and large companies. In private, we have looked at your Report on an inquiry by Sir Andrew Park. You have so far felt that you could not provide us with the original report because of the constraints you feel you have got in relation to your statutory responsibilities on confidentiality. I think we need to air this a little bit in public, and I gather that you want to make a very brief statement; then we will open it to questions.

Amyas Morse: Yes. May I introduce David Mundy, my solicitor? I see you have counsel with you; in case any legal questions were to arise, it is helpful to be equally provided.

Q218 Chair: Are you an in-house solicitor?

David Mundy: No, I am not. I am an independent adviser to the CAG and the National Audit Office.

Q219 Chair: And which company are you from?

David Mundy: Bircham Dyson Bell.

Amyas Morse: So, Chair, thank you very much. You will recollect that I said I would appreciate having a chance to speak to the Committee if we were likely to find that this was proceeding to the House. I am taking that, broadly translated, to mean, "Here is a chance to tell you things as we see them." I will just remind you exactly what the request was. I am very sorry to have had to decline it; I do not like to be at odds with the Committee on anything, frankly. You can imagine how uncomfortable it has been for me, so please be assured of the fact that I do not, and nor does the NAO, take it at all lightly. You kindly asked, and the Committee asked, to see Sir Andrew’s work in his own words, so that the Committee could place reliance on the judgments and assessments he made, rather than on my Report. Can I therefore give a very quick background?

I have extensive access rights to Government information, and they are provided in order to allow me to carry out my statutory responsibilities, which are examining the propriety, regularity, efficiency and effectiveness of how Departments conduct themselves, and making Reports to Parliament on that. I do not consider that my access rights are provided in order to act as a search engine for interesting information that might be available in Departments that does not relate to my statutory responsibility. In exercising those rights, I try very hard to consult the Committee and to select subjects of interest to Parliament. In my Reports, I try to provide sufficient information and examples to support my audit judgments and assist Parliament in understanding my Reports. That is the reason why I provide the detail: to enable Parliament to understand my Reports. In doing so, I can use my discretion to reveal confidential information, but only to the extent that I do so to support my statutory purpose.

In the case of tax settlements, the limits of my freedom to publish are subject to specific statutory constraints, making it a criminal offence to publish more information than I need to in order to fulfil my statutory function of providing Parliament with the information needed to hold HMRC to account. If I did more than that, I would be open to judicial review. I have been advised clearly of that, and in exercising that discretion, I must act within the law, rationally and fairly, and I have to demonstrate all of that. I am simply not willing to commit a criminal offence in carrying out my duties. I have taken extensive legal advice before reaching my view, including from leading counsel, as we know. I made that advice fully available, both to members of the Committee and to the House authorities, because as far as possible, I do not want to be at arm’s length.

The arguments have been put to me that my actions would be protected by parliamentary privilege, or that a prosecution would be unlikely. The first, of course, is a matter for the courts to decide, and the second is a matter for the prosecuting authorities, so it is not as straightforward as it might appear. In any event, I am not willing to commit a criminal offence. I would move from this position only if required to do so by the House itself, since it is the conflicting responsibilities imposed on me by the House that are at the centre of the problem.

I have actively engaged in discussions with the House authorities to find an alternative path, but all options we have debated, including showing the full reports to a subset of PAC or to a trusted person, leave me the same legal dilemma that I would have in sharing with the whole Committee. The problem, as I see it, is-

Q220 Chair: I was told it was a minute. You know that we normally do not take a statement.

Amyas Morse: I did not actually think that we were going to have a hearing, so I will just finish now. The problem, as I see it, is issues maybe with the legislative framework, not with my application of the law. As such, it is a matter for the House to resolve. This is very uncomfortable and I regret it, but I feel that we have not come to a possibility of doing anything other than saying, "No, I can’t respond to the request." I have tried every pathway that I could. Thank you for listening.

Q221 Chair: Thank you. I gather that you wish to make a very brief statement.

Paula Diggle: Just to put the Government’s point of view on what the CAG has been doing, it seems to me that he has two general duties: one is to respect the general law, and the other is to report to the House-to this Committee-on the quality of the performance of the Government’s activities in the various respects that he has sketched out. What the CAG has done has adequately handled both of those responsibilities. He has found a way of telling this Committee about the quality of HMRC’s performance in handling large tax disputes without disrespecting the 2005 law about the confidentiality of taxpayers’ affairs. That seems to me to be a genuinely honest way of handling the problem. I am happy to expand if you want me to.

Q222 Chair: It may well be that it should be the Treasury-or HMRC as part of the Treasury-that provides more information to us. That would be another way for us to look at the issue.

Paula Diggle: I think we still have the same problems that the CAG was talking about.

Q223 Chair: Can I tease this out a little bit, because I do not think our quarrel is with the NAO at all? I really want us to put on the record our frustrations, and ask you a few questions about it. If you look at the actual Report that you put to us, which was your interpretation of Judge Park’s evidence, there are some inconsistencies that emerge in it. To pick out one, the litigation strategy says quite clearly that there should be no deals, and that every issue should be settled on its own merits; we are all familiar with that. The Report says, in paragraph 2.17, "None of the settlements involved package deals as defined in the Litigation and Settlement Strategy". That is in your Report. However, in the next paragraph, 2.18, the Report says: "the settlement with company E is reasonable only in the context of being a settlement of several issues at once…had the National Insurance contributions (NICs) and interest been the only issues, the settlement would not have been reasonable". Again, paragraph 78 in the appendix says: "Had the only issue been settling the employer’s NICs liability and charging related interest, he"-the judge-"would not have viewed the settlement as a reasonable one. However, when the settlement is viewed as one settlement covering six issues, including the interest issue, it was reasonable." Having taken you through that, I would say that what it tells me is that the Report has contradictory statements in it.

