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Lord Brooke of Alverthorpe: My Lords, it is with some trepidation that I follow two former Treasury Ministers. I have been a long-term advocate of merging the Inland Revenue and the Customs department and I welcome the Gus O'Donnell report. I point out to the noble Lord, Lord Barnett, that Mr David Varney provided an additional submission to the O'Donnell review, which can be found in the appendix, when he had already given his ideas of how he saw the merger going forward. He gave a good deal of thought to what is likely to happen even before he was formally appointed in December.
I believe that over time the integration will produce a better and more efficient service for taxpayers and especially for businesses. I think that we should be able to look forward sometime in the future to one-stop tax shops. We should be getting away from businesses having to cope with separate visits from Revenue officials and Customs officials dealing with VAT or pay-as-you-earn or national insurance contribution
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audits, or indeed with tax collectors coming to collect separate general taxes. That is what life has been like in the past for many businesses. Often they have been faced with visits from three or four different people within a couple of months. That should come to an end under an integrated process. I know that it will not happen overnight, but that is what we should be looking for in due course.
The merger also presents opportunities for simplification of tax and VAT collection systems. Without the two departments coming together, that could never have been contemplated. You could never get them into the same room to sit down and do the forward planning and the necessary risk analysis and costing. It is only under the umbrella which is being created that we will be able to move forward and do this kind of work. For example, we currently have three separate systems for submitting and collecting taxes. VAT is paid on a quarterly basis, but pay-as-you-earn and national insurance contributions are paid monthly. As everyone who has submitted a self-assessment return will know, the self-employed pay one-half at the end of January each year, followed by a second payment in July. There is scope within all of that. Work has been done over a number of years on integrating some of those systems, but on each occasion no steps have been taken forward. I believe that it has not happened for the very simple reason that you could not get the two departments to work constructively together.
For both departments' employeesand this is where I pick up the point made by the noble Lord, Lord Barnett, as he anticipatedthere will initially and understandably be concerns about the changes in prospects. However, if the issues are handled sensitivelyand I believe that the staff as well as the unions are directly involvedI think that the integration will create opportunities for better career development and better job satisfaction for the staff.
Both departments have many talented staff of a high intellectual calibre. The challenge for the new management is to find ways of liberating them and inspiring them to participate in building the new organisation. I know from past experience that that will not be easy: Revenue staff are trained to be suspicious. However, again in my experience, I know that once that suspicion is overcome, they can be extraordinarily productive.
I know from briefings and the debates in the other place that an early obstacle arises from the projected staff savings from the merger and the Government's general efficiency drive under Gershon. I will probably surprise the noble Lord, Lord Barnett, with this point. While the figures might look daunting, in the light of my experience as a former general-secretary of the Inland Revenue Staff Federation and later as joint general-secretary of the union that represented both Revenue and Customs staff before the present Public and Commercial Services UnionPCSwas founded, I have to say that the changes proposed, while still worrying, are less fierce than those that confronted us during the 1990s.
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In that decade, more than 20,000 staff were taken out of both the Revenue and Customs, and against a backcloth of 3 million unemployed in the economy generally. Let us contrast that with the situation today. Not only are the figures lower, but, if we look at the background economic position, we find that unemployment is now down to 1 million and still falling. There are skill shortages in many places where people can be accommodated. There are thousands of unfilled jobs, especially in the public sector and particularly in London and the south-east.
Perhaps most importantlyand here I will be political; it is important that someone stands up and speaks for the Governmentwe have a Labour Government: an employer who are pro-public service, who are investing at the highest levels for years and who are prepared to retrain and redeploy staff into frontline public service jobs. I hope that everyone will join in putting that message to understandably worried Revenue and Customs staff.
I would not, of course, expect noble Lords opposite to do that. But what I would welcome from them is a statement on how many staff they would take out of the new department as its contribution towards £35 million public expenditure savings if they were elected. I have not been able to find that in the Commons Hansard reports, which I have gone through carefully. So elucidation on that point would help us considerably in dealing with our relationships with staff and encouraging them to participate in the integration process.
