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Lord Newby: My Lords, as my noble friend Lord Thomas of Gresford has already said, we on these Benches broadly welcome this Bill. We also welcome the decision to have two bites at the legislative cherry and to have a period of consultation on many of the issues that will need to be resolved as the new department is established, not least the question of powers.
In theory it clearly makes sense to have one body collecting all the taxes. If you were starting with a blank sheet of paper, that is what you would do. That is why in virtually every other country in the world that is what already happens. However, the question that we have to address, and which noble Lords have addressed this afternoon, is whether it will be successful in practice in this country. We need to be clear from the start what the merger is seeking to achieve. It seems to me that you would expect a successful merger to achieve three things: first, it should achieve greater efficiency; secondly, it should be more effective in getting in the revenue and closing the tax gap; and, thirdly, it shouldto quote the noble and learned Lord the Attorney-Generallead to improved customer focus, or, to use the wonderful phrase used in debates in another place, improving taxpayer experience.
A number of arguments have been put forward in another place regarding which of those three broad priorities should be the most important. However, it seems to me that unless the merged department is more efficient and more effective in collecting the revenue, and makes it easier for taxpayers to relate to it, it will fail.
I should like to consider briefly some of the issues that the merger raises in achieving those three priorities. First, as regards improving efficiency, a number of noble Lords, notably the noble Lord, Lord Sheldon, talked about the different cultures that exist in the two departments. Certainly the two types of taxes that they have traditionally collected have led to a very different mindset. Dealing with income tax returns or corporation tax as a tax official looking retrospectively at what taxpayers have put in is very different from being on a coast and dealing with smugglers who are literally in front of you.
My own experience as a Customs and Excise officer for seven years is that the historic background and memory of dealing with 17th, or rather 18th and 19th-century, smugglers enthused Customs, so much so that when VAT was introduced and new members of staff had to be recruited from the Revenue and from what were dismissively known as OGDs, other government departments, the traditional Customs and Excise
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officer looked down on those lesser mortals with a very considerable degree of scorn. There was a tremendous esprit de corps in Customs, which may or may not have been desirable in every last respect as regards an ebullient way of dealing with taxpayers, but it certainly existed and was certainly a different culture from that which obtained in the Revenue. Putting those two cultures together will not immediately lead to efficiency savings. In my view there will be a period of tension as that is done.
Secondly, I refer to the problem of the different IT systems. As noble Lords have pointed out, 250 major IT systems are in operation across the two departments at the moment, many of which stand alone. While it is great to talk about integration, in reality integration between taxes means integration of IT systems in large measure. Unless a lot of investment is made in those IT systems, I fear that the integration which everyone hopes will occur will prove rather elusive. There is considerable vagueness about the short-term costs and the longer term benefits of putting the two departments together. On the one hand we are told that there will be savings of 3,200 staffa £100 million saving by 2007-08but on the other that there will be at least £75 million worth of costs. I absolutely agree with the noble Lord, Lord SheldonI believe that the noble Lord, Lord Barnett, also made this pointthat in the short term you are more likely to be dealing with problems and costs than immediate short-term efficiency savings.
I refer to the wider question that staffing levels raise in these departments of the trade-off between the tax raised and the number of staff collecting it. Of course, any Customs Officer or Inland Revenue inspector will say, "If only there were more of us, we would collect many more times our income in taxes". Obviously, there comes a point where if you took that principle to its logical conclusion, virtually everyone in the country would be a tax inspector, and no one is suggesting that. However, I absolutely agree with the new chairman of the merged department, David Varney, who wrote in the O'Donnell report:
"It will be a challenge to keep a long-term focus on the effectiveness prizes and not fall prey to the temptation to substitute short-term cost reduction objectives".
A further question that arises on the efficiency front and moves into the effectiveness front is the parallel decision, which has not been discussed at all today, regarding giving the Treasury greater responsibility for setting tax policy. It used to be the case that the staff in the Treasury dealing with tax policy were very small in number and traditionally far too grand to get involved in the details of the tax changes they expected people like myself when I worked there, and my equivalents in the Revenue, to deal with. I can see considerable advantage in forcing Treasury officials to look at the detailed consequences of what is proposed rather than having a grand sweep and making the poor people in the Revenue departments implement it. It will be interesting to see how having to grapple with
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those details might lead to fewer ineffective tax changes, although I fear that the main motor for those changes has been Ministers rather than officials.