Amyas Morse: No, I do not agree.

Q224 Chair: And the only way we can resolve those-

Amyas Morse: I am sorry; I just do not agree with that at all, and I think to bring it up now-

Q225 Chair: Shall I read it again?

Amyas Morse: To bring it up now is completely unreasonable, to be quite honest. If you want to have a detailed discussion on the Report, I am more than happy to do that. That is not what I understood we were going to do now. We have already had both a private and a public hearing on this Report. If you want to discuss inconsistencies that you now allege and have not mentioned to me before, I am more than happy to take them up. If you think there are inconsistencies you would like me to deal with, I will be happy to respond to you in writing on that.

Q226 Mr Bacon: May I interpret the Chair’s comment? I think what you are trying to say is that the Report from the NAO, which I thought was a very clear Report-I did not find it inconsistent-points up inconsistencies between what HMRC has said on the one hand and what Sir Andrew Park, in reviewing all the documentation on behalf of the NAO, has found on the other. That is an issue between, as it were, Parliament on the one hand and HMRC on the other for saying that it is doing one thing while actually doing another thing-saying that it has a particular litigation and settlement strategy that, for example, requires it not to split the difference, while it actually cuts deals. That is the inconsistency. It is not an inconsistency in the NAO Report; it is an inconsistency that the Report points up.

Ian Swales: Building on that, I think that was one of the frustrations we had. We had, I thought, an excellent private hearing with the judge present. He was very clear about his work and what he had found, and then we felt that, in the public session that followed, we were hearing a somewhat different story on issues such as this. I am on the record as saying to Lin Homer that she should go and read the transcript of the private session, because she was saying things that were at odds with the private session. One thing we need help with as a Committee, given that we have that position-you have evidenced it in your Report-is how we get through the fact that we heard matters in private that seemed to be at odds with what was being said in public. That is a serious issue and one that we are struggling with, because we cannot get our hands on-I think this is why there is so much emotion-the data. It is because we want to wrestle this issue to the ground, but given the legal constraints, you have to advise us on how we can get that issue dealt with.

Chair: I think it is a bit more than that; I just would add this bit to it. Your Report comes to the conclusion-this is the Goldman Sachs deal; we all know that-that it was a reasonable deal, that it was appropriate and reasonable within the litigation strategy set by HMRC, and then the question mark arises. Until we see the actual basis of the information, it is very difficult for us to accept your judgment based on both the work you have done in the NAO and the work that Judge Park did for you, given the facts as we see them.

Amyas Morse: It does bring us up against quite a fundamental issue, Chair, which is this. You rely on my Reports all the time. In our private hearing, we arranged for Judge Park to explain that these cases that were reviewed all contained very complex, technical anti-avoidance provisions. The facts in each case are very complex, and there were, in many cases, a series of hearings-appeals, and appeals over the appeals, and so forth. In other words, the Reports are technical in nature. Therefore, you really have to consider this: what would revealing the Reports actually show to people who do not have technical skills? I think you normally rely on my Reports setting out issues. If you are saying that you think that my Report summarising these matters tells you that something is reasonable that Judge Park did not think was reasonable, that is not the case, and I do not think you are suggesting that. If it is that there is a lot more detail that would be interesting to know, I understand that, but it is not as if I produce these Reports in a vacuum. I had a long discussion with the Committee and you privately about the limitations of this form. I said it would not give you access to everything, but that it would give you more information than you would get otherwise.

If you remember, you are talking about frustration now, but you felt very frustrated at the end of our Report on HMRC, in which we talked about these issues in the first place. HMRC said that it could not provide you with greater detail, and you were frustrated, so I came up with this formulation and proposed it to you, first in private and then in Committee, as a way of giving you more assurance than you would otherwise have had. That was the whole intent of doing this, but I cannot go so far as to reveal these very detailed and very technical reports.

Q227 Stephen Barclay: Can I take it to a more general level? I very much hear what you say in terms of legal constraints, and that is very valid. At a more general level, did Sir Andrew Park find in his report inconsistencies between his findings and the evidence given to Parliament by HMRC?

Amyas Morse: Did he find inconsistencies between his findings and the evidence given to Parliament? That was not the question I asked him to answer.

Q228 Stephen Barclay: Let me rephrase it. Were there inconsistencies between Sir Andrew’s evidence to Parliament and HMRC’s evidence to Parliament?

Amyas Morse: Were there inconsistencies in my judgment?

Q229 Stephen Barclay: No, I am not asking about the NAO’s judgment, because, as I put on record, I recognise the constraints under which you are operating. I was asking a much more general question, which was not about individual companies, because that would stray into the individual confidential taxpayer issue. At a more general level, we have evidence from a retired High Court judge whose integrity, I would expect, is beyond reproach. We also have evidence from very senior public officials, whose integrity, one would hope, is beyond reproach. I am asking whether, in your view as an expert witness, there were inconsistencies in the evidence given to Parliament by Sir Andrew and HMRC.