Incidentally, I thought that the other place, contrary to what many noble Lords often believe, has given the legislation a reasonably good detailed scrutiny in the first instance. As a result, I do not think that our task here will be quite as onerous in addressing the general issues of integration, although I suspect we may spend more time dealing with the legal side. I, too, welcome the presence of the Attorney-General for our consideration of the Bill. I am glad to see that he is handling it. That will ensure that we have a most detailed examination of the aspects relating to the proposed new Revenue and Customs Prosecutions Office.
Returning to the different cultures between the two departments, I have a question for the Attorney-General. The Inland Revenue has always been seen as having a somewhat lighter touch than Customs. I wonder whether that will continue or whether there will be a harmonisation of approaches. If so, which culture is likely to prevail? As the Attorney-General has given further information on the point, I now understand that there will be further consultations on the merger, and I gather that that will be primarily on the issue of powers.
When will there be an opportunity for debate on the broader issues of the merger rather than simply on the powers? As previous speakers have very pointedly expressed, this is a major change. It will not be effective in a short timescale but will probably run for a decade. I think that it is important that people at all points have an opportunity to express views on where they see the integrated department going in the future.
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A bit like the noble Lord, Lord Sheldon, I believe that a fundamental aspect of the matter is the steps that need to be taken to address the growing tax gap: the difference between tax assessed, and what is finally paid and when it is paid. I have noted in the Inland Revenue's performance report for 2004, published only in December, that the department is sponsoring research to understand the payment and filing behaviour of new taxpayers. Statistically, they are less liable to be compliant than are the older-fashioned and existing taxpayers. I believe that that is an issue of concern to all of us. I suspect that it may have something to do with the changing morality and social responsibility that we see in society, and that we increasingly find ourselves tackling in Home Office legislation. However, I have no firm evidence of that. I should be interested to know what transpires in the research work that is undertaken and whether we will have opportunities to spend time debating that.
I hear from a fairly large number of people after their first dealings with the Inland Revenue and indeed with other government departments, that they feel that central government are failing to keep abreast with modern payment methods, notably the use of credit cards. It is much easier now dealing with local authorities in many respects. One can pay parking fines, congestion charges and a whole host of other issues that arise with local authorities simply by using credit cards. However, when it comes to central government or their agencies or indeed the BBC, this is entirely a no-go area. Charges associated with credit cards create problems and there are other complications too. The Revenue has looked at this matter in the past and has decided not to proceed with introducing these changes. However, as we start to look for a reformed department this kind of issue should be revisited, possibly on an experimental basis. I wonder whether it will be opened up for wider consultation.
I also believe thatI make a plea here as an unpaid ambassador for the Yorkshire Regional Development Agencythe merger should provide a chance to take a fresh strategic look at the devolution of HMRC's functions. I was particularly pleased to see that the Revenue and Customs Prosecutions Office will not all be located in London. It is good to see that part of it will be located in Manchester. However, I must confess that having stopped working closely with the Revenue nearly a decade ago I find it perplexing that most of its back office functions, with more than 1,000 staff, are still located on the south coast in impoverished Worthing. There is a massive site there that would be ideal for meeting some of the Deputy Prime Minister's search for land for new housing in the south-east. I also hear that even more work is to be transferred to the south coast in the case of Customs back office work in Southend. If that is to happen, it is amazing. As regards back office functions and human relations staffing, fairly substantial savings in staff could be made in the not too distant future that are broadly in line with the figures which have been quoted, and without causing too much disruption to staff.
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Given the good example that the Attorney-General set with the RCPO in Manchester, will my noble and learned friend bring all the influence he can to bear to ensure that we get proper devolution in other parts of this new department and the opportunity to have wider debates on where the department is going in the future?
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