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Baroness Noakes: My Lords, I thank the noble and learned Lord the Attorney General for introducing the Bill, and like the noble Lord, Lord Barnett, I welcome him to the relatively small band that is accustomed to debating Treasury matters.
When I heard that the noble and learned Lord was to handle this Bill, I feared that the Bill would be full of tricky legal points, particularly concerning the new Revenue and Customs Prosecutions Office, which will be part of the noble and learned Lord's empire. To that end, my noble friend Lord Kingsland will assist me in the remaining stages of the Bill. It may help the noble and learned Lord if I say that we support the proposals to create the new Revenue and Customs Prosecutions Office. We also support the new role of Her Majesty's
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Inspectors of Constabulary and the Independent Police Complaints Commission in relation to Revenue and Customs investigations.
There is an issue in relation to the coercive investigatory powers of the new Revenue and Customs Prosecutions Office, which are, in fact, contained in the Serious Organised Crime and Police Bill. Some, including the Law Society, consider that the range of offences to which the coercive investigative powers will apply is too broad. For example, Clause 55 of that Bill would allow coercive investigation of an offence of fraudulent evasion of duty or VAT, whatever the value of the alleged offence. There should be a threshold value below which the powers will not apply, so that the use of such a draconian power is proportionate and limited to offences involving serious organised crime only. I hope that the noble and learned Lord will say something about the interaction between the two Bills when he replies.
We shall not oppose this Bill, and as far as I am aware, we shall not be making many party political points. We support the principle of integrating the Inland Revenue and HM Customs and Excise, because a joint operation has the capacity to be more efficient and to provide a better service to what are euphemistically called "customers". Importantly, it also has the potential to produce a more effective organisation for tackling the tax gap, which may be worth as much as £50 billion a year. I agree with the noble Lords, Lord Sheldon and Lord Brooke, that that is an important area to tackle.
However, that does not mean that we have an uncritical acceptance of the Bill or of the processes that led to it. In particular, we have concerns that the practical aspects of the integration of the two departments have not been properly worked through and that there is no proper provision for scrutiny of the progress of the integration. Perhaps more fundamentally, we are concerned that the Bill rushes ahead to create the new organisation without pausing to establish what its powers should be. In saying that, I echo what a number of noble Lords have said this evening.
The integration of the Inland Revenue and Customs and Excise might seem to have a modernising, new Labour ring to it, but the idea has been around a very long time. It was first rejected in 1862 and has been on and off the agenda many times subsequently, most recently in 2000, when the Treasury Committee of another place continued doggedly to pursue the matter. In rejecting that committee's recommendations at the time, the Government said that their solution of "closer working" gave the benefits of merger,
"without the risks, upfront and opportunity costs and structural upheaval which merger would inevitably entail".
Somewhere between 2000 and last year, Mr Gus O'Donnell, the Permanent Secretary to the Treasury, found himself on the road to Damascus and ended up recommending the integration of the two departments. We all know that Mr O'Donnell is a pretty clever man, and his conclusions will be worth close inspection. His report states, at paragraph 1.17, that:
"The case for organisational change rests on potential improvements in customer service, effectiveness and efficiency".
It also notes, at paragraphs 1.22 and 1.23, that there would be upfront costs and risks in implementationso far, so unremarkable.
The concerning aspect of the policy development is the almost complete absence of quantification of the benefits or costs in the report. The figure for savings in jobs related to the merger is around 3,200, as we have heard. If we compare that with the combined work force of around 106,000, we are talking about merger savings of only 3 per cent. As has been said, that could be worth around £100 million a year, which is welcome in any Chancellor's budgetary arithmetic, but that is not a level of saving that would excite anyone in the mergers world in the private sector. I should explain that, in the private sector, we still call them mergers; we have not yet caught up with the new term, "integration".
The full costs of completing the integration have not been spelled out; nor have the implementation risks. We believe that the implementation risks are high because, as has been pointed out, it involves two organisations of very different cultures, with different IT platforms and different though partially overlapping customer bases.