Amyas Morse: There may have been a different view, as opposed to an inconsistency. In other words, he was taking a view as a very senior and experienced tax lawyer and former judge, and they are taking a view as tax officials, so it is not amazing that some of their comments might have been somewhat different. If I thought that they had been different to any serious degree, I would have pointed that out.

Q230 Austin Mitchell: We have been together now for 14 months, and I have to say that I trust your integrity implicitly, but do you not see that to refuse to give us this information makes it look like you do not trust the Committee, we are not fit to be given it, even in confidence, and we are living in an age when it is no good trusting the inside boys-of whom you are one and the judge is another-who say, "Chaps have decided this, and you humble mortals should stay out"? It has to be made explicit. We cannot come to a judgment without the evidence on which you came to your judgment.

Amyas Morse: Can I start by saying that I do not lack any faith in the trustworthiness or integrity of the Committee? I have a lot of respect and, in most cases, a fair degree of affection for members of the Committee, just as a matter of fact. We spend a lot of hours sitting in this room together. I have to have regard to the fact that I am bound by the law. Let me repeat what I said in my hopefully brief opening remarks: there is a very big difference between what you think the law should be, and maybe should change it to be-that is a perfectly legitimate view for you to express, as parliamentarians-and my job, which is to carry out the law. The reason I am able to go into these departments and say, "Open up, I want to see everything", is because of the statutory powers, with limitations, that I have.

Believe me, for every minute we are talking about this, I have spent an hour trying to look at these issues, and the reason why they are hedged round in the way that they are is to let me report to you, not to let me just open it all up to you. I do not think I am making an academic point when I say that in this case I would be committing a criminal offence-believe me, that is not a theoretical possibility. We would find ourselves with a shower of writs coming in our direction, and they would not be very difficult to prove.

Going back to what I said earlier about the definition, I can give you information in support of my reporting to you in my statutory function, but it is an incredible proposition that says, "The information you need to give is everything." That just does not work. It would be an unbelievable proposition to put forward. It is not that I have not wrestled with it. This has been going on for a long time, and I do not relish or enjoy it at all. I like to be in good standing with the Committee, but I do have a different role and I cannot get around that.

Q231 Austin Mitchell: I can see that, but I do not see why. I accept that you wrestle with it; you must have done-you had to bring a solicitor with you, as if you were giving evidence under the Police and Criminal Evidence Act and we were Detective Inspector Frost gathered round.

Amyas Morse: As long as it is not Inspector Morse.

Austin Mitchell: That does not indicate trust, to me; it indicates defensiveness.

Amyas Morse: I am sorry, but this gentleman is not the only lawyer in the room, as you may have noticed.

Q232 Chair: We are having a vote soon, so we will have to come back to this. Just let us be absolutely clear: the reason why this has gone on for a long time is that the advice we have had from the House authorities has not always been the same as the advice that you have had from your own lawyers. You have a conflict between taxpayer confidentiality-when you break that, you are breaking the law-and a duty to support the House. It is endless. Every time I go back to seek my own advice, we are given a slightly different take on this. [Interruption.] We have to go and vote.

Amyas Morse: Just to be clear, as we part, you asked me to talk to the Clerk and his advisers. I did so. and we were extremely open. I have not seen written copies of the advice you had, but I gave written copies of the advice I received-all of it. I have not held anything back; I have been as open as possible. We attended, we explained the position as much as we could, and we debated to a fair degree. The differences are not incomprehensible to me, because they depend on where you are standing. It is not as if I think there is some point of law where there is a complete clash.

David Mundy: Absolutely not. The position, as we understood it, is that there should be a way in which the two opposing positions, if you like, could be reconciled. That was effectively where that conversation was left. There was no disagreement in principle about the way forward, as I understood it.

Chair: We will come back to that in 10 minutes.

Sitting suspended for a Division in the House.

On resuming-

Chair: I am going to go to Ian.

Q233 Ian Swales: To broaden this out a bit, it is worth saying that we have had these various hearings because, clearly, the Committees have concerns. We are very thankful to the National Audit Office for all its work and for the commissioning of the judge, which was a bold step that we found extremely useful. I am one of those around the table who respects the law as it is. I do not think we need to see a lot more detail to know there is an issue, because the judge’s evidence and the Report show us that. We know there are issues in this area, and we have already seen organisational changes in HMRC as a result of our investigations. Clearly, there is huge public interest, and there are huge sums of money at stake.

I would like to focus on the scrutiny of what HMRC does. What can you say about how that scrutiny works now and the National Audit Office’s role in that? What options do you think there are for improving public scrutiny and public confidence in this area of HMRC’s activities? We have heard and seen enough, and we have had enough evidence, to know that there are concerns. The real energy and concern of the Committee is not necessarily about the NAO and its work, but the fact that we still feel there is unfinished business in how we get proper scrutiny of what HMRC is doing in this area.

Amyas Morse: Thank you for your kind remarks. In many ways, I think that is a difficult question, and I am not surprised that you are concerned. There are a couple of things that occur to me. First, you know we are doing something on tax avoidance schemes. I am looking forward to the debate on that, which might be quite similar, in some ways, to this one. HMRC, in my view, is organised pretty well to look at corporate tax affairs, and I am very clear that they try to do the best possible job they can, and that they are as professionally organised as they can be. The problem with some areas of tax, particularly international tax and things that have to be struck at by anti-avoidance provisions, is that they are murderously complex, it takes a very long time to settle anything, and it costs an awful lot of money to settle things; consider how long it takes to get a result from the courts. Admittedly, when they get a result, a lot of money can come into the Treasury.