Will what is proposed be more successful in getting in the revenue? We have been told about the tax gap of some £30 billion to £40 billion. How will the merger affect our ability to reduce that? As my noble friend Lord Thomas said, if the new prosecutions office is more effective in its work than its predecessors, that will make a difference. It will affect the climate in which people look at tax paying. More generally in getting in the revenue, it will be effective only if there is a really integrated department. While the suggestion of one inspector and one inspection per firm is tremendous, there will be difficulties in making that effective.
My experience of understanding taxes was limited to a week on a training course on VAT in Southend. I rapidly discovered that once you got below the surface of a tax, it became very complicated. The hope that is widely expressedthat a single inspector will be able to go into a small firm and advise with authority on national insurance, Inland Revenue, VAT and all the other taxesis an interesting prospect that at the very least will require significantly more training of large numbers of tax inspectors than is currently the case. While it may liberate staff, as the noble Lord, Lord Brooke, saidin one sense you can see how it might, bearing in mind that you are dealing with a workforce not all of whom are in the first flush of youthyou may find that the prospect of having to learn a lot of detail about a significant number of new taxes to be able to realise this Utopia will be daunting. That will be a challenge to management. It is equally difficult to see how all this improvement can be achieved during a process and period of significant staff cuts. It will be possible to have effective single inspectors only if they are dealing with a significantly simpler tax system.
That brings me to the final area, which is improving the taxpayer experience. The vision of having a single inspector is tremendous. The idea for small firms of filling in a single form sounds tremendous, but in circumstances where you fill in a monthly form for some taxes, a quarterly form for other taxes, and an annual form for yet other taxes, I am not absolutely sure how a single form will be devised without spatchcock-ing together a number of others, or how effective it will be. It is a noble aspiration, but it will take quite a time to evolve. I wonder whether the merging departments have yet contemplated what the timetable for introducing such a form might be.
This improved taxpayer experience will be possible only when the IT is working in an integrated fashion across the departments, when the tax system is simpler, and when the tax inspectors have broader training. It is a big task to reach the goals that the Government have set for the merger, certainly in the short-to-medium term. How then might they best achieve it? There are a myriad of things to be done, and I will mention a couple of them. First, the recruitment of a chief information officer and giving higher priority to IT are hugely important. As I have already said, making taxes work in a simplified way and in an
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integrated manner depends crucially on the IT. Having a cadre of really experienced and high-quality IT professionals in the new department will be crucial.
Secondly, the idea of using the merger to reduce compliance costs to taxpayers will happen only if some people are charged specifically with that task and it is not left as a vague aspiration. I understand that in Holland there is a unit in the finance ministry whose goal is specifically to reduce the compliance costs to taxpayers against targets over a set period. That is something to which we should give consideration as part of this merger.
I hope that the Treasury Committee in another place will also keep a regular review of the way in which the merger takes place. I am not sure whether our own Select Committee on Economic Affairs is quite the body to keep such a regular review, but a lot of vague things are currently being said about the way in which this will bring benefits. Unless there is a clear reporting system, and unless the department is probed by Parliament on a regular basis, there is a real danger that the aspirations of the merger will either not be realised at all, or will be realised much more slowly than we would hope. There are big challenges for this new department.
I wish to make a final plea. Treasury Ministers need to be thoughtful about the effect of making this change in terms of their responsibilities as changers of the tax system on an annual basis. The noble Lord, Lord Sheldon, talked about the relative thickness of Bills, but if there is to be an integration of the departments in the way that we hope, on a timetable that makes sense, senior management need to be able to focus largely on it, rather than having to concern themselves each year with a huge volume of new tax legislation. A period of relative calm on the legislative front is a major pre-requisite of this merger taking place quickly and effectively.
It is the nature of these debates that one raises queries and worries, rather than spend all one's time gazing at the sunlit uplands. Subject to all those caveats, we look forward to seeing the Bill through all its stages here and to a successful new department.
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