When Mr Varney was challenged on the lack of specificity about costs and savings in the O'Donnell report, he responded to the Treasury Committee that the matter was very complex. He was challenged several months after the O'Donnell report, and even then had no clearer idea of the costs and benefits. It was still a case of, "Complexity rules". Perhaps even more surprisingly, last month, when the Bill was considered in another place, Treasury Ministers were unable to give any better account of the costs and benefits. By then, a new excuse had been inventedthat of not being able to progress integration plans in advance of the legal cover of a Second Reading. That probably stretches that excuse about as far as it could ever be stretched.
What is missing from the analysis in particular is any information about what the Government believe to be the real potential benefits in increasing yield and diminishing the tax gap. It is not the £100 million of cost savings that should drive the integration, but the ability to increase yield. We find it astonishing that the Government have said nothing concrete about that. Would the Treasury ever let another government department get away with such a lightweight analysis?
This is a murky area. As I said before, we agree with the principle of integration, but we believe that it is incumbent on the Government to explain their case clearly and comprehensively. In the absence of a fully worked-up business case available for proper scrutinyin Parliament and by the publicbefore the integration goes ahead, there is an absolute requirement for clear and comprehensive reporting to Parliament on the progress of the integration. We shall table amendments to ensure that proper scrutiny takes place.
The rush with which the Government are pursuing the integration means that they have not sat down to contemplate in any detail what the powers of the new
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organisation should be. We know that, in general, the powers of Customs and Excise are more draconian than those of the Inland Revenue. For example, it has powers of entry into premises that the Inland Revenue simply does not have.
The Bill seeks to confine the existing powers to existing uses in Clauses 6 and 7. I am sure that we will discuss those in more detail in Committee. However, the plain fact is that the Government have no plansor at least no revealed plansfor the way in which the new organisation will operate. In his opening speech, the noble and learned Lord referred to the consultation document promised by the Paymaster General during the passage of the Bill in another place. She promised that it would be out by the end of last month. It did not appear. I hope that the noble and learned Lord is able to say something today about when we will see it.
I will now speak about the rather arcane area of governance. The Bill is silent on several important matters. It does not say anything about the number of commissioners or how they are to be selected for appointment. It makes no provision for the selection or appointment of a chairman, executive or otherwise, even though it seems clear that Mr Varney thinks that he will be the executive chairman of the new organisation. There is nothing in the Bill about non-executive membersthey exist in both the Inland Revenue and Customs and Exciseand in particular about their employment status and roles and responsibilities. The Bill is silent on the need for an audit committee, which is an absolutely essential element of any modern organisation, whether in the public or the private sector.
We want to explore governance issues fully in Committee. I should say for the record, although it is not a declaration of interest as such, that my noble friend Lady Wilcox and I were the first two non-executives taken on by the Inland Revenue. Indeed, we may have been the first non-executives in the whole of Whitehall, so we have a little experience to offer.
We need to examine some areas of the Bill further in Committee and other later stages. Those include: the need for restrictions on the Treasury's power of direction; parliamentary scrutiny of the transfer of functions out of the Revenue and Customs under Clause 8; the scope of the public interest disclosure provisions of Clause 19; and the specific offences involving Revenue and Customs officers. We want to look at accountability for payments to informants, a subject raised by the noble Lord, Lord Barnett. Last, but not least, we want to consider the name of the organisation. We will table amendments on all those areas. Unfortunately, my noble friend Lord Campbell of Alloway was not able to stay with us this evening when the timing of the debate slipped back. He has signalled to me his interest in a number of areas relating to the disclosure of confidential information and the related human rights considerations. I hope that he will join us in Committee to debate those.
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I hope that I have conveyed to the noble and learned Lord the fact that we will approach the Bill in a constructive spirit, but that we shall be committed to the full process of scrutiny of the Bill in your Lordships' House.
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