It strikes me that there is a question about what priority HMRC gives this. For example, in one of our earlier Reports, we found that they had a surprisingly small budget-I do not recollect the amount-for litigation on tax cases, which put a limit on how much they were likely to do. I wonder whether we could not look more widely at the dynamics of the tax gap, think where it arises, and have a dialogue with HMRC: "Are you satisfied when you compare the amount of tax paid by people who are schedule E and employers-with the tax gap?" I suspect that the gap is quite narrow, and I would guess that the tax gap in other areas is more complex and more corporate in nature, and you might find that the gap is quite broad.

If that is true, let us at least understand it, and ask, "Are you prioritising your efforts at squeezing those areas where you should arguably be collecting a lot more money, or managing to get more money? It is not clear that you are doing so." Tax law seems still to be on the same basis as it has always been. This is a bit policy, so I apologise-I might regret saying something about policy-but there is a question. If the tax law is based on saying, "We both have equal rights in the court, and we fight it out together to determine liability," will we ever make much progress if that remains the underlying principle for some types of organisation?

I think we should take a more wide-ranging look at the system as a whole, which we have not quite done, and ask whether it yields what we would expect it to yield, and whether HMRC really thinks it does. It would be interesting if either we or the Treasury Committee looked at that.

Q234 Ian Swales: You raise an interesting point, which I have made in a number of hearings, about the business case for investment in HMRC. In other words, you are making that point again. It is a useful observation.

Going back to the word I used, "scrutiny", how can we as a Committee and, through us, Parliament and the general public, be satisfied that the checks and balances are there, and that the system for scrutiny of large tax settlements gives us confidence? That might involve the work of the NAO or the checks and balances within HMRC. That is the nub of the issue: we have heard enough and seen enough, and there is enough in this Report, to say, bluntly, that HMRC does not necessarily always follow its own written rules. It is an interesting dimension if that is the case, because it is back to the deal cutting again. Focusing on that word "scrutiny", how can we build confidence that the right system is in place, so that we do not have to have these kinds of hearings in such a protracted way as this one?

Amyas Morse: I am going to repeat myself. If that is what this Committee wants to do, as opposed to whatever the Treasury Committee might think it should be doing-that is a question to be decided, but supposing that this Committee goes into it-I think there should be an investment of time and effort in really understanding the revenue. The problem is that a lot of the time, we are having a debate that is a bit information-free about understanding how the Revenue functions and how it implements tax. Once you understand that, then you can look at the gaps more accurately.

There is a point here: if we are to go down the road of having an in-depth debate with the Revenue about how it does this, we need to invest a bit more time, to be honest, in understanding the basics of how the tax system works. It is asking quite a lot of us to be able to really pick points and say, "What about that?"

Q235 Ian Swales: When you use the word "we", do you mean this Committee, or are you referring to the NAO?

Amyas Morse: Well, we are talking about investing a lot more in the NAO, because it has become a real issue. As it happens, by luck, I am a former tax partner, so I have a little bit of knowledge of tax. We are investing more time and effort in understanding tax, and we have done a considerable amount of work there ourselves, but if this is an area of special interest-I understand why; it is the money machine of Government-it is quite reasonable for the Committee to invest time and effort in getting its head inside how the tax system works. You would then be able to make these criticisms, and make them a lot more tellingly, perhaps, and less frustratingly.

Q236 Chair: Okay. I have a list of people: Nick, Austin, Meg.

My only comment is that the point about this whole thing is the lack of transparency. It is all very well understanding the systems, but if you do not have the transparency, you have no idea whether the systems are implemented. Our job is to ensure that the systems are implemented as they say they are. That requires transparency. All you get is these stories endlessly in the press, who do their digging; that is the only bit of real information that we ever get our hands on. That is the issue and the dilemma that faces us.

Amyas Morse: You do get quite a lot of information from us, actually, if I may, Chair. You get a compendium Report and a series of other Reports every year, so there is quite a lot of information out there. I am not saying it is perfect; I am just saying that we give quite a lot and we spend a lot of time examining HMRC issues every year. For example, in respect of the difficulties on PAYE, you could not honestly say that was concealed. We went through an open discussion about that, and we got right to the heart of those issues.

I am simply saying to you that some areas are more difficult to get into than others, because they are more technical. It does not mean that we should not try to do it; I am not trying to discourage you at all. It just means a bit more of a run-up is probably required in order to make criticisms that really work.

Chair: I do not think it is the technical issue; I think it is the transparency. That is the point I was making. Nick, then Austin, then Meg.

Q237 Nick Smith: Like others, I think this Committee’s quarrel is with HMRC, not the NAO. I understand the personal situation you see yourself in, Amyas. Throughout this whole HMRC Report and process, it has been good to challenge HMRC and the tax dodgers out there. Although it has been pretty dry, I have quite enjoyed it and think we should do much more of it, because there is great value and great public interest in it. However, there is a gap between you trying to avoid going to the clink and getting involved in quite burdensome, expensive and time-consuming other legal processes. That will get in the way of doing your day job, I think. That is important, clearly.

Our challenge as parliamentarians is to get to the bottom of this, and try to shine a light into what our constituents think is quite murky business. How do we get a different or new legal framework, which will allow us to keep up this challenge, given there is so much public interest in it and it is so important?

Amyas Morse: Okay. Well, I am not going to come up with how you should change the tax law; time does not allow, and I do not have the expertise. However, things came out of our work together. One of them is that I think you can have a discussion with HMRC now about whether they want to take as strong a view as they did.

You remember when we wanted to see materials when we were having interviews with Dave Hartnett and he told us, "Well, that has to be approved by the Inland Revenue Commissioners, and they have already decided that they will never approve it", and things of that sort. I think we could go back over that ground and have a more constructive dialogue with HMRC, and see what they might be prepared to entertain if you said, "We really want to understand this. This is an important subject. It’s of interest to the public, and we need to understand it better. Let’s see how we can move this forward." I do not speak for them, and I absolutely would not presume to do so, but I certainly think they must understand that there is an interest in the Committee having more detailed information.

Q238 Nick Smith: That is helpful. Is it possible for NAO lawyers and Parliament’s legal officers to get together to try to work a way through this, as well? There has to be value in that, because, wherever possible, I am sure that you would like to support our work.

Amyas Morse: My difficulty is this. I do not want to mislead you, and we have spent a long time debating the legal issues. I have actually responded as actively and as positively as I could to all the various suggestions that have been made to me; I have not dismissed any of them out of hand. My difficulty is that I am not optimistic that any of them will result in my being able to say, "Okay, well now we have found the golden key I can turn this information over." I really do not think that that is true, because of the basic legal position I find myself in. It would be very easy for me to say, "Of course, yes, I’ll look at it," and then mislead the Committee, and we just go on and on in this sort of train travelling across the Siberian steppe. Unless some new idea is put to me, I just do not think that any of the various discussions we have had so far will put me in a position where I can say, "I can set aside my legal obligations and make this information available."

Q239 Austin Mitchell: As I see it, this argument centres on the reasonableness of individual tax settlements. You regarded it as your job to come to a conclusion on the reasonableness of the settlements, right? But in doing so, you did not think it necessary to identify the particular firms you were dealing with. As I read it now, that decision not to identify the taxpayers entails the further decision, because your Report says, "it is not necessary to identify the taxpayers to fully report on these issues", and that disclosing further details about the taxpayers, including Sir Andrew’s full report, would therefore "breach taxpayer confidentiality." Well, that does not necessarily follow, does it?

Amyas Morse: I am sorry; I am not following.

Austin Mitchell: You are deciding on reasonableness. In that process, you are not going to name the companies, and you then go on to draw the further conclusion that it is not necessary to identify the details.

Amyas Morse: I am sorry. Let me say this: a number of these cases are quite well known, as we recognise. Others have certainly happened in public hearings, even if they are not the ones that you have typically seen in the papers. None the less, they are very significant leading tax cases. Therefore, the more information you have about them, the more you can say, "There is only one or two that fit. Oh, it is this one." Therefore, it becomes a process of very quickly finding that you can fit the name, and then you not only have the name, but a whole lot of information. That is why I do not think that that works. Just to explain it to you, in most of these cases the pattern of facts is reasonably unique, and it is possible that if that all came out, it would be quite possible to identify all the taxpayers.

Q240 Austin Mitchell: I do not see why the decision not to identify the taxpayers entails another decision not to provide the information.

Amyas Morse: No, let me be simpler than that. There is a decision not to identify the taxpayers, because I did not believe that that was necessary in order to answer the question being asked, which was, "Are our large tax settlements generally reasonable, perhaps with that discretion?" Secondly, in any case, was it necessary for me, in order to carry out my statutory function, to make a large amount of information about taxpayers, even if they are not named, publicly available? The answer to that is no, it is not necessary for me, in order to comment on the reasonableness of the tax settlement, to give a load of detail about each of these cases, irrespective of whether I identified the taxpayer. And, therefore, it would not be legal.

David Mundy: That is the key point-the degree to which the information provided is more than necessary tips the exercise into illegality. It becomes a breach of the confidentiality section.

Q241 Austin Mitchell: You cite Richard Gordon QC in relation to the statutory constraints on what you can tell us. However, advice on redaction was always possible. He could have given us stuff, as when our expenses were to be published, with bits redacted. The advice that the redaction was impossible, which was the position you took, did not come from him, did it?

Amyas Morse: I might not have thought that it was appropriate to provide redacted information anyway. I get advice from people, but at the end of the day all the decisions are my own. As far as redaction is concerned, when we looked at it, we actually did a very painstaking bit of redacting these things to see if there was some way. You have asked us to do it, and everything you have asked me to do, I tried to do; we spent a long time looking at them. In order to redact all the information in a way that put us in a legal position, we would have produced something that did not mean anything. We did it. We did not say no; we went off and solemnly did it. We looked at the results and said, "I can’t give them this. It doesn’t mean a thing."

Q242 Chair: What do you mean? That it would not mean a thing to us?

Amyas Morse: No, it would not have meant a thing. If it had meant a thing to you, we would have given it to you. We might have considered it, but we could not. The mine of information that we would have had to take out would have just meant that was pointless. You would have been insulted to have received it.

Q243 Austin Mitchell: You cite the Finance Act 1989, making it an offence for you to disclose information. The opinion that we have from the Speaker’s counsel, Michael Carpenter, is that "It is far from clear that this applies to disclosures to Parliament, and there are arguments to suggest that this is not intended." We are Parliament. Why can’t you tell us?

Amyas Morse: Thank you for telling me that. I have not been privy to the advice you have been receiving, but I have to base my actions on the advice that I have had. I have had legal advice, very clearly not to that effect. I am not a legal expert but, having listened to leading counsel’s advice to me, it was very clear on this point. Therefore, I am sorry to say that I have to go with the advice that I have actually taken, rather than advice that I do not even know the detail of.

Q244 Chair: Can I ask you, Michael Carpenter, just to give us the advice on section 182(6) of the Finance Act 1989? After that, I shall go to Jackie, because I forgot her.

Michael Carpenter: Section 182(6) is concerned with whether disclosures are made with lawful authority or not. Paragraph (b) refers to "disclosure by any other person"-that, in these circumstances, would be a person, not a Crown servant; it would fit the Comptroller and Auditor General-"for the purposes of the function in the exercise of which he holds the information and without contravening any restriction duly imposed by the person responsible".

Q245 Mr Bacon: Can you clarify who "the person responsible" is in that sentence, in this case?

Michael Carpenter: That would possibly be HMRC-the Commissioners of the Inland Revenue. The new point that perhaps ought to be considered is that the report commissioned from Sir Andrew Park is information that the Comptroller and Auditor General holds "for the purposes of the function in the exercise of which he holds the information". Indeed, some of the report was disclosed in the Report made under section 22 of the Exchequer and Audit Departments Act earlier this year on large tax settlements. There is an argument that ought to be considered-not now, but sometime-as to whether that does not provide a suitable gateway for disclosure of the information in Sir Andrew’s Park’s report to Parliament, as an aspect of the duty or the function under section 22 of the 1921 Act.

David Mundy: One can certainly look at that more carefully, but it is also wrong in principle to look at that particular provision in isolation, failing to bear in mind the fact that the CAG is a public body. In exercising his public law functions, he has to take on board other public law considerations when considering whether he can exercise that power under section 182(6). He has to have regard to questions of whether he is acting rationally, fairly and proportionately in making a disclosure in those circumstances. He also has to have very careful regard to the rights of other parties-in this particular case, the taxpayers concerned-and whether their rights are being impinged on, bearing in mind the protection that they have, and which is afforded to them, both by this piece of statute and, of course, the 2005 Act.

Yes, indeed, one can look carefully at what section 182(6) says, but it is wrong to look at it in isolation, outside the CAG’s separate and overriding responsibility as a public body to have regard to the rights of other parties. These days, that includes their rights under things like the Human Rights Act and the Data Protection Act.

Q246 Ian Swales: Would HMRC not have a problem, legally, in allowing access to information by the CAG, his appointed judge, or whoever else, if they reasonably believed that such information would end up in the public domain? Would they not have a legal problem in allowing access, if that is what they thought?

Chair: What is being whispered in my ear is that it does not necessarily end up in the public domain. Just to be clear, other Committees of the House regularly get confidential information, whether on security or defence. That allows Members of Parliament to make a considered judgment in their report, without releasing the information. It would be announced, "We have tried in various ways. We have said that we would do it in confidence, through particular people and third parties. We have looked at a whole range of options, which would give us, completely in confidence-and not breaking that confidence-the certainties, so that as Members of Parliament, with a different role from the NAO, we can satisfy ourselves about the way in which HMRC is behaving." The security and intelligence Committee does it all the time. The Defence Committee does it all the time.

Ian Swales: Presumably, they would have to sign the Officials Secrets Act.

Chair: Probably. [Interruption.] No, you don’t, I have been told. You do not have to sign.

Jackie Doyle-Price: You have obviously heard the frustrations of many members of the Committee. I am entirely relaxed about the position we find ourselves in, and I completely appreciate your position. To be honest, members of the Committee should be able to view you as a trusted proxy that can review this information and supply us with advice. That is the basis on which you are an Officer of the House. I just wanted to put that on record.

The job of this Committee is not to chase individual tax dodgers but make sure that the systems we have are fit for purpose. We should all bear in mind that there is nothing wrong with any taxpayer wishing to minimise how much they pay. Our real challenge is whether HMRC is fit for purpose or not. On the basis of the additional material that you have obviously reviewed, and what you have been able to share with the Committee, can you be explicit that there is nothing that you see that would add anything extra to the understanding that we have built in these hearings about the deficiencies in the way in which HMRC tackles these disputes?

Amyas Morse: Yes, I can.

Q247 Meg Hillier: I want to tease out the bigger-picture issues. I completely understand your legal position; we can have endless legal debates about that, and that might need to happen, but I do not think that it relates to this particular hearing. I want to touch on a couple of things, one of which is redaction, but I do not want to go over the ground that has just been gone over. Sir Andrew Park was asked by you to give independent tax advice. Have you often used an independent third party? Is this the first time?

Amyas Morse: I have not used one often, no. Normally, what we look at does not require that degree of technical expertise. We sometimes use contractors for things such as IT and so forth, where we just do not have the skills in-house to do them. It was quite important here to have someone with the requisite level of experience to be able to make what I call an overall judgment on complex decisions made in case management through the courts and so forth. I did not feel that we had that experience in-house; I really needed that, although, to be quite honest, we did a lot of work at all stages, and this gentleman-David Mundy-did it, in working with Judge Park and supporting him in going through his work. None the less, we needed his independent expertise for that purpose.

Q248 Meg Hillier: My point is that even if you had not had it before, you could ask for independent advice again. You have mentioned IT, for instance. Are there any IT projects we are looking at?

Amyas Morse: Possibly, but we have competencies in-house-we have a very strong IT competence-and I cannot think of many others we would do like this. I really think this is a pretty unique discussion. If I am concerned, it might happen on a future tax Report, but I cannot really see much else in there. We were talking about something to do with the way big cases were handled through the courts and the most complicated tax provisions; that made it very out of our normal path.

Q249 Meg Hillier: Without going over the same ground again on redaction, I appreciate that if you have ever looked at redacted reports-a number of us will have-if too much is taken out, it becomes nonsense. However, there is a way of writing reports so that key bits can be meaningful. Our frustration is that if the press had not been on the tail of some of these companies, we would not necessarily have even started the investigation.

Chair: It was a whistleblower originally.

Amyas Morse: But there were also the things that we found in our work, to be quite honest.

Q250 Chair: Primarily, yes, but it was the whistleblower on Goldman Sachs.

Amyas Morse: We talk about whistleblowing, but we actually came up with quite a lot of the issues in our work.

Q251 Meg Hillier: A whistleblower, and the press highlighting it, has helped us look at these issues. The bigger-picture challenge we have is the transparency issue. HMRC is a non-ministerial department, so there is no accountability in that sense. We cannot chase down information easily. Would you consider in future, if you ever commissioned a report of this nature, looking at procuring it in a way that will make it clear to the author that you would possibly consider a redacted report coming to the Committee?

Amyas Morse: I will take a lot of lessons out of this. To be quite frank, I proposed this approach. I am the guilty person who came up with this idea, because you were frustrated before. You were not getting any more information, and I wanted to try to give you as much as I could. I thought I had made clear the limitations of what I could do, and I understand you wanted to push past those. I understand that, and I will certainly take it into account in future.

The moral of the story for me is that when we are setting out down these roads in future, we need to have a lot more detailed discussions in private about what the ramifications may be and make quite sure we all understand what may happen. I blame myself. I tried to spell it out, but I probably should have done so very much more clearly. I knew perfectly well that there would be frustration even in what we did here, but you have more information about these matters now than any Committee has had before.

Q252 Meg Hillier: Which brings me to the wider constitutional issue, if you like. We have got a bit more information, but there are still areas where we cannot easily go. In an ideal world, we would move to a place where, hopefully, the companies that are coming to the Committee next week think it is normal to talk about their tax affairs. They publish their accounts, if they are listed companies, so you can extrapolate from that what tax they should be paying. We should be moving to a culture where people are far more open about it, and stop this nonsense of companies saying that they pay tax, including PAYE and VAT, as though they are actually being transparent about it.

You have the legal position that you have now. Is there anything that should be changed in the law that would allow Parliament more easily than at present to see some of the information you get, presented in a form that we can use more effectively? Obviously, you work under the current law, and we appreciate that position. There is perhaps room for debate around that, but not here, now. What would you want to see, and what could you see, changed?

Amyas Morse: First, I rather boringly remind you that it was not that long ago that there was a massive majority on enshrining taxpayer confidentiality in the consolidating legislation between HMRC and Customs and Excise. More experienced parliamentarians may have gone through the Lobby to support it. Recognising that, what I would say to you is on taking a pragmatic approach. I think we could reasonably have a dialogue with HMRC and say, "Look, we understand this concern. Let’s see how we can move it forward." They did have a strong approach of not being interested in telling you anything. Maybe we can start developing channels with them, short of legislative change, that give more insight than we have now. I think it is worth trying to do that. The Committee can quite reasonably have that dialogue and see where we get.

Meg Hillier: If we look at it positively, Chair, we may have made some progress, in that some companies are now being forced to the table to explain what tax they are paying. People should be open; there should be no great secret about corporate tax. I find the arguments specious as to why they do not reveal. I think I have gone as far as I can on the Auditor General.

Chair: I simply say to you, Meg, that the reason that they are coming, and we know about it, is investigations carried out by newspapers.

Meg Hillier: Yes, that is exactly my point from earlier. That is a free press, not state-regulated.

Q253 Mr Bacon: I want to endorse everything Jackie Doyle-Price said about the NAO. I think the NAO has gone to a great deal of trouble to try to help the Committee. We cannot expect you to break the criminal law, or invite you to risk prosecution. It would be unconscionable for a Committee of Parliament such as ours to ask you as a public servant to do that. I attach no blame whatsoever to your behaviour. In fact, I am slightly puzzled that the legal advice that we have seen has not also been shared with you, as your legal advice was shared with us. Having reading it, it does not make it clear that you are at no risk of prosecution; that is something that is still open. That is too risky a position in which to put a public servant. I completely understand the position you have taken and do not blame you for a moment.

I want to get on to the broader subject of effectiveness, because that is in your remit. There is obviously a question as to whether-this is policy, not arguably, but as a matter of fact-adding hundreds of pages of tax statutes to corporation tax laws each year is effective, or makes any substantial difference. When the Committee was at Harvard a few months ago, we met a professor of tax, who made his view clear that it simply added further branches to the decision tree and made more work for tax lawyers. HMRC cannot fail to be aware of that.

Part of your remit is to look at effectiveness. We seem to have a situation where large companies-if they are large enough and international enough-have, and I use the word advisedly, a "negotiation" with the Government. That is a word that Lin Homer almost used and then stopped herself when she realised she was about to say it, because that is something they say that they do not do.

Large companies will say to the Government, "Do you realise how much national insurance we pay? Do you have any idea how much income tax our employees pay? Do you have any idea how much VAT we pay? Here it all is; put that in the pot. Put that in your pipe and smoke it, and we’ll talk about corporation tax." The extent to which they are able to reduce their corporation tax liabilities from an apparent headline rate of, say, 23% or 24% to 3%-these are cases that we read about regularly in the newspapers, or see on "Newsnight"-is because of, not despite, corporation tax law.

To some extent that is a policy question, and to some extent, therefore, outside the remit of the NAO. To some extent, it is not a policy question but an effectiveness question about whether corporation tax produces what we all expect it to produce and what, according to the headline rate, it should produce. There is plainly huge public disquiet about the fact that there does not appear to be any reasonable relationship between the two. One of the things that presumably would fall within the remit of the NAO is to ask the extent to which HMRC is applying resources to this question, whether they are the appropriate resources, and whether it is getting the appropriate return for those resources. Are you open to examining those things?

Amyas Morse: Yes. I may not have expressed this, or it may have been too early in our discussions, but I will repeat that I have just been looking at the report produced by the equivalent body in Sweden, which is looking at what the potential tax yield would appear to be, and asking, "Is this system working effectively?"

I said earlier that if you start understanding the nature of the tax gap and asking, "Why is there not much of a tax gap in some parts of the tax regime and a broad one in others, and why is our effort less effective in some areas than others?", that would be a valuable discussion to have. It is the kind of approach that, as I understand it, the Swedish version of the NAO is taking. They are trying to challenge it as an efficient or not efficient system. I do not think that that would be a bad line for us to take. I have got us an idea and we are investigating it, but it was a new take to me, which was interesting and driven off efficiency. We are looking at that to see whether we can get something like that going and get the Committees into that, so we have a discussion that says, "Whatever detailed rules you may have, this does not seem to us to be producing what it ought to."

I will just say, from the past, that you need to remember that when companies are saying all this stuff about the tax revenues, they are saying it because implicitly they are saying, "Do you like having us here or not?", as drivers of economic growth. There is an issue here, and we all know about it. I do not regard it as a contradiction to doing this investigation; I am just saying that that is why that discussion about all the things they yield is taking place. We will move on, we will develop an idea and share it with the Committee. If you like it, we will do work on it.

Q254 Austin Mitchell: I have just spent the morning in Wandsworth jail-it was a short sentence imposed for attacking Louise and the Menscheviks-and I do not want you to go there at all. The revelation, after I asked the question, that you had not seen Michael Carpenter’s advice to us came as an Alan Partridge bombshell moment. I am not a lawyer, but I do not think that David Mundy actually rebutted what it says. It says, to me, that you can give information to us as Parliament.

Mr Bacon: It is hard to rebut advice you have not seen.

Austin Mitchell: I heard it.

Chair: Just to close that off, we will send it to you, and I will be interested in your written response.

Amyas Morse: Thank you.

Q255 Austin Mitchell: What I am saying is that I hope you will go away and consider it, because it is important.

Amyas Morse: I place a very high premium on showing the Committee that I consider, and try to respond positively to, everything. It is worth saying, however, that I have to base my actions on the advice I have received. I would be very foolish if I did not do that. The Treasury counsel is not advising me. I will look carefully at the points they make. If there was some magic key to this, I would be very pleased.

Q256 Austin Mitchell: It is unsatisfactory if you cannot tell us-I have not heard the advice-because if you cannot tell us what the fiddles and the lurks are that these big companies are employing, how it is done and how the decision making is reached, it becomes a tax avoiders’ charter.

Amyas Morse: Can I just remind you what I am supposed to do? I am supposed to do investigations and report to you. I am not supposed to say, "Why don’t you do the investigation yourself and I will just point you at the data?". That is not the way we are set up. I am sorry, but that is not my job. My statutory powers are not designed to let me do that. That is the point. I am stuck with the fact that that is not the design of the NAO or my design as CAG.

Q257 Chair: We accept that point, but the interesting thing is that when we did the Report on aircraft carriers and you were unable to get hold of relevant Cabinet Committee proceedings on that, we, I hope, working with you, helped to release that. In that instance, we never felt that we had to see them to come to a judgment on whether the Government acted in an economic, efficient and effective way. It is not that we are after, in all instances, advice and access to papers that we know you get in your capacity as CAG. In this instance, there were so many areas where there was, to our minds, inconsistency in the evidence we received. That was why we felt that we needed to get underneath it, into the report you had. This is an exception, coming out of our perception of the evidence we have received, and you have to see it in that context.

Amyas Morse: I understand that you do, Chair, but I am afraid that I am bound by what I understand to be my own powers and the limits to them, and my duty not to commit an offence.

Chair: Thanks.

Prepared 6th November 